Ubisoft's warning may prove a franchise boon for EA, Take-Two - Bernstein
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Ubisoft's (OTCPK:UBSFY) (OTCPK:UBSFF) recent guidance cuts may have raised an important point for the videogame space, Bernstein says in a new industry note: Are big franchises and top live-services games taking up all the oxygen?
That would leave little room for smaller titles even with good reviews, analyst Matti Littunen points out.
Ubisoft chief Yves Guillemot noted in the company's harsh financial update that it was "facing major challenges as the industry continues to shift towards mega-brands and long-lasting titles than can reach players across the globe, across platforms and business models."
The holiday game sales season seemed to bear that out, Littunen said.
"Top franchise brands like CoD (Call of Duty, from Activision Blizzard (ATVI)) and FIFA (the soccer game from Electronic Arts (NASDAQ:EA)) dominated the charts for new releases, while established live services titles ruled the roost when it came to PC game revenue on Steam," he said. "There seem to have been several cases of well-reviewed smaller titles missing expectations."
If that's the case, he notes it's good news for Electronic Arts (EA), and for Take-Two Interactive Software (NASDAQ:TTWO) when its next big games ship - and bad news for the PC/console business at Sweden's Embracer Group (OTC:THQQF), where those titles are 40% of sales.
Still, Ubisoft's dilemma may come as much from a high cost base, or from a quarter where sales were bottlenecked by pressure on discretionary spending and investment on next-gen consoles, he said.
Headed into the holiday earnings season, he says EA still looks like the "strongest tactical pick" to own following a World Cup boost for FIFA. Overall, U.S. publishers should see a 2-3% quarterly boost from foreign exchange.
He's adjusting estimates nonetheless, cutting fiscal 2023 net bookings expectations for EA and TTWO by 1%; and cutting the revenue forecast for CD Projekt (OTCPK:OTGLY) by 3%.