Pachter: 'The Ubisoft Story Is Misunderstood'

Ahead of the publisher's fiscal 2007 second half results expected later today, Wedbush's Michael Pachter has said that Ubisoft may be 'misunderstood' and undervalued, with strong market share gains on Nintendo platforms putting it well ahead of industry growth estimates over the next three years. Noting the company's recently announced full 2006/2007 fiscal year sales, up 24.4 percent to €680 million ($923.4 mil), Pachter says Wedbush believes "there may be substantial upside to guidance and consensus for FY:08." "We think that Ubisoft management was conservative with its FY:08 guidance," said Pachter, adding that its sales growth potential "should be well above the 56% industry growth we expect over the next three years, due to market share gains on the PS3, Wii and handhelds," which could lead to sales of nearly €1.6 billion ($2.16 billion) in FY:10. Its just announced initiative to capitalize on and grow the casual game market with its My Coach and Petz franchises could also "position it to deliver upside to consensus revenue and earnings estimates for the first half of FY:08," said Pachter. "Ubisoft’s history suggests that it will continue to migrate toward a majority of owned I/P," he noted, pointing to its Tom Clancy brands, including the new strategy focused EndWar, forthcoming 'platinum titles' Assassin’s Creed and Driver, and "the revival of the wholly owned Rayman brand, the introduction of Red Steel, and the reintroduction of the licensed TMNT brand" to outgrow its licensed contributions over the next three years. In contrast to analysts that accept that Ubisoft may struggle to double sales by fiscal 2010, leading them to class the publisher as overvalued, Pachter concludes that the company could "grow its revenues to €1.6 billion by growing its market share from 6% to 9%, and by capturing compounded industry growth of 56% over the next three years," and that "Ubisoft’s continued excellent execution and impressive sales and earnings growth could provide positive catalysts to drive the stock significantly higher."