Publisher benefits from solid critical performance, but increased R&D costs mean losses are growing

Ubisoft beats revenue expectations for Q2 2013

Ubisoft has released its second quarter financial figures, revealing a rise in revenues offset by climbing research and development costs.

The end result is that Ubisoft’s net loss for the first six months of the financial year is up to €62.3 million from last year’s figure of €32.3 million for the same period last year.

Research costs were the primary factor in driving the company’s net loss up, totaling €138.9 million – a €42.1 million increase from last year – though most other expenses have also risen.

"This year-on-year increase was due to higher R&D depreciation for titles released in the first half of 2013-14 as well as the cancellation of projects," read the report.

"A €7.3 million increase in total SG&A expenses to €161.3 million from €154.0 million in first-half 2012-13. As a percentage of sales these expenses remained stable at 55 per cent."

The fact that Ubisoft reports profits are actually up to €202.2 million from €192.7 million last year makes this one of the more confusing quarterly reports of recent memory, at least until the reader deciphers the fact that gross profit for Ubisoft is equivalent to net sales for most other major publishers (that is total revenue minus the cost of sales).

Since all other costs are deducted from this “profit”, Ubisoft is one of the few companies that claims climbing profits while actually losing money.

Ubisoft might be losing cash, but the company is enjoying critical success across most of its titles, and this bodes well for future sales.

“This year, Ubisoft has constantly stood out for the very high quality of its creations,” said Ubisoft CEO Yves Guillemot.

“This will be a determining factor for ensuring our future success and enhancing our financial performance. In 2014-15, we intend to step up the level even further by launching a number of particularly ambitious titles under both new brands and established franchises, starting as of the first quarter of the fiscal year, with the release of Watch Dogs."

It’s the success of titles like Assassin’s Creed 3 and Far Cry 3 that have driven revenues above the previously projected figure of €217 million for this quarter to €292 – largely in digital sales – and in the second half of the year the company will add several new properties to the lineup.

Those new brands, of course, are timed to coincide roughly with the launch of the PlayStation 4 and Xbox One.

"The PS4 and Xbox One will be released in a few days’ time and will be a new driving force for the industry,”

“We are confident in our capacity to rise to the short -term challenges posed by the transition phase, thanks to the very high quality of our games, which, combined with the upcoming arrival of the next – generation consoles and the traditional ramp – up of sales during the Christmas season will trigger positive momentum towards the end of the year."

Next-gen consoles isn’t the the only change in the weather for Ubisoft, and the company is adjusting its lineup to take advantage of the continued growth in the popularity of open-world titles and digital sales platforms.

"Open world games are becoming ever-more popular with gamers,” said Guillemot.

“These creations give gamers the freedom of expression and immersive experiences that are now central to their expectations. This deep-seated market trend – which Ubisoft has fully embraced – is going to move up another gear when the next-generation consoles arrive. At the same time, the ongoing growth in our digital business demonstrates the progress we have made in an area which is set to expand even further in the coming years.”

"Consequently, we are continuing to make strides in the implementation of our strategy, by concentrating our resources on regular releases of our open world franchises, investing in digital expertise and increasing the visibility of our brands, notably through movies and TV series.”

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