• Ubisoft shares reversed course on Friday after initially climbing as much as 11% earlier in the trading session.
• The volatile market action comes after Ubisoft unveiled plans to form a new 4-billion-euro gaming subsidiary backed by Tencent.
• Ubisoft has been plagued by various issues lately, from financial struggles to delays to some of its key games.

Ubisoft shares reversed course on Friday in a volatile trading day for the firm, following news that it's carving out some of its best-selling game franchises.

The French video game publisher on Thursday revealed plans to form a new gaming subsidiary, with Chinese technology giant Tencent investing 1.16 billion euros ($1.25 billion) into the unit.

The subsidiary will include Ubisoft's best-known games brands, including Assassin's Creed, Far Cry and Tom Clancy's Rainbow Six, according to a press release.

Ubisoft shares initially jumped as much as 11% Friday morning. However, in afternoon deals the stock declined and was last trading down nearly 2%.

The game maker said Thursday that its newly formed unit would "focus on building game ecosystems designed to become truly evergreen and multi-platform."

The investment from Tencent values the new subsidiary at 4 billion euros, Ubisoft said. That's more than double Ubisoft's current market capitalization.

Investors were hoping for a move from Ubisoft to clear up uncertainty surrounding its future after a series of challenges faced by the firm in recent years.

Ubisoft has been plagued by various issues, from financial struggles to delays to some of its key games — including its most recently released Assassin's Creed Shadows title.

In February, the firm reported a 52% drop in fiscal third-quarter net bookings, beset by underperformance of some of its key games.

The structure of the Tencent-backed spinoff is "innovative and aims to highlight the value of Ubisoft's top franchises, while also not ceding overall control to Tencent on paper," Piers Harding-Rolls, research director of games at Ampere Analysis, told CNBC via email.

"However, to get the most from these franchises, I expect Tencent to have a stronger influence in cross-platform expansion especially in areas where it has deep expertise such as mobile and PC gaming and to hold more influence generally," he added.

TD Cowen's Doug Creutz and Mei Lun Quach said they don't believe the deal will solve lingering issues impacting the remaining part of Ubisoft that will continue to exist after the transaction completes.

The spinoff will lead to "additional complexity for investors attempting to value the company," they said in a note Thursday, adding it "appears to be driven by the Guillemot family's desire to retain effective control of the Ubisoft parent."

The investment bank's analysts added that "it's not clear to us that the 'everything else' remaining has significant value in a market where the big franchises are becoming ever more dominant."

The deal is expected to close before the end of 2025, pending all necessary regulatory clearances.

Michael Pachter, managing director of equity research at Wedbush Securities, said that he thinks Ubisoft management is "overly optimistic that this will result in investors valuing the company much higher."

"The rest of Ubisoft is burdened by high operating expenses and debt. The company isn't magically worth more solely because they separate the good stuff from the bad stuff," he added.

Ubisoft released its newest title Assassin's Creed Shadows, the latest installment in Ubisoft's top game franchise, last week.

The game secured generally positive reviews, getting an average reviewer score of 82 on review aggregation site Metacritic.