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CD Projekt RED Q1 financial results — turbulent times, but promising future

WRITTEN BY | 08 Jun 2021
CD Projekt RED Q1 financial results — turbulent times, but promising future
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Poland-based games developer and publisher CD Projekt RED (GPW:CDR) released Q1’21 financial results, showing $53.9m quarterly Revenue and $11.8m EBIT.


Note: This content is for informational purposes only, and is not to be perceived as financial advice.
Written by InvestGame team members: Andrei Zubov, Vladimir Sergeevykh, and Anton Gorodetsky.


Significant revenue and profit drop after the strong launch of Cyberpunk 2077

in $’000 Q1 2021 Q1 2020 Q1’21 vs. Q1’20 Q4 2020 Q1’21 vs. Q4’20
Revenue   53,9   52,6   2.5% 455,6    -88.2%
EBIT   11,8   26,6 -55.6% 265,4    -95.5%
EBIT margin, %           21.9%           50.6%             58.4%  

Source: S&P Capital IQ 

The company’s business is still based on a hit-driven model which directly depends on box sales of the titles. The revenue generated in Q4’20, when Cyberpunk 2077 was released, turned out to be higher than the total revenue the company saw during the five previous years. However, we observe a more than 8x times drop in revenue from $455.6m in Q4’20 compared to $53.9m in Q1’21. In addition, EBIT dropped more than x22 times from $265.4m in Q4’20 to $11.8m in Q1’21.

Such a decline and inability to meet the investors’ expectations have significantly impacted the market capitalization which dropped from $11.6B on the Cyberpunk 2077 release date (Dec 4, 2020) to the current $4.7B (Jun 4, 2021). During the investor call after Q1’21 results announcement, CDPR revealed that it failed to meet the forecasted Net Income of ~$21.9m for the quarter, and instead generated only ~$8.9m.

CDPR Financials 2015-2021

Source: S&P Capital IQ 

Absence of YoY growth:
Comparing the revenue in Q1’21 with Q1’20, we observe a plateau (+2% YoY). This is a result of unusually strong sales in Q1’20 what with increased interest in The Witcher franchise driven by the Netflix show, Nintendo Switch port, and COVID-19 lockdown. At the same time, we saw a dramatic drop in Cyberpunk 2077 sales performance in Q1’21.

Significant profitability decrease
CDPR reported an increase in the costs of products and services sold by +208% (vs. Q1’20) and G&A expenses by 156%. This is the influence of the ongoing Cyberpunk 2077 development and the announced switch to parallel AAA games production. Currently, the company requires more staff and resources for Cyberpunk 2077 updates and hotfixes. No surprise that CDPR acquired its long-term partner Canada-based developer Digital Scapes (now CD Projekt RED Vancouver) which will be involved in further game development. The company also saw a significant increase in selling costs (31% of revenue in Q1’21 vs. 18% in Q1’20).

Strategy — parallel development and the franchise expansion

CDPR will continue to build on its two strongest franchises.
1) The company has already expanded The Witcher franchise with three games: Thronebreaker: The Witcher Tales (multiplatform story-driven CCG), Monster Slayer (mobile AR game), and Gwent (multiplatform CCG). In addition, CDPR has its own Merchandise shop, built on the two IPs. We shouldn’t forget, of course, that season 2 of The Witcher series, which proved to be a huge success and brought a lot of new players to The Witcher 3 game, is expected in 2021.

The company will continue its expansion into other media, including videos, music, merchandise, and mobile games. In Feb’21, CDPR announced its new board game The Witcher: Old World made in collaboration with GO ON BOARD publishers. The game will expand The Witcher universe, taking place many years before the Geralt of Rivia storyline. Two versions of the game, Polish and English, are expected to be released on Apr’22. Netflix and CDPR have also announced a partnership with the anime house Trigger, Inc. to produce a Cyberpunk 2077 animated series called Cyberpunk Edgerunners.

2) Despite technical issues with Cyberpunk 2077, which negatively impacted the company’s reputation and the product itself, CDPR still has high expectations about the future of the title, especially its next-gen version. Right now the game is still not for sale in the PS Store and CDPR is yet to reach the biggest console community.

While having a clear interest in leveraging Cyberpunk 2077 in media, the main changes in the strategy are still about the core AAA titles — CDPR plans to start parallel AAA development in 2022. For now, the company still sticks to the sequential model, which is considered to be one of the reasons for Cyberpunk 2077‘s long development cycle.

Moving to parallel AAA games production is a huge step for the company, especially when it is in need of development capabilities, as it has to finish fixing Cyberpunk 2077 and release the announced DLCs. To support the strategy implementation, a few months ago the company acquired a Digital Scapes studio and plans to do so further to increase production and live-ops capacity.

3) The company plans to continue to broaden the RPG genre scope, by adding more elements to it. The Witcher 3 brought the action to pure RPG, while Cyberpunk 2077 added shooter elements to the formula. Additionally, CDPR will focus more on online experiences. Online expansion is actually one of the cornerstones of the company’s strategy, as it plans to work on its GOG galaxy store and build a gaming community around it.

What’s next?

These are clearly the most turbulent times for the company:
— The market cap is on 2018-2019 levels
— The financial benchmarks are not met
— The roadmap of Cyberpunk 2077 update and DLCs is vague
— Game director of The Witcher 3 and Cyberpunk 2077 Mateusz Tomaszkiewicz left the company
— The hackers stole the Cyberpunk 2077 and The Witcher 3 source codes

This is not an easy year, but the success of The Witcher shows that the company knows how to develop a franchise, significantly improving it over time and building the media ecosystem around it. That is why we believe in the long-term success of Cyberpunk 2077 and CD Projekt RED at large.

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CD Projekt RED
  • Established in 1994
  • Headquarters – Warsaw, Poland
  • Founded by Marcin Iwiński and Michał Kiciński
  • Multiplatform game developer with focus on AAA PC&Console titles
  • Latest investor presentation
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