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🐺 CD Projekt: Of sorcerers and cyberpunks - the masters of digital worlds 🏙️


CD Projekt, a company based in Poland, specializes in the development and publication of video games. Founded in 1988, the company began as an IT service provider and has since developed into one of the most renowned names in the global gaming industry.


Historical development


$CDR (-0.14%) The company's origins lie in Optimus S.A., which began as an IT service provider. A decisive milestone in the company's history was the acquisition of game developer CD Projekt RED Sp. z o.o. in 2009, which marked the company's entry into game development and laid the foundation for its current success. In 2012, the company was finally renamed CD Projekt S.A., underlining the transition to a pure game developer.


Business model and core competencies


CD Projekt specializes in the development of story-driven role-playing games and has thus achieved an outstanding position in the industry. The company is particularly known for its ability to create deep, immersive game worlds that are popular with players worldwide. Its best-known productions include the award-winning "The Witcher" series, which has established itself internationally as one of the most successful role-playing games.


In addition to game development, CD Projekt also operates the digital distribution platform GOG.com, which provides an additional source of income and further diversifies the business model.


Future prospects and strategic initiatives


The future of CD Projekt rests on two central pillars: the further development of existing franchises and the creation of new intellectual property rights (IPs). The company is investing heavily in its technology and development processes to make future releases smoother and to further increase the quality of its games.


Another important strategic focus is the expansion of the business into other media. An outstanding example of this is the successful Netflix adaptation of "The Witcher", which has not only significantly increased brand awareness but also opened up new sources of revenue.


Market position and competition


CD Projekt is in direct competition with major game developers such as $TTWO (+0.47%) , $UBI (-0.07%)
$EA (+2.82%) . Nevertheless, the company manages to stand out from the competition thanks to its special focus on high-quality, story-based single-player experiences. This specialization has earned the company a loyal fan base and contributes significantly to its strong market position.


Total Addressable Market (TAM)


The global market for video games is growing continuously and offers CD Projekt enormous potential. With the increasing proliferation of gaming platforms and the growing demand for high-quality and immersive gaming experiences, CD Projekt has excellent opportunities to capitalize on this growing market.


Share performance

TR 14k % since IPO and -2.3% over the last three years.


Development

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CD Projekt is currently one of the smaller game publishers in terms of sales. However, this does not mean that it has to stay that way - the potential for future growth is certainly there.

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CD Projekt is also currently at the lower end of the growth scale, which is mainly due to the fact that the last major game release was some time ago. However, new titles are already in development. Compared to other game publishers, CD Projekt also has a significantly smaller number of IPs, which has given them less flexibility to date.

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In terms of gross margin, CD Projekt is neither at the top nor at the bottom of the rankings. However, the margin, which has fallen recently, should rise again slightly following the release of the new projects. This puts the company in line with the industry average.

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In contrast, CD Projekt clearly stands out in terms of its net profit margin. Even after a decline, the company is still twice as good as many of its competitors and thus clearly holds its own at the top.

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In terms of earnings per share (EPS), CD Projekt is remarkably consistent in positive territory, while many other manufacturers often slip into negative territory in this respect.

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CD Projekt's free cash flow (FCF) has also been positive for some time now, which illustrates the company's forward-looking planning and intelligent management. Despite the continuous investment in the development of new projects, the cash flow remains stable, which speaks for the financial health of the studio.

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Another advantage for CD Projekt's shareholders is the almost non-existent stock-based compensation (SBC)

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In contrast to many other companies that use buybacks to compensate for dilution effects and bring money to shareholders, CD Projekt can largely do without such measures

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The ratio of net debt to EBITDA is also slightly negative at CD Projekt

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However, CD Projekt is the most expensive gaming company in terms of EV/EBITDA ratio, reflecting investors' high expectations for future growth and the success of new projects.


Part 2: https://getqu.in/UAF5xR/

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16 Comments

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Nice how you always compare a company with the competitions.
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Thank you!
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Super nice analysis, thank you very much! However, I don't think the companies are ideal in comparison. Ubisoft and EA are poorly managed and have been on the decline for years. Embracer is also just a rummage table for games companies. They bought everything for years and then had to close down and devalue their shares because they were completely over-indebted.

If anything, CDPR can only really be compared with manufacturers who have at least made it their mission to produce good games. Otherwise, strictly speaking, it's not even the same business model. The only peer group that comes into question for me is $CDR $PDX $TTWO $11B.

Something like Cyberpunk - where resources are invested in the project for years to make it a financial and artistic success afterwards - would never happen at EA or Ubisoft. They just churn out the games and hope that they've produced them cheaply enough that they're not in the red.
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When it comes to gaming stocks, I think it is much more important to look at the products than the financials.

Ubisoft $UBI is currently proving how you can ruin everything despite extremely strong brands (Assassins Creed, Far Cry,...) and drive away any fanbase and goodwill.

Unfortunately, CD Projekt RED can also tell us a thing or two about this. After The Witcher 3, there was no other developer with such a blatantly positive image among gamers as CD Projekt Red. With Cyberpunk, the entire trust was destroyed in one fell swoop and the motto there is now: never pre-order!

EA is probably the most unpopular game developer of all, but with Fifa and co. they have games that bring in annual subscription fees.

All in all, the market is too hot for me from an investment point of view. I'm an enthusiastic gamer (with too little time for it ;) ), but if I'm going to invest in gaming then I'm going to do it via detours such as Microsoft $MSFT or $NVDA - Microsoft has been the best bet since the purchase of Activison anyway, as it's also well established on the mobile market through King. Plus Xbox & PC. But of course no Pure Play

PS: I wanted to buy CD Projekt Red when I held Witcher 3 in my hands for the first time - the shares were still under €5 then. Well, as always: could have, would have,... :D
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Kolja hates this trick.
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