CD Projekt - Landscape after an unsuccessful release
The release of Cyberpunk 2077 (C2077) did not meet expectations, the main reason being the poor technical condition of the game. Very good marketing campaign of C2077 before release translated into 8 million copies sold in preorders and a total of 13m copies sold in the first 11 days (vs. previously 15m expected by us in 2020), despite low ratings for the console version. We are revising our sales expectations in the 12 months after the release to 25.8m (vs. 31m previously). We assume that CDR in 2021 will focus on improving C2077 and releasing the version for the new generation of consoles, which has serious implications for our forecasted release schedule. Our previous expectations about the frequency of game releases now seem too aggressive, and we are moving the release of Cyberpunk 2077 Online to 2023 (vs. 2022 previously), and the release of another AAA title in 2025 (vs. 2024 previously). Taking into account the abovementioned changes, we remove one AAA title from our forecasts, which negatively impact DCF valuation. Taking into account the above, we expect a significant reduction of the results in 2022-23, which in our opinion is not included in the consensus yet (estimates for 2021-23 were being increased in the most of 2020, and estimates for 2020 were lowered due to postponements of the C2077 release date). In addition, rumors of employee dissatisfaction with the release increase the risk of some of the crew leaving, with potential implications for the the quality and the timing of future productions. Given the unsuccessful launch of base C2077 and the high risk of another GTA release by 2023, we are lowering our expectations for C2077 Online sales. Taking into account the above, we are lowering our target price to PLN 232 a share and our rating to reduce.
CD Projekt is a holding company of the CD PROJEKT Capital Group which conducts its operations in two activity segments: CD PROJEKT RED and GOG.com. CD PROJEKT RED's activities cover the creation and publication of videogames, licensing the associated distribution rights and manufacturing tie-in products which exploit the commercial appeal of brands owned by Co. The activities of GOG Ltd. involve digital distribution of videogames via Co.'s proprietary GOG.com distribution platform, on the basis of contracts signed by GOG Ltd. with producers, IPR holders and external publishers. The platform enables customers to purchase games, remit payment and download game files to their personal devices.
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