CD Projekt: Hype should make it, not break it (upgraded to BUY)
In this report, we have increased our volumes forecasts for Cyberpunk 2077 (C2077) to 30m copies sold in the first year after release (vs. 20m) and 69m within five years (from 49m). CD Projekt is well-known for the quality of its games and its very well-run marketing campaigns. A perfect example of this is Keanu Reeves appearing at E3 this year; as the second-most important character in the game, this convinced us to include more bold volumes expectations in our model assumptions, as it makes the game more mainstream, in our view. C2077 is among the most anticipated games in the industry currently and this, combined with the good timing of the planned release (with few major AAA titles) and the increasing number of gamers, should generate higher volumes, in our view. We are aware that C2077 is only part of CD Projekt’s valuation and the gaming industry is dynamic, with future patterns and fashions hard to estimate, but we are confident that the company can deliver the best-quality games and it has ambitions to aim higher with each release. We are firmly in favour of this strategy, and we have upgraded our recommendation on the stock to BUY (from Hold), with a higher price target (PT) of PLN 304/share.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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