CD Projekt, a cult object?

The renowned Polish video games studio is coming off a financial year without any major releases, but with surprisingly solid profitability. All that remains is to convince people of its ability to stick to its ambitious development schedule.

CD Projekt, the company behind the world-famous franchises The Witcher and Cyberpunk 2077, made no major launches in 2024. However, the company's published financial results demonstrate a certain solidity, buoyed by the commercial longevity of its titles and rigorous cost management. With the next major game not expected until 2027, investors are questioning the studio's ability to maintain momentum in a constantly accelerating market.

A year without novelties, but not without results

CD Projekt's 2024 sales total 985 million zlotys (around $255m), down 20% on the previous year, which saw the release of the Phantom Liberty expansion for Cyberpunk 2077. Operating profit fell by 22% to 365.5 million zlotys.

This lower-than-expected decline was matched by a pleasant surprise in net income: 469.9 million zlotys (around $121m), down by just 2.3%. The studio was able to benefit from tax advantages linked to its R&D efforts, while also enjoying a solid Q4, notably marked by the 30 million sales milestone reached by Cyberpunk 2077 in November.

CD Projekt is actively preparing the sequel to The Witcher, but the switch to Unreal Engine 5 is slowing things down. The studio has officially pushed back the deadline for the release of The Witcher 4 to 2027, which stretches the period without a major title.

In the meantime, the company is counting on more modest projects: publishing a game developed by the Fool's Theory studio and collaborating with Scopely in the mobile sector. These initiatives are struggling to reassure the markets, as evidenced by the 8% drop in the company's share price following confirmation of the absence of a major release before 2027.

An ambitious project

The Witcher 4 is set to lay the foundations for a new trilogy, while a second project, Orion, has been announced as the sequel to Cyberpunk 2077. The studio aims to release a game every two years after 2027, but it has yet to prove that it can keep up this pace. Between a demanding technological transition and its last chaotic launch (Cyberpunk 2077), CD Projekt is struggling to convince. The Polish studio continues to be a case of "I need to see it to believe it", Wedbush Morgan analyst Michael Pachter explains.

Adrian Kowollik, who has been following the stock at AlphaValue with a negative view since April 2022, shares the sentiment of "a well-known commentator on the Polish stockmarket" who said that CD Projekt is so richly valued "only because it is treated by Polish investors as a cult object...". It's true that with a capitalization of $5.5bn, which represents 80x this year's expected earnings, it takes a hell of a lot of confidence in medium-term exits to risk it.