OTGLF - CD Projekt: Well-Positioned To Rebound

2023-09-10 11:10:27 ET

Summary

• CD Projekt has worked to fix bugs in Cyberpunk 2077 and is revamping gameplay with the upcoming expansion Phantom Liberty.
• The company still has room to grow and offers a great opportunity for investors in the video game industry.
• CD Projekt has learned from its mistakes and is less likely to make similar errors in the future.

CD Projekt ( OTGLY ) has managed to regain some of their once-golden reputation over the past few years. Rather than abandoning the Cyberpunk 2077 IP altogether, which many had suspected they would, the company has worked tirelessly to iron out the bugs plaguing Cyberpunk 2077. Moreover, CD Projekt's massive upcoming expansion Phantom Liberty appears to completely revamp the gameplay in a positive direction.

While CD Projekt has recovered some of their market capitalization since the disastrous release of Cyberpunk 2077, the company still has more room to grow. CD Projekt owns some of the most popular franchises in the world and has the resources to properly invest in them. CD Projekt offers investors a great opportunity to jump into the video game space.

CD Projekt continues to see its stock rebound.

Hard Lessons Learned

CD Projekt went from one of the most well-respected game studios to one of the least after the release of Cyberpunk 2077. Before the release of Cyberpunk 2077, CD Projekt was often put in the same league as Rockstar Games. After the disastrous release of Cyberpunk 2077, it became a mystery to many how the company could have ever released a masterpiece like The Witcher 3.

While many factors contributed to Cyberpunk 2077's buggy release, from COVID restrictions to outsourcing subpar QA , the experience and unprecedented backlash has ultimately made the studio better. It is clear from CD Projekt actions in recent years that the company has learned from its mistakes. The company has transformed Cyberpunk 2077 into a solid game and has created an excellent expansion by all early indications .

Aside from the improvements made to Cyberpunk 2077 itself, CD Projekt has also restructured the company to avoid the pitfalls that doomed Cyberpunk 2077. For instance, the company has decided to work on several major projects at once so as to allow for longer development cycles and avoid crunch. The company has also decided to use Unreal Engine 5 for its upcoming games instead of dealing with the headache of developing and upgrading its own engine.

Moreover, the public statements and interviews from upper management since the release of Cyberpunk 2077 make it clear that they will no longer allow investors to pressure them into releasing an unfinished product. The upside gained from hitting holiday deadlines or the like is far outweighed by the downside of releasing an unfinished product and destroying the company's reputation.

Witcher Franchise Remains Strong

CD Projekt largely build its reputation on the Witcher series. In fact, The Witcher 3 is often lauded as one of the greatest triple A games ever made due to its engaging story and settings. The Witcher franchise still has a massive fanbase that will eagerly purchase future releases, which is great news of CD Projekt after its Cyberpunk 2077 debacle.

The Witcher's fanbase has also widened significantly as a result of Netflix's Witcher series, which will likely translate to greater sales moving forward. If CD Projekt can manage to create a great game in Witcher 4 Polaris, which is the next major Witcher release, the company could easily regain the goodwill of the gaming community.

The Witcher series remains beloved by the gaming community.

Risks

While CD Projekt is well-positioned for growth, the company still faces many risks. The biggest risk when it comes to investing in CD Projekt is the company's extreme lack of diversification. In fact, CD Project only really has two major IPs, being Cyberpunk and The Witcher. While CD Projekt is also working on its very first original IP, it is still unknown whether or not that IP will be successful.

This means is that underperformance in any of these franchises will almost certainly put major downward pressure on the stock. In fact, this has already happened with the Cyberpunk release, which caused CD Projekt's stock value to drop from ~$30 per share to ~$4 per share. A disappointing Cyberpunk Phantom Liberty expansion release could easily wipe away any gains that had been made over the past few years.

Conclusion

Cyberpunk has done a great job recovering from the disastrous Cyberpunk 2077 launch over the past few years. The company could still see upside at its current valuation $3.57 billion, especially compared to the valuation of other pure plays like Take-Two Interactive ( TTWO ). While CD Projekt still has much to prove, the company still possesses some of the more recognizable franchises in the industry and has proven to be more than capable of capitalizing on them.

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