Rising Costs And Delays Will Undercut Witcher And Cyberpunk Success

Key Takeaways

• Dependence on major, infrequent game releases and shifting industry trends threaten revenue stability and growth prospects.
  
• Rising costs from labor, platform fees, and capital pressures weigh on margins and future profitability.
  
• Franchise longevity, platform expansion, diversified projects, digital sales growth, and robust finances position CD Projekt for stable growth and reduced earnings volatility.

Catalysts

Together its subsidiaries, engages in the development, publishing, and digital distribution of video games for personal computers and video game consoles in Poland.

• The increasing cost of capital and rising interest rates globally are set to constrain consumer discretionary spending, making it more difficult for CD Projekt's premium-priced titles to achieve prior sales volumes, which will directly hinder long-term revenue growth.
  
• CD Projekt remains fundamentally reliant on large, blockbuster releases such as The Witcher and Cyberpunk franchises, resulting in protracted development cycles, heightened volatility in earnings, and the risk of significant revenue gaps between major launches-especially given commentary about multi-year projects like Cyberpunk 2 and The Witcher 4 likely not releasing until late this decade.
  
• The accelerating shift within the video game industry toward subscription-based and cloud gaming services threatens to erode traditional premium game sales; with CD Projekt's revenue model still anchored in high-value game launches, its future earnings and revenue predictability are at risk if these trends displace premium pricing.
  
• Ongoing digital platform concentration, with marketplaces like Steam and the PlayStation Store gaining more pricing power and raising distribution fees, threatens to compress CD Projekt's profit margins, particularly as the company attempts to expand its presence through launches like Cyberpunk 2077: Ultimate Edition on additional platforms.
  
• The persistent risk of labor shortages, wage inflation, and intensifying competition for creative talent are likely to elevate production costs and extend development timelines, further reducing net margins and making it increasingly difficult for CD Projekt to maintain its current level of profitability and operational efficiency.

CD Projekt Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on CD Projekt compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming CD Projekt's revenue will grow by 46.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 46.3% today to 37.2% in 3 years time.
• The bearish analysts expect earnings to reach PLN 1.2 billion (and earnings per share of PLN 11.77) by about August 2028, up from PLN 455.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 11.3x on those 2028 earnings, down from 55.2x today. This future PE is lower than the current PE for the PL Entertainment industry at 13.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.58%, as per the Simply Wall St company report.

CD Projekt Future Earnings Per Share Growth

Risks

• The company has a track record of successfully extending the life cycle and revenue generation of its major franchises, as evidenced by The Witcher 3 generating over PLN 2.4 billion in revenue across a decade and Phantom Liberty reaching 10 million copies sold in under two years, supporting the durability and resilience of both top-line revenue and cash flows.
  
• CD Projekt is expanding the reach of its flagship titles by launching Cyberpunk 2077: Ultimate Edition as a day-one title on Nintendo Switch 2, which opens up access to a new console market segment and could meaningfully boost unit sales and total revenue in the near to medium term.
  
• Investment in multiple development projects across The Witcher, Cyberpunk, and unannounced IPs-together with a growing team of over 730 developers and infrastructure expansions-positions the company for more consistent and recurring product releases, which can drive more stable earnings and reduce historical cyclicality.
  
• The company's GOG.com platform saw growth (11 percent year on year in Q1 2025) through initiatives like the GOG preservation program, indicating a secular trend toward digital sales and classic game monetization, which can support improving net margins and diversified revenue streams.
  
• A strong financial position is demonstrated by nearly PLN 1.5 billion in cash, steady profitability (Q1 2025 net margin at 38 percent for the group and 47 percent for CD Projekt RED alone), and a willingness to return value via dividends and share buybacks, all of which can support investor confidence and help sustain or even increase share prices.

Valuation

• The assumed bearish price target for CD Projekt is PLN95.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of CD Projekt's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of PLN350.0, and the most bearish reporting a price target of just PLN95.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be PLN3.1 billion, earnings will come to PLN1.2 billion, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 11.6%.
• Given the current share price of PLN251.9, the bearish analyst price target of PLN95.0 is 165.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.