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OTGLY - CD Projekt S.A.


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Picked up some shares at $19.5 or so, stock is still down 30%+ since 12/4/20. Mostly a trade.

 

Cyberpunk 2077 clearly has it's issues, but it is a GREAT game. They did just announce that they are working on fixing the graphics issues ( Cyberpunk 2077 run on a PS4 looks like a game from the mid-2000s). Despite that, the game still sold 8mn+ copies in pre-order. If they can clean up the graphics issues, I don't see why Cyberpunk doesn't do well in the longer term.

 

That being said, I don't like this name as a set it and forget it name since there is so much risk tied into one release (like we've seen) but I think it has been pretty derisked at this point. Trading at 14x forward EBITDA or so, vs. 12x at the lows during COVID.

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The basic issue is that that company hid the atrocious performance of the game on current gen (PS4, etc) consoles. All reviewers were only provided access to the PC version of the game. So prior to release last Friday, effectively no one outside the company had played the console versions. Referencing the pre-order # as somehow offsetting ("Despite that") this transparent attempt at deception is meaningless. The entire issue is that many folks who pre-ordered the game feel that they were intentionally deceived.

 

My best guess is that this morning's announcement about offering refunds is an attempt to get out ahead of the news cycle a bit, and stave off class action lawsuits.

 

Also, at the risk of coming off as pedantic, CD Projekt Red is a subsidiary. The name of the company is CD Projekt

 

 

 

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No doubt it is an absolute shit show. But that is what brings about opportunity - and possibly a trade. I am not super interested in holding this business for an extended period of time given the hit-based nature of their big titles but I do think the move down is quite over done. Stock trades at 14x EBITDA now vs. ~12x in March, so I think it's worth a punt if they can fix the old gen issues, as they "promise" by February - don't have much credibility after this royal fuck-up.

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Good call on this FT. Stock off 15% with Sony pulling it from PS store. Clearly, I had no idea what I was talking about...

 

The company made a huge mistake by announcing on Dec 14th that console customers could "opt" for a refund. That was basically just a lie, since it, by its own admission, had not approached Sony or Microsoft to make any special arrangements, and Sony in particular has a refund policy that is quite strict.

 

What happened yesterday was Sony basically saying, 'Fine, will we issue no questions asked refunds for anyone who purchased on PS Store, but we are also pulling it from the store altogether.' There is a certain logic to this, as it prevents gamers from.....'gaming'.....the system by purchasing the game, playing through the single player story, and then immediately requesting a refund.

 

There is going to be a flood of refund requests by consumers who know that they will always have the option of buying the game next year after it has (hopefully) been fixed, and probably at a cheaper price given how quickly video games typically drop in price.

 

There is also the question of whether Microsoft feels pressure to follow Sony's lead

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What a shitshow this was.  I am the know-nothing grandpa who bought the physical disk to gift to my son for Christmas.  I literally know nothing about video games and just saw this was the only new one coming out around Christmas.  When I think of my son the word "punk" often comes to mind so it seemed like a good fit LOL...  Oh well... He can return it to Amazon I suppose.  I've probably dated myself by even buying a physical disk in the first place

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What a shitshow this was.  I am the know-nothing grandpa who bought the physical disk to gift to my son for Christmas.  I literally know nothing about video games and just saw this was the only new one coming out around Christmas.  When I think of my son the word "punk" often comes to mind so it seemed like a good fit LOL...  Oh well... He can return it to Amazon I suppose.  I've probably dated myself by even buying a physical disk in the first place

 

;D ;D ;D ;D

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Good call on this FT. Stock off 15% with Sony pulling it from PS store. Clearly, I had no idea what I was talking about...

 

The company made a huge mistake by announcing on Dec 14th that console customers could "opt" for a refund. That was basically just a lie, since it, by its own admission, had not approached Sony or Microsoft to make any special arrangements, and Sony in particular has a refund policy that is quite strict.

 

What happened yesterday was Sony basically saying, 'Fine, will we issue no questions asked refunds for anyone who purchased on PS Store, but we are also pulling it from the store altogether.' There is a certain logic to this, as it prevents gamers from.....'gaming'.....the system by purchasing the game, playing through the single player story, and then immediately requesting a refund.

 

There is going to be a flood of refund requests by consumers who know that they will always have the option of buying the game next year after it has (hopefully) been fixed, and probably at a cheaper price given how quickly video games typically drop in price.

 

There is also the question of whether Microsoft feels pressure to follow Sony's lead

 

I would not be surprised if MSFT pulled it.

 

I actually ended up speaking with a couple friends about Cyberpunk 2077 on Wednesday night and ended up punting my shares on Thursday (luckily). I did not realize that they had advertised the game more as an RPG like Red Dead Redemption 2 and it instead was more an action-adventure (like Star Wars: Jedi Fallen Order). Clearly, there were like more issues with Cyberpunk than I realized - and I got very lucky.

 

There's probably a time to buy CDPR some time in the future but I doubt it's anytime soon. Feels to me like management has lost all credibility - so much hype and then released a broken (and deceiving) game.

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  • 3 weeks later...

Is this game even fixable? It seems that the issues are partly related to the homebuild Game Engine.

 

If I understand it correctly, the game works reassembly well on PC but is total crap on the PS4/5 and on the XBOX - is this correct?

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I hear it's great on PC, I took a small position based on how well a good friend liked it on that platform. I thought it was supposed to be solid on next gen platforms but not so much on the last generation.

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Is this game even fixable? It seems that the issues are partly related to the homebuild Game Engine.

 

If I understand it correctly, the game works reassembly well on PC but is total crap on the PS4/5 and on the XBOX - is this correct?

 

More than just rendering / engine, AI is pretty bad as well (compared to say, Rockstar/GTA). 

 

At $7bn market-cap, don't think this is cheap at all for a 1 game at a time studio that will probably be spending the next year fixing Cyberpunk. Compared to Take-Two (GTA) at $23bn, Ubisoft at $10bn, and Bethesda bought out at $7.5bn.

 

Engine will probably need a re-write, meanwhile, to push out fixes to make the current game playable, they are probably adding in a large amount of technical debt / hot fixes that will not be helpful for their future platform. My understanding is that their roadmap was going to include some online component with micro-transactions (ala GTA Online), which will be delayed. Re-writing the engine will delay future games as well.

 

If they are able to truly build out a large, multi-hit AAA gaming studio in Poland with a fraction of the labor price as other developed studios in NA/EU, could potentially be worth more, but so far I don't think the price/reward is there. If the market-cap were something like 1-3bn, maybe more interesting. 

 

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  • 2 months later...

https://www.cdprojekt.com/en/wp-content/uploads-en/2021/03/cd-projekt-group-strategy-update-1.pdf

EV down to about PLN 18bn now vs ~2bn of cash flow the company earned between the period of releasing Witcher 3 to most recent reported quarter. Witcher 3 has sold 28m copies, and that cash flow has been supported by some growth at GOG, DLC, and other games (thronebreaker, etc.). If Cyberpunk can morph itself into a respectable game (Patch 1.2 is on the right path) and sell 20m copies (at 13m before refunds as of Launch), maybe this adds an extra PLN 1.5bn of cash flow? Even so I am struggling to see if the current valuation is attractive at all. There is financial support from Witcher 3 roll-out on the PS5, but wonder how much of an impact this will have.

I think this gets very interesting if it falls another 25%.  

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I am keeping an eye out as well for CD Projekt, although I think that too much damage has been done to the gaming community with the Cyberpunk release. The 1.2 patch fixes a lot of the bugs and improves performance. However the biggest flaw of the game is design, and the how the gamer interacts with the NPC's. There is just not much there, besides the story line. 

Having played their Witcher games, I do think that with due course they will be able to improve on that, hopefully with the upcoming DLC's later this year. 

for the moment, as mentioned above, their valuation is still too rich compared to other gaming companies.

(Disclosure, I am long Ubisoft and Nintendo) 

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