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Here’s an analysis of CD Projekt’s Q1 2025 financial results:
Key Takeaways from the Q1 2025 Results
- Stable Sales Revenue: CD Projekt S.A. reported stable sales revenue of PLN 226.3 million in Q1 2025, consistent with the same period last year. This stability was primarily attributed to the sustained strong sales of “Cyberpunk 2077” and its “Phantom Liberty” expansion.
- Decline in Net Profit: Despite stable revenue, the company experienced a 14% year-on-year decrease in net profit, falling to PLN 86 million. This decline was primarily due to higher income tax expenses. Analysts’ expectations for net profit were around PLN 95 million, making the reported figure a miss.
- Operating Profit Increase: The company achieved an 18% year-over-year increase in earnings before interest and taxes (EBIT), reaching nearly PLN 96 million.
- Strong Cash Position: CD Projekt reported a significant increase in cash and cash equivalents, demonstrating robust cash flow management. The company’s financial reserves increased by PLN 17 million over the quarter, reaching PLN 1.49 billion.
- Investment in Development: CD Projekt continues to invest heavily in ongoing development projects, including “The Witcher 4,” “Cyberpunk 2” (Project Orion), and “Sirius,” with expenditures in this area reaching PLN 100 million.
- “Cyberpunk 2” Enters Pre-Production: The development team responsible for the next big game in the Cyberpunk universe, “Cyberpunk 2” (previously codenamed Project Orion), has completed the conceptual phase, and the project has entered pre-production.
- “The Witcher 3” Anniversary: CD Projekt celebrated the 10th anniversary of “The Witcher 3: Wild Hunt.” Since its release, the game has sold over 60 million copies globally and generated PLN 2.4 billion in revenue.
- Dividend Proposal: The Management Board has proposed allocating nearly PLN 100 million towards a dividend, demonstrating confidence in the company’s financial health.
- Cyberpunk 2077 on Nintendo Switch 2: The Ultimate Edition of Cyberpunk 2077 is set to launch on the new Nintendo Switch 2 console in June 2025.
- Team Expansion: The development team has expanded to over 730 developers as of April 2025.
Segment Performance
- CD PROJEKT RED: The game development division, CD PROJEKT RED, saw a PLN 27 million increase in its financial reserves. Most of CD PROJEKT RED was engaged in working on new games.
- GOG.COM: The digital distribution platform GOG.COM experienced a PLN 10 million decrease due to payments to game suppliers related to Q4 sales, which is typical for the first quarter.
Analysis of Factors Influencing the Results
- Continued Sales of Existing Titles: The stable sales revenue was largely due to the continued strong performance of “Cyberpunk 2077” and its expansion, “Phantom Liberty.”
- Increased Income Tax Expenses: The primary reason for the decline in net profit was higher income tax expenses. A significant portion of this amount came from adjustments relating to prior years, driven mainly by corrections of bookings related to withholding taxes, which were described as one-off events.
- Amortization: The amortization of “Phantom Liberty,” “Cyberpunk 2077,” and “The Witcher 3” impacted the cost of products and services sold. Changes in amortization models and the extension of the estimated useful lives of assets also played a role.
- Operating Costs: Operating costs remained stable compared to the previous year, but their structure changed. Research work costs decreased after the “Cyberpunk 2” project shifted from research to development, which qualifies for capitalization. However, there were extra expenses related to the implementation of a new ERP system and increased costs for incentive programs.
- Currency Exchange Rates: Revenue and profits were affected by fluctuations in currency exchange rates, particularly the Polish Zloty (PLN) against the US dollar.
- Investments in New Projects: CD Projekt is investing heavily in future projects, including new games in The Witcher and Cyberpunk universes, as well as a new IP. These investments impact current profitability but are expected to drive future growth.
- Market Competition: The gaming industry is highly competitive, with new games and technologies constantly emerging. CD Projekt needs to continue innovating and delivering high-quality games to maintain its market position.
Future Prospects and Projects
- “The Witcher 4” (Project Polaris): The development team is focused on the production phase of “The Witcher 4.”
- “Cyberpunk 2” (Project Orion): The project has entered the pre-production phase, with recruitment efforts focused on expanding the development team.
- New IP (Project Hadar): CD Projekt is working on a new IP codenamed “Hadar.”
- Cyberpunk 2077: Ultimate Edition: Set to launch on Nintendo Switch 2 on June 5.
- The Witcher in Concert: CD Projekt has announced a global concert tour that combines The Witcher 3 gameplay visuals with a live orchestra performance.
- GOG.COM Initiatives: GOG.COM continues to focus on game preservation and the GOG preservation program, contributing to sales of classic titles.
Conclusion
CD Projekt’s Q1 2025 results reflect a period of stable sales and strategic investment in future growth. While net profit declined due to increased tax expenses, the company maintains a strong financial position with significant cash reserves. The continued success of “Cyberpunk 2077” and “Phantom Liberty,” along with the ongoing development of new projects in The Witcher and Cyberpunk universes, positions CD Projekt for future success in the evolving gaming landscape. The company’s focus on innovation, quality, and brand building should enable it to navigate the competitive market and deliver long-term value to shareholders.