Champomade
Member
Hello GAF,
Just thought it could be interesting to share with you some crude maths I just did on the stock market impact of the arguably botched launch of this long awaited game. All figures are approximate and from public sources.
- Stock price of CD Projekt (WSE: CDR) has declined from 443 PLN per share on the 4th of December 2020 (pre-launch peak) to 250 today (and is currently continuing to decline so these are the numbers as of now but it may get much worse, or better, in the next days).
That is a 44% decline, that I think is fair to assume to be virtually all attributable to the launch.
- At 443 PLN per share, the value of CDR equity was an astounding (for a company this size) USD12.2bn . Today it is USD6.9bn, i.e. a loss in equity value of slightly over USD5bn.
Going forward I assume Equity value = enterprise value, which is broadly correct here given the company seems to have little debt or cash on its balance sheet.
- What does this mean? Basically, that investors assume the Company is going to generate a net present value of 5bn less in cash flow over the course of its life (I.e. much more than 5bn but you have to account for the time value of money).
If we simplify and assume 5bn of cash flow, given their very high profit margin of around 30% forecasted by analysts going forward, that means around 20bn of revenues give or take.
If I assume $50 of revenues on average per game sold (in reality, not being familiar with the financials of this industry, I have no real idea how much an editor makes in revenues per copy sold, could be way less than 50, which would make the following numbers even more impressive), that means investors assume CDR will sell over 400 millions copies less of full priced AAA video games because of this launch!
- Another way to look at it is in terms of multiples of revenues.
Today CDR is valued at around 10x its anticipated annual revenues going forward. Which means that a loss of 5bn in equity means investors expect CDR to do less 500 mil of revenues per year every year until the end of times than what they expected before the launch.
However, being valued at 10x revenues could still appear quite rich when compared to peers. For example Ubisoft, a company with potentially less growth but clearly less volatile and with a more diversified business model, is currently valued at 4x revenues.
This means that if investors decided to value CDR the same way as Ubisoft, the share price of CDR would decline by another 60%.
- Finally, it might bring solace to frustrated gamers to remember that the biggest owners of CDR equity are still the founders and top management of the company (AFAIK). Indeed, based on public information, the founders and management still own over 30% of the stock.
This means that their wealth has declined by over USD1.5bn (paper loss at the moment) over the last 2 weeks or so.
Note: I have tried to be as clear as possible so I might have simplified things a bit too much. Also, I have written this very quickly so I might edit it in the future if I think of any obvious mistake.
I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this post myself. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this post.
Just thought it could be interesting to share with you some crude maths I just did on the stock market impact of the arguably botched launch of this long awaited game. All figures are approximate and from public sources.
- Stock price of CD Projekt (WSE: CDR) has declined from 443 PLN per share on the 4th of December 2020 (pre-launch peak) to 250 today (and is currently continuing to decline so these are the numbers as of now but it may get much worse, or better, in the next days).
That is a 44% decline, that I think is fair to assume to be virtually all attributable to the launch.
- At 443 PLN per share, the value of CDR equity was an astounding (for a company this size) USD12.2bn . Today it is USD6.9bn, i.e. a loss in equity value of slightly over USD5bn.
Going forward I assume Equity value = enterprise value, which is broadly correct here given the company seems to have little debt or cash on its balance sheet.
- What does this mean? Basically, that investors assume the Company is going to generate a net present value of 5bn less in cash flow over the course of its life (I.e. much more than 5bn but you have to account for the time value of money).
If we simplify and assume 5bn of cash flow, given their very high profit margin of around 30% forecasted by analysts going forward, that means around 20bn of revenues give or take.
If I assume $50 of revenues on average per game sold (in reality, not being familiar with the financials of this industry, I have no real idea how much an editor makes in revenues per copy sold, could be way less than 50, which would make the following numbers even more impressive), that means investors assume CDR will sell over 400 millions copies less of full priced AAA video games because of this launch!
- Another way to look at it is in terms of multiples of revenues.
Today CDR is valued at around 10x its anticipated annual revenues going forward. Which means that a loss of 5bn in equity means investors expect CDR to do less 500 mil of revenues per year every year until the end of times than what they expected before the launch.
However, being valued at 10x revenues could still appear quite rich when compared to peers. For example Ubisoft, a company with potentially less growth but clearly less volatile and with a more diversified business model, is currently valued at 4x revenues.
This means that if investors decided to value CDR the same way as Ubisoft, the share price of CDR would decline by another 60%.
- Finally, it might bring solace to frustrated gamers to remember that the biggest owners of CDR equity are still the founders and top management of the company (AFAIK). Indeed, based on public information, the founders and management still own over 30% of the stock.
This means that their wealth has declined by over USD1.5bn (paper loss at the moment) over the last 2 weeks or so.
Note: I have tried to be as clear as possible so I might have simplified things a bit too much. Also, I have written this very quickly so I might edit it in the future if I think of any obvious mistake.
I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this post myself. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this post.
Last edited: