If you want exposure to global growth, one pure play is being exposed to the gaming sector

CD Projekt Red has published a fact sheet about themselves which highlights not only their business but also the global potential of the gaming industry. They show the distribution of their revenues and a total of 87% comes from Europe and the US. Only 8% come from Asia & Russia and 5% from the rest of the world. I am pretty ceratin this is representive of most AAA-games today.

There is no reason that The Northern Kingdoms, the land in which The Witcher takes place, could not be located on the screens of Asians, Russians, Africans or South Americans. Especially as The Witcher is rated the world's best RPG.

One of the main reasons for the global imbalance of The Witcher revenues is access to computer power. We can see this represented by the fact that CrossFire is the most played game in the world - a free-to-play game which requires very little in terms of computational power. A lot of Asian gamers are still playing games at internet cafes, as many don't have home access to gaming rigs. One of the big advantages CrossFire has is that it’ll run smoothly on basically anything.

Looking into the future, there are few things that I can think of that are as correlated to GDP growth as access to technology. Thus, as economies grow and move forward more people will have access to gaming, both in terms of time and technology. 

As the world outside of Europe and US continue to grow so will their share of global gaming revenue - and the map above illustrates how huge the potential is, with at least a 5x fold growth potential globally. So if you want exposure to global growth, one pure play is being exposed to the AAA-gaming sector.

CD Projekt Red fact sheet: https://www.cdprojekt.com/en/wp-content/uploads-en/2016/12/factsheet-december2016.pdf

CD PROJEKT secures $7 million in innovation funds

https://www.cdprojekt.com/en/media/news/cd-projekt-group-secures-30-million-pln-gameinn-innovation-funds/

"The CD PROJEKT Capital Group has been granted nearly 30 million PLN in R&D funding in the first edition of the GameINN sectoral development program, organized by the National Center for Research and Development (NCBR). All four proposals submitted by CD PROJEKT S.A., along with the proposal submitted by GOG.com, have been approved."

Cyberpunk 2077 release date 2017.02.02? - Komplett.se creates confusion

Komplett.se has posted a pre-order possibility for CD Projekt Red's Cyberpunk 2077 with delivery date set as early as 2nd of February 2017. https://www.komplett.se/search?q=cyberpunk+2077

The release date for the much anticipated game from the studio behind The Witcher was expected much later and it remains to be seen if this is just a mistake by Komplett.se or not.

 

CD Projekt Red Q3 earnings

You can find it here. For some insane reason, all text is saves as images in the PDF so it's not searchable.

As expected, without only DLC's out, revenue as profits were down YoY.

As Witcher 3 was released in 2015 a more interesting comparison is against 2014. In 2014 the company had total sales of PLN 110m for the first 9 months - compare that to PLN 100m for only the latest quarter and PLN 419m for the first 9 months - that is a 4x growth.

Cheap

I think the stock is a great buy. The company had PLN 800m in sales in 2015, their record year thanks to Witcher 3 being released. That puts it at about 4.7 price/sales which is getting close to EA and ATVI. But P/E 2015 is 11 and P/E 2016 annualized is 16.6 - so still very cheap given the momentum for Gwent and potential for Cyperpunk 2077.

If they release Cyperpunk 2077 next year they can easily have revenues of above PLN 1bn for 2017 and that would probably put it around PE 7 with current profit margins.

GOG

During the first 9 months of 2016 GOG revenue was 27% of total revenue. GOG profit margin is 6% compared to 52% for the core operations.

GOG revenue was slightly up YoY, but given that No Man's Sky was their big release of 2016, the potential of GOG still remains to be seen.

GWENT

The company is very positive about Gwent. They have signed a partnership deal with GAEA, on of the fastest-growing Chinese Interactive entertainment providers, with the goal of publishing GWENT in China.

CD Projekt Red praised by PC Gamer magazine

I picked up the latest issue of PC Gamer magazine and was happy to read about Gwent and an editorial praising CD Projekt Red. I have never been a fan of card games but I am well aware of its appeal. The last time I played something similar was the Star Wars Battlefront Base Commander, which was more fun than the actual game.

I love it when a gaming company shows this kind of free thinking and I am very happy to maintain a long position in the company and totally agree with the comments in the PC Gamer editorial:

 

 

“It’s unusual and interesting that a card game has become a vessel for new stories set in a universe that people love (The Witcher) - but I’ll never underestimate CD Projekt Red’s ability to surprise and delight players.”
— Samuel Roberts, Editor PC Gamer