CD Projekt's Priced Potential: Valuing Growth in Witcher 4 and Engine Shifts

CD Projekt (CDPR), the Polish gaming giant behind The Witcher 3 and Cyberpunk 2077, trades at a discount that overlooks its strategic transformation. With a shift to Unreal Engine 5, a diversified IP pipeline, and shareholder-friendly financial discipline, the stock presents a compelling buy. Let's dissect why current pricing underestimates CDPR's near-term catalysts and long-term upside.

Strategic Pivot to Unreal Engine 5: Lower Costs, Higher Efficiency

CD Projekt's decision to abandon its proprietary Red Engine for Unreal Engine 5 (UE5) marks a critical inflection point. The collaboration with Epic Games, announced in 2022, has unlocked two key advantages: reduced development costs and enhanced technical capabilities.

By leveraging UE5's tools—such as the Fast Geometry Streaming Plugin and Nanite Foliage—CDPR can now build sprawling open worlds at a fraction of the cost of maintaining its own engine. This is reflected in its EBIT margin improvement, which rose to 37.51% in 2024 from 36.37% in 2022. Projections suggest margins could expand further to 42.36% by 2027 as UE5 adoption matures.

Witcher 4's 2027 Launch: A Catalyst for Growth

The delayed The Witcher 4—now targeting a 2027 release—is CDPR's crown jewel. Unlike its predecessor's rushed launch, this iteration benefits from UE5's stability and a four-year development cycle, ensuring polish and performance.

The game's revenue potential is staggering. Internal forecasts suggest PLN 3.07 billion in revenue by 2027, up from PLN 985 million in 2024. This jump isn't just about a hit game; it's about unlocking a franchise with decades of fan loyalty. The studio's focus on open-world storytelling, exemplified in the 2025 tech demo's Kovir region, positions it to dominate the RPG space.

Diversified IP Pipeline: Molasses Flood and Beyond

The acquisition of The Witcher 4 co-developer Molasses Flood (now a wholly-owned subsidiary) adds critical scale. The studio's spin-off projects—like The Witcher Sirius (a multiplayer title) and Witcher Polaris (the first in a new trilogy)—create a multi-year revenue stream.

Moreover, CDPR's non-Witcher IP pipeline is expanding. The Cyberpunk 2 prequel, now in pre-production, and a Witcher 1 remake (Canis Majoris) tap into nostalgia while modernizing classics. This diversification reduces reliance on any single title, a stark contrast to its Cyberpunk 2077 era volatility.

Financial Fortitude and Shareholder Returns

CDPR's balance sheet is rock-solid, with PLN 1.49 billion in cash as of Q1 2025. The company is also shareholder-friendly:
- A PLN 100 million dividend (PLN 1 per share) was proposed in Q1.
- A share buyback program (up to 89,601 shares) signals confidence in undervalued stock.

Despite these positives, CDPR trades at a P/E ratio of just 12x based on 2024 earnings. This undervaluation ignores its 2027 upside, where net income could hit PLN 1.29 billion (assuming 42.36% margins and PLN 3.07 billion revenue).

Risks and Counterarguments

Critics argue risks remain:
- Development delays could push The Witcher 4 past 2027.
- Console cycles (e.g., PlayStation 6) might disrupt near-term sales.
- Competitor saturation in the RPG space could dilute The Witcher's appeal.

Yet, these risks are mitigated by CDPR's strong track record of post-launch monetization (see Cyberpunk 2077 DLC success) and UE5's cross-platform scalability, ensuring longevity.

Investment Thesis: Buy with a 2027 Horizon

CDPR's stock is underpriced relative to its 2027 potential. At current prices (~PLN 40), the market assigns little value to The Witcher 4 or its margin expansion. A fair value estimate of PLN 65–70 emerges when applying a 15x P/E to 2027's projected earnings—a conservative multiple given its IP strength and cash flow.

Action Items:
1. Buy CDPR on dips below PLN 45.
2. Hold for 2–3 years to capture The Witcher 4's launch and margin improvements.
3. Monitor UE5 adoption milestones (e.g., The Witcher Sirius releases) as near-term catalysts.

Conclusion

CD Projekt's pivot to Unreal Engine 5, diversified IP pipeline, and shareholder-friendly policies position it for a comeback. The market's focus on past missteps overlooks its current strengths. For investors willing to look beyond short-term noise, CDPR offers a rare blend of value, growth, and stability—a recipe for outperformance in 2025 and beyond.

This analysis assumes execution risks are manageable and macroeconomic conditions remain stable. Consult a financial advisor before making investment decisions.