CD Projekt: Strong Q3 Performance and Franchise Momentum, But Is the Valuation Sustainably Positioned for Future Growth?

CD Projekt (OTGLF) has long been a darling of the gaming industry, celebrated for its narrative-driven AAA titles and loyal fanbase. The company's Q3 2023 financial results and recent strategic moves suggest a mix of resilience and ambition. However, as the firm pivots toward its most expensive and high-stakes projects yet, investors must grapple with whether its current valuation-trading at a lofty 53.9× EV/EBITDA-justifies the risks and rewards of its development pipeline.

Q3 2023: A Glimpse of Strength

CD Projekt's Q3 2023 performance was anchored by the success of Cyberpunk 2077 and its Phantom Liberty expansion. The expansion sold over 4.3 million copies within two months of its release, contributing to a total of 30 million base game sales and 8 million expansion sales by the end of the quarter. This momentum translated into PLN 985 million in group sales revenue, though this figure represented 80% of the prior year's level. The company's cash reserves also rose to PLN 1,472 million, providing a buffer for its ambitious development plans.

The profitability of Cyberpunk 2077 is particularly noteworthy. According to the firm, its sales cycle has proven 2.3 times more profitable than , a benchmark for the studio's earlier work. Positive player reception, including a 92% positive rating on Steam for the most recent 30 days, and accolades like the Golden Joystick Award for Best Game Expansion further underscore the title's commercial and critical success.

The Witcher 4: A High-Stakes Bet

While Cyberpunk 2077 remains a cash cow, CD Projekt's future hinges on The Witcher 4. The game, now in full-scale production with over 400 developers, is expected to launch between late 2026 and 2027. The project's budget is estimated at $778.7 million, making it one of the most expensive games in the industry. CEO Michał Nowakowski has ", setting sky-high expectations.

The studio's shift to Unreal Engine 5 is a strategic move to streamline production and reduce costs compared to its proprietary REDengine. However, the sheer scale of the investment raises questions about whether the game can deliver returns that justify its price tag. Analysts note that the company's reinvestment rate-108% in Q3 2025-reflects an "all-in" approach to The Witcher 4 and Cyberpunk 2 development. This level of commitment, while indicative of confidence, also amplifies the risk of underperformance.

Valuation Concerns: A Tale of Two Studios

CD Projekt's valuation multiples appear disconnected from its peers. As of 2025, the firm trades at a 42.1× P/E ratio, more than double the 21.5× peer average and the US Entertainment industry's 19.5× benchmark. This premium is even starker when compared to Square Enix, which trades at a 16× EV/EBITDA despite its own challenges with high development costs and underwhelming sales.

The disconnect is partly explained by market optimism around The Witcher 4. However, this optimism is tempered by the reality that the game is expected to generate a $10 billion hit in 2027, according to some estimates. Meanwhile, The Witcher franchise's Q3 2025 revenue fell 52% year-over-year to $7.1 million, highlighting the fragility of the company's current portfolio.

Risks and Rewards in a Competitive Landscape

The gaming industry is entering a period of intense competition. CD Projekt's focus on AAA titles places it in direct competition with studios like Square Enix, which, despite its own struggles, has a more diversified portfolio. The rise of mobile gaming and emerging technologies like cloud and VR/AR also pose long-term threats to traditional AAA studios.

For CD Projekt, the risks are twofold: first, the technical and creative challenges of delivering a game that lives up to the hype; second, the financial burden of sustaining profitability while funneling resources into two high-cost projects. Analysts have warned of a potential 20% revenue decline in 2026 and a 40% drop in earnings per share, underscoring the volatility of the firm's outlook.

Conclusion: A Calculated Gamble

CD Projekt's Q3 performance and franchise momentum are undeniably strong. The success of Cyberpunk 2077 and Phantom Liberty has proven the studio's ability to adapt and innovate. However, the company's valuation appears to hinge on the assumption that The Witcher 4 will be a generational hit-a bet that could pay off handsomely or backfire catastrophically.

Investors must weigh the allure of high-growth potential against the realities of a volatile industry and a valuation that seems to price in near-perfect execution. For now, CD Projekt remains a compelling but risky proposition-a studio with the talent to redefine its legacy, but also the capacity to stumble under the weight of its own ambition.