Stock of the week - CD Projekt (17.06.2021)

The past 6 months have been tough for Polish video game developer CD Projekt (CDR.PL) and its shareholders. Share price of the company dropped over 60% following the long-awaited release of its Cyberpunk 2077 game that turned out to be a massive failure. However, the company went to great lengths to fix issues and some positive news hit the markets this week. Let's take a look at how things look with CD Projekt and Cyberpunk 2077, and whether this week's announcement from Sony is as big of a game changer as one could think.

Cyberpunk 2077 fiasco

Cyberpunk 2077 was the most awaited game release of 2020. Following the massive success of another video game from CD Projekt - The Witcher 3 - gamers and investors alike had high expectations. The fact that the game has been teased for several years and its release date has been postponed a few times during 2020 to make it perfect, reinforced expectations that Polish video game developers will release another blockbuster. However, the release turned out to be a disaster - the game was flooded with bugs and glitches. This has led to many complaints from gamers and resulted in Cyberpunk 2077 being withdrawn from the PlayStation Store. Company was slow to present a strategy on how it plans to control damage resulting from the fiasco but promised to fix the game.

Cyberpunk returns to PlayStation Store

A number of patches has been released and it looks like developers managed to fix issues with the game - Sony officially announced on Tuesday that Cyberpunk 2077 will return to the PlayStation store. It looks like the announcement was somewhat expected as the share price of CD Projekt gained around 40% between the beginning of June and Sony's announcement. However, it also looks like we are observing a common "buy the rumour, sell the fact" price action. CD Projekt opened higher on Wednesday after Sony's announcement but has been moving lower since, with shares trading almost 15% below yesterday's daily high at press time.

Limited financial impact?

Traders may be puzzled by the market's reaction to Sony's announcement. After all, bringing back the game to PlayStation Store should be seen as a positive, shouldn't it? Generally yes but it's not that simple. Firstly, the announcement seemed to be already priced in by the time Sony made it (steep gains throughout the first half of June). Secondly, details of the announcement do not paint as bright a picture as one may think. Sony said that while it is bringing the game back to its Store, it has also warned that gamers may experience performance issues when running the game on PlayStation 4 and therefore the game is not recommended for this model of gaming console. Cyberpunk 2077 was primarily designed for next-gen gaming consoles, like PlayStation 5, and those still have a small share in the market. Such a warning may discourage some PlayStation 4 users from trying the game and therefore return to PlayStation store may have a limited financial impact on CD Projekt.

Technical Analysis

Taking a look at CD Projekt (CDR.PL) from a technical point of view, we can see that early-June run-up in share price was halted at 23.6% retracement in the 205 PLN area. Subsequent and ongoing pullback pushed stock back towards the upper limit of earlier-broken trading range at 181 PLN, which is now acting as a support level. Reaction to this hurdle seems to be a key now - pushing back below it may hint that a return towards recent lows may be on the cards. On the other hand, positive price reaction to this area and launch of a recovery move may hint that ongoing decline is just profit taking rather than negative reaction to Sony's announcement. In such a scenario the near-term resistance levels to watch are marked with Fibonacci retracements - the aforementioned 23.6% retracement at around 205 PLN and 38.2% retracement at 238 PLN.

Source: xStation5