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Wednesday 10 September 2014

CCP Games - my stab at the 2014 to 2016 financial forecasts

On the back of the CCP Games half year results to June 2014 being out i have updated my forecasts for 2014 to 2016, which can be seen on this page in my blog.

That is a lot of numbers, i know.  So, in summary:

  • I suspect i am wrong mainly because i do note know 2 key things
  • Firstly, i am not sure what the ongoing Research & Development spend will be - i have estimated about $24m per year
  • Secondly, i don't know if CCP still has access to the tax credits from the US now that they have closed down World of Darkness (that brought in a few million $ each year)
  • Having said that i have Revenues going backwards in 2014 by 3.7% and then advancing onwards
  • I have CCP being mildly profitable
  • I have nothing in for Valkyrie revenues
  • BUT i still have them losing cash given the spend on Research & Development
  • Which means that their debt rises too far by the end of 2015 - that is why i think i am wrong!

So, lets look at the key questions i have and then below that i will show the summary numbers:

Question 1: the R&D (Research & Development) expense in the Profit & Loss account is all over the place given the prior spend on Dust and World of Darkness which is now over and has been written off.  Hence, i don't have a feel of what the ongong spend if for Eve Online and Valkeryie.  I have assumed about $23 - 24m though it could be as low as $16m given that was what was spent in 2012. Essentially i assumed CCP spends 30% of revenues on R&D.

Question 2: i don't know what the other one-off costs in 2014 were for closing offices etc.  If i knew those i could get a better idea of the underlying costs of CCP going forwards.

Question 3: CCP acquired a US company in part for the tax breaks.  I don't have a feel as to what the ongoing tax credits should be.

aside from that, I could do with more data on the number of subscribers.

That all said, the summary from my work so far is:

  • Revenues fall 4% in 2014 to $74m with Eve Online falling 6% offset by a fast growing China.  So 2014 would be the first revenue decline in CCP history.
  • In 2015 revenues grow to $78m and then $82m in 2016, i.e. 5% growth per annum
  • CCP makes a loss in 2014 of $23m mainly due to writing off World of Darkness for $24m (less any tax benefit).
  • In 2015 and 2016 CCP make about $1 - 2m per year.
  • Net debt rises to $18.5m in 2014 and then to $24m in 2015 and $29m in 2016
OK, i suspect the above is wrong.  My ongoing costs are likely too high.

If R&D was more like $17m per year (similar to 2012) reflecting ongoing Eve R&D and the development of Valkyrie then the above would look very difference.  Profits and cash would be would be $6 to $8m better in 2015 and the net debt would be falling.

I don't expect we will get an update from CCP until the 2014 accounts are out sometime in 2015.

In any event, i suspect the focus on keeping new players will be enhanced.  Getting a new player to enter the game is expensive enough.  Within other businesses keeping a new player through the steep learning curve is the prize - and i can't see Eve Online being any different.

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