The Slow Burn Continues

DISCLAIMER:  I AM NOT AN ACCOUNTANT, I AM A STUDENT WITH SOME KNOWLEDGE OF THE PRINCIPLES INVOLVED

Alerted by Ripard Teg of Jester Trek: http://jestertrek.blogspot.com/2011/06/realities-of-eve.html

I’m not an accountant, I’m studying it so I’m going through these with textbooks in my lap.  Literally.  However the “book lernin” is fresh in my head and its not hard to read these tea leaves.

Cash from Operating Activities:  $17.382M

Cash to/From investment Activities:  ($25.914M)

Cash flows to/From financing Activities:  $15.976M

Cash flows From financing Activities are basically one time cash grabs that you get by selling stock, this is NOT part of their day to day business operations and cannot be counted on in the future.

Cash from operating activities is cash from doing what do you, the fact that this is a very healthy profit and a good margin indicates that CCP has a very healthy product in EvE.  Cash to/from investment activities is where the reading of tea leaves comes in.  Going through the notes you find that they have about $23.5M tied up in “Development cost” which I presume to be Dust 514.  Dust does not come out until Spring of 2012, and it will have further costs before then.  I doubt they will be able to cut any of their ongoing cost of developing Dust.  Basically that is an ongoing capital expense, where they are paying now to lay the groundwork for a new product.  They still have to pay the coders, engineers, artists, and other devs for Dust, and as they get closer and closer to their release date they may even have to increase they amount they are spending.

In other words the numbers that count most, gaining $17.42 a year from doing what they do, losing at a rate of $23.5M a year investing in the future.  Cash on hand (April 13, 2011): $11.2M.  Amount due in Oct, $11.8m.  CCP is losing $500,000 a month developing WOD and Dust 514.  If CCP were not developing these games, or could cut its recurring development expense on them, they would show a much higher profit.

At the moment they have to figure out how to reverse that trend and gain money to get their $11.8M in cash to give to the banks in October.  They can cut costs on EvE, which would likely mean firing staff and result in a backlash from the playerbase.  They could cut development costs on Dust/WoD, which would mean slowing down THAT development and possibly start a spiral of missing release dates and damaging expectations which has hurt so many games, they can borrow more money, which may or may not be difficult depending on many factors (But I cannot imagine it would be easy in Iceland’s economic climate) or they can sell more stock, which is an unpredictable way of making money.  CCP is a privately held company, so they can sell stock to whoever they want, it doesn’t have to be a public offering, however the current investors might not be thrilled at the thought of opening their own pocketbooks, assuming they even CAN in Icelands dismal economy, and finding new investors will likely be VERY hard, especially with the terrible press that CCP has managed to make for itself in the last month.

TL;DR, In my not so humble, amateur opinion, assuming these financials are correct (and if they are a fraud someone has more time than me) CCP is a successful company, making a lot of money, that has succeeded themselves into a SERIOUS cash flow situation and proceeded to piss off its customer base at possibly the most inopportune time.  They have worked themselves into a corner and need to find a way out.  That’s a LOT of monocles to sell.

Uncle Hilmar Wants YOU! to buy a Monocle so we can pay for Dust, and WoD