On Friday Cloud Imperium Games released its simplified annual
financial report for the 2023 fiscal year on its corporate website. Depending on how one views the data, CIG had either its worst financial year since 2017 or its worst year ever. The company reported total revenue of $142.9 million and total outlays of $163.1 million for a total loss of $20.2 million. The single year loss in 2023 was the largest in company history, outpacing 2019's loss of $9.7 million.
Before continuing the timing of the release of the report needs to be addressed. According to the report:
The basis of this analysis remains the management accounts numbers that underpin the financial statements we provide to our auditors, upon which they perform their work for the annual audit.
As we know from the earlier release of
the 2023 accounts for Cloud Imperium UK Ltd the auditor only signed off on their report on 27 March 2025. Even then the auditor only gave a qualified opinion of those reports, but that was based on the put options available to some of the minority shareholders. I did not see anywhere in Friday's report covering the entire company where the dispute would impact the numbers presented, so the put option issue can be placed to the side for this post.
Income
CIG reported revenue of $142.9 million, a record amount for the company and a 9.3% year-over-year (YoY) increase over 2022's total of $130.7 million. CIG gave a brief overview at the beginning of the report.
Income grew again, up 9% to $143M, with regular sales up 5%, subscriptions up 23%, and other income up 50%, the latter owing both to the acquisition of Turbulent and a change in our operations as we intensified development in the UK.
For those wondering about the effects of inflation, in constant 2023 US dollars, overall income only increased by 5%.
An interesting fact is that the Pledge Counter doesn't actually track all revenue from the Pledge store.
Pledges / Sales (from Counter) This line is taken directly from our daily published Funding Stats Counter, showing the net receipts from our backers and customers. The vast majority of sales are of starter pack sales granting access to the Star Citizen alpha game, as well as spaceships and digital items immediately delivered and playable in the game. A smaller fraction of sales came from pledges for concept ships, which all come with an included “loaner” ship for immediate use and playability within Star Citizen alpha. Due to exchange differences and small items that are not included in the counter, such as shipping costs charged on physical goods, the counter does not completely represent all revenue received. Other than subscriptions (referred below), these differences are included in the final income line to give an accurate representation of total sales received.
Except, beginning in the 2022 financial year report, the number is not taken directly from the Funding Stats Counter. For 2023, the counter showed $117.6 million in sales while the graph above shows $119.3 million. Sure, the difference is small (1.4%) but after some time the difference will become noticeable. Including 2022 the difference is now $2.3 million.
By the way, for those who think CIG is artificially inflating their sales numbers, the issue described is actually lowering the visible sales numbers.
In 2023 subscription revenue increased by 23.1%. The report glossed over the increase, but the $20 Imperator-level subscription did receive several upgrades during the year making the package more attractive.
The other income category increased by 50.1% in 2023. The report gave the following explanation.
The other income line represents partnership income with various hardware and software vendors, sponsorship income, and various local incentives based upon the nature and location of our development and production activities. It also includes any exchange differences as referred to above.
Following the acquisition of Turbulent in 2023, it also includes their local incentives and their third-party web service business, where this was maintained following the acquisition.
But make no mistake, the large increase is due to making Manchester a main development hub to take advantage of the UK Video Game Tax Relief provision in the law. The amount of money CIG received increased from $8.5 million (£6.9 million) in 2022 to $13.6 million (£10.8 million) in 2023. The increase in money from the tax provision accounted for 89.5% of the increase in the other revenue category.
Outgoes
What made 2023 such a bad financial year for Cloud Imperium wasn't the revenue but the spending. Back in February 2023 I
estimated that CIG's spending would rise 15%-20%, putting spending in the $143.4 million to $149.6 million range. Since the actual amount of revenue for 2023 was $142.9 million, if spending actually had only increased 15%-20% I could not credibly call 2023 the worst financial year in CIG's history. Instead, spending increased by 26%, up to $163.1 million.
The report gave its own explanation for the increase in costs experienced by Cloud Imperium in 2023. The explanation is rather lengthy. If CIG's reasoning is faulty or sounds fishy, please leave a comment at the end of the post.
At the beginning of the year, we made the decision to move Star Citizen onto our StarEngine so we could take it to the next stage in its development and add and improve more features and content that we knew our community and customers were and are keen to see realized. Internally we marked this as the end of the long prototyping phase we had been going through and, whilst not changing our open development philosophy, we recognized this change in our development focus as a further step on the roadmap to commercial release.
As set out in my last report, we also made the decision at the start of 2023 that we needed to dedicate and ringfence more resources for our Squadron 42 game in order to get that game to feature complete by the end of the year – again a significant step on its roadmap to full commercial release. Hitherto it was all too easy to divert resources earmarked for Squadron onto Star Citizen to tackle live issues raised by our customers and community stemming from our latest releases, but this was at the expense of the Squadron development plan. So, although an expensive commitment, the decision was taken to devote these planned and required resources to Squadron 42 in the interests of making solid progress towards our ultimate goals.
Additionally, as also referenced in my last report, we completed in July 2023 the acquisition of Turbulent, whom we have worked with for over a decade, to provide not just the online customer and platform focused web services technology and support that we had initially engaged them for back in 2012, but to also tap into their game development talent that we had more recently grown with them and now brought in-house through this transaction.
As if that was not enough, towards the end of the year we held the biggest live CitizenCon event in our history to 3,000+ people in Los Angeles, where we were able to showcase the new elements we could now bring to the game with our StarEngine and demonstrated what those features might look like, many of which had been developed ‘behind closed doors’ as part of our Squadron 42 work.
This goes to explain the 26% increase in our expenditure, including capex, over 2022 with all cost categories up on 2022 except for capex, which was lower as 2022 included the bulk of the investment in the Rest of World Offices and facilities as outlined in the last report.
Since understanding the expenses is so important here is a brief breakdown of each expense category, including Cloud Imperium's explanation. I made additional bar charts as the one included in the report is rather messy.
Salaries
Salaries and related on-costs represent the total employee cost within the Group, excluding service-oriented publishing, community, and marketing personnel – whose salaries and related costs are included within that cost line.
This shows that salary costs increased markedly outside of the USA (+44%), representing both a growth in UK development and, through the second half of the year, all development and related costs incurred in Montreal, Canada following the Turbulent transaction. Including Turbulent, the Rest of World non-publishing and marketing headcount increased by 153 people (27%).
In contrast, US salary costs decreased by 20% following a 30% reduction in US development headcount during the year.
Salary costs don't equate with spending per employee. When looking at the spending for this category of employee one should note the effect of inflation. In constant 2023 dollars, spending per employee actually decreased 11.2% from 2021 to 2023. The acquisition of Turbulent doesn't account for the decline as 86.2% of the drop occurred from 2021 to 2022.
Other Group Costs (Overheads)
Other group costs include expenses for studio operations such as office rental, maintenance, travel, accommodation, IT, and other costs not included in the other cost categories. In 2023, these costs rose by 80% to $33.1M.
US offices and overheads grew by less than 5% as the group's US presence remained stable in 2023. The composition of the US operations changed somewhat with a reduction in development (as noted above) and only a small increase in publishing and marketing headcount. Consequently, the US offices were not expanded, and we would have reduced our overheads in the US were it not for our continued investment into our IT infrastructure, hardware, and software.
In contrast, the Rest of World overhead costs more than doubled, which was largely driven by three main factors:
- The Turbulent transaction during the year, which added almost 200 people to our group and over 13,000 sq ft of office space in Montreal, Canada.
- The improved office facilities of over 30,000 sq ft in Frankfurt, referred to in my previous report, which came fully on-line during 2023.
- And the same only more so with respect to Manchester, to which we added an additional 35,000 sq ft floor during 2023 to accommodate the planned growth expected there, for what is now by far the largest office in the group and the hub of our development operations.
One of the biggest questions was whether the new office space in Manchester and Frankfurt would in the long run save the company money. The answer is no. From 2021 to 2023 the overhead costs, mainly driven by office space, increased by 183.8%. Even taking account the effects of inflation by using constant 2023 dollars, overhead costs increased by 151.5% over those two years. In the 2025 report CIG will be able to drop the costs of running the Los Angeles facility, but as the graph shows the reduced costs will just mitigate the costs of CIG's new European homes.
Publishing Operations, Community, Events, and Marketing
These costs are associated with running the game, deploying online services, and providing customer support. It also includes the costs of running our platform, publishing, data hosting, and server costs. It includes sales collection, customer liaison costs, and the costs of our marketing and community events. Many elements of this cost line correlate closely with income and user engagement but in 2023 we also had two additional factors driving the 33% growth in this cost category to $39.7M.
- From July, the acquisition of Turbulent added 98 people in this area of the business (although this includes web services for third parties – generating incremental sales as noted earlier) now employed but supplying those services that were hitherto invoiced to the US.
- The CitizenCon event in Los Angeles, which attracted over 3,000 people to witness the unveiling of StarEngine and showcased what was therefore coming shortly to the Star Citizen game as a consequence of this technological advancement.
Despite internalizing our Turbulent Publishing services through the ROW from July, the bulk of our publishing and marketing operations continue to be run through the US, which accounted for 65% of spend in this cost category.
It should not be surprising that this spend category is increasing as our game reaches a wider audience, despite, from our perspective, it only just getting out of the prototyping phase. It is essential for us to support our expanding community and customer base while ensuring player engagement in the rich environment we are developing. Therefore, we continue to prioritize investment in our servers, platform, and community tools to enhance the Star Citizen experience, making it comprehensive, secure, and enjoyable.
As much as many Star Citizen players tend to believe CIG has no financial limits, the company's resources resemble a pie. Yes, the pie is growing, but the more players come to play Star Citizen, the more resources publishing requires. Which, of course, takes away, or at least severely limits the growth, of the resources devoted to developing the game.
The report also foreshadows the closing of the Los Angeles office, or would have if the report weren't released 5 months late. Not only was the company realigning itself to move software development out of the United States but its publishing operations were beginning to become more expensive as well. And with 20/20 hindsight, too expensive.
General and Administration
These costs represent insurance, accountancy, and other professional and legal fees not apportioned directly into the cost areas identified previously. An increase in our cyber security insurance cover and operations generally worldwide, adding fees associated with the Merger and Acquisition activities undertaken in 2023, meant these costs increased by £1.2M to $2.6M in 2023.
Not a lot to say about the category except that acquiring a company and getting anti-hacking insurance costs money.
CAPEX and Investments
This includes capital expenditure on hardware, software, fixtures, fittings, and offices. It varies with staff numbers and includes expenses for hardware renewals, server upgrades, and other security and infrastructure purchases.
It is included in this accounting as it represents an outlay for the materials required to develop and publish the games. Since the total capital expenditure amount is included here, we do not list the depreciation portion of such expenditure subsequently in the cost analysis.
Capex spending in 2023 was $7M, representing the tail end of the fit-out phases in the Rest of World locations that peaked in 2022 and was highlighted in the 2022 report. Also, more computers and furniture were needed for our increasing staff.
Capital expenditures, or Capex, is an important enough topic to expand upon further. The below list are some examples for a video game studio like Cloud Imperium.
- Technology & Infrastructure – Purchasing high-end servers, workstations, and networking equipment to support game development and live operations.
- Software Licenses & Development Tools – Investing in game engines, animation software, and development tools that facilitate asset creation.
- Office Space & Facilities – Buying or leasing studio buildings, office furniture, and equipment needed to house developers.
- Motion Capture & Production Equipment – Acquiring motion capture rigs, soundproof recording studios, and high-fidelity scanning tools for character and animation development.
- Research & Development Costs – Developing new technology such as procedural generation systems and advanced rendering techniques.
- Data Centers & Cloud Services – Expanding data hosting infrastructure to support the online aspects of the game, such as persistent universe storage and multiplayer functionality.
Unlike Operating Expenses (OpEx), which cover day-to-day costs like salaries and subscriptions, CapEx is focused on acquiring and upgrading long-term assets that sustain game development and live operations.
As for what we see from Cloud Imperium in post-2023 reports, I expect the numbers to remain low until the company balances its current revenue and spending. Perhaps CIG will reach balance in 2025 or 2026.
Headcount
The headcount analysis represents the people working at the end of the year under the broad disciplines identified. (Note: It is not average people numbers for the year).
Employee numbers increased by 225 (25%) to 1,085 worldwide by the end of 2023. As identified in much of the commentary above, a large proportion of this increase has arisen from the acquisition of Turbulent in July 2023, which added 198 people to our end-of-year headcount. These are separately identified above in the various disciplines.
US headcount decreased by 25 people (10%) as development reduced, being taken up elsewhere in the group, and publishing and marketing operations only marginally increased. Excluding the Turbulent headcount added in Canada, the Rest of the World headcount grew by 52 (8%) mainly in development, including some relocation from within the group. By the end of the year, the Rest of the World represented 80% of Global headcount (up from 73% last year) although this includes our studio in Montreal which is 18% of our global workforce.
Overall
The numbers in the cumulative net position are bad. How bad? The $20.2 million loss in 2023 wiped out any cumulative gains for Cloud Imperium on the project and put the total revenue for the project $13.9 million in the hole. The only reason CIG could have the limited layoffs they conducted last year and not have sweeping changes is due to the $63.25 million of outside investment made by the Calders in 2018 and 2020. Even then one or more of the minority investors were paid $1.9 million in 2023, reducing CIG's cash on hand at the end of 2023 to $42.6 million, a 34.1% reduction of the company's cash reserve. At Cloud Imperium's burn rate through 2023 the company had enough cash on hand to run for three months at the end of the year. Not exactly a good position but not really life threatening to the company either.
Then came the rationalization for 2023 and a scary preview for 2024.
In 2023, the Group made substantial investments in strategic and tactical areas to progress towards its mid- and long-term objectives. The acquisition of Turbulent brought approximately 200 people into the group, along with the associated overhead and related costs, while securing essential skills in key areas. Gearing up and dedicating development resources, particularly in the UK, advanced us to our release objectives, with the greater effectiveness that stemmed from this change in our development operations, but it did add to our costs. Thus, 2023 was a year where we expended some of our accumulated reserves to accelerate and further our business.
This investment bore fruit in the latter part of 2024 when we released Star Citizen 4.0, which included the initial phase of the Server Meshing technology we demonstrated at the 2023 Los Angeles CitizenCon event. But, this was at the expense of regular releases throughout the year and, whilst it allowed us to end the year well, sales were only comparable with the prior year.
At the 2024 CitizenCon in Manchester, we were also able to demonstrate the roadmap and plan for what we believe will be the 1.0 version of Star Citizen. We also showed the progress made on Squadron 42 by playing through live a chapter in the game and announcing a 2026 release date. Yet all these factors require investment at a time when the macroeconomic environment is unfavorable and the games industry is demonstrating it is not immune to these economic headwinds. Thus 2024’s results, when released, whilst showing some cost rationalization as we bed in the changes made in 2023, will follow a similar pattern. [emphasis mine]
Because the financial report was issued so late the report's author knows what 2024's financial numbers will show and is setting expectations now. Those expectations are the numbers will show another yearly loss of at least $10 million and likely between $15 million to $20 million. How do I know? The next paragraph provided a hint.
However, we firmly believe and are demonstrating that the investments we are making are worthwhile and our investor shareholders share our beliefs evidenced by their recent equity investments and financing – as referenced in our 2023 UK filings. This funding supports the business and replenishes our reserves ready for this next exciting phase in our life cycle. [emphasis mine]
That
financial support took the form of purchasing $5 million in Cloud Imperium shares and providing a loan of £10 million, or $12.6 million. The $17.6 million provided, most likely by Keith Calder but not yet confirmed, falls within the $15 million to $20 million loss range. The comment about "replenishes our reserves" indicates the cash on hand was reaching uncomfortable levels for the accountants, if not CIG's auditor.
The conclusion of the report also supports the thesis of Cloud Imperium running low on cash.
So, 2023 involved significant expenses and similar costs are anticipated for 2024. However, progress is being made towards our goals, with a focus on achieving our key objectives. We are working towards delivering a high-quality gaming experience and universe of substantial scale and fidelity, which is made possible through the support of our current and future players and community.
The report indicated earlier that revenue, at least from the pledge store, was flat in 2024. If expenses were also similar in 2024 to 2023's then the loss should also be similar as well. Fans of Star Citizen need to hope revenue for 2025 increases greatly in order for the company to survive long enough to begin selling copies of Squadron 42.
