Take-Two Interactive (TTWO) has climbed to around $116 per share after dropping to $84 this past February. TTWO has fared quite well in the ever-changing video game landscape, especially when compared to fellow gaming companies such as Electronic Arts and Activision blizzard.
TTWO is responsible for video game franchise successes ranging from NBA 2K to Red Dead Redemption and Grand Theft Auto. The company’s NBA2K series is the top-selling sports franchise, having stolen the crown from Electronic Arts’ Madden Football. This growth stock just keeps on growing even when the gaming industry changes in unforeseen ways.
Will Three Franchises be Enough?
The bulk of TTWO’s financial success stems from the sale of the aforementioned NBA 2K, Grand Theft Auto and Red Dead Redemption games. TTWO skeptics question whether a video game company can continue to grow with the brunt of its sales relying on merely three titles. The answer seems to be a resounding “Yes!” The company’s return on invested capital is superior to EA’s and that of most other game makers. Another part of the company’s success is attributed to its superior engagement numbers. Engagement trends show TTWO has remarkably high engagement numbers for the Grand Theft Auto series, especially when compared to titles sold by EA and Activision.
Though TTWO lacks content diversity, the company excels in a category that matters much more than the number of games released in any given year: user numbers. Fans of TTWO games are as loyal as it gets. TTWO subsidiary, Rockstar Games, is the best in the business at keeping game players in the fold. It appears as though fans of TTWO games are not going to lose interest in these uber-entertaining games in the foreseeable future.
It is interesting to note TTWO has hardly spent anything on research and development compared to Electronic Arts and other game industry stalwarts. The fact that TTWO has so few titles means the company does not have to spend nearly as much on developing new games. The end result is a financially healthy bottom line.
Consider the Competition
TTWO bears argue the rise in competition from shooters such as Fortnite will steal market share away from Red Dead Redemption and Grand Theft Auto. However, these two games had more than 90 million player accounts in last year’s fiscal period alone. NBA 2K19 will likely prove to be the top-selling sports title in TTWO’s history. The company’s net bookings have spiked nearly 20% on a year over year basis, coming in just short of the $500 million mark.
So, don’t be scared away by the competition. There will always be a steady stream of new titles similar to those offered by Take Two yet few will build the loyal following generated by the Red Dead, NBA 2K and Grand Theft Auto series.
Can TTWO’s Stock Continue to Climb?
Though TTWO dipped down to the 80s this past winter, the stock is up more than 1,000% across the past decade. One would think this epic run would have to come to an end at some point. However, TTWO games just keep increasing in popularity. The company’s Grand Theft Auto game is as popular as it has ever been. Red Dead Redemption 2 was released last fall, yet it has already sold more than 24 million units. However, it must be noted the company issued guidance below fiscal 2020’s estimates. The TTWO brass is known for providing conservative guidance at the outset of fiscal years, so prospective investors should not read too much into these numbers.
Net bookings are expected to be around $2.6 billion, a slight decline from the $2.9 billion in fiscal ’19. Once again, investors should not be swayed by the slight reduction in revenue. TTWO executives insist 2020 is a year for major financial investments as the company lays the groundwork for new games that will hit store shelves in the years to come. After all, TTWO probably cannot gravy-train Red Dead Redemption, NBA 2K and Grand Theft Auto for more than another half-decade or so. At some point, even the most fervent fans of these franchises will lose interest. However, TTWO’s masterminds have proven time and time again they can create new content that sells. If TTWO dips down toward the $100 dollar level, investors should consider a position in this popular game maker.