With Q1 recently wrapping up, Take-Two Interactive more than doubled their earnings for the quarter from a year ago, earning$996.2 million compared to a year ago at $422.24 million. It has not just been recent success for Take-Two , over the last decade they have more than doubled their revenue reaching $2.67 billion as of fiscal 2019, opposed to fiscal 2010 at $1.16 billion. With such large growth over the last decade, many can ask if this growth is sustainable for another decade, and to help answer that, John Ballard of The Motley Fool provides three reasons as to why this growth should continue over the next decade.
New Games in Development
In February, Take-Two President Karl Slatoff said, “Take-Two’s development pipeline over the next five years is the largest and most diverse in our company’s history.” Especially with the new consoles launching in the fall, it is expected that they will take advantage by releasing a new Grand Theft Auto in the near future.
Take-Two’s Private Division label has confirmed two new games for 2020; Kerbal Space Program 2 and a new sci-fi shooter game, Disintegration. Private Label is looking for another strong year after releasing The Outer Worlds, which exceeded all expectations by selling over 2 million copies.
Other releases to expect should be a new BioShock title, and even a new version of L.A. Noire, which sold about 5 million copies after its release in 2011. Although a remastered version was released in 2017, a sequel to the game with the enhanced graphics of the new consoles will surely add to the sales for the game.
Take-Two is already the publisher of the popular NBA 2K series, as well as other historical 2K games, and now have added a new partnership with the NFL to the line. With multiple games in development, set to launch in 2021, the game will become a direct competitor with the NFL Madden game published by Electronic Arts.
Record of Growing Existing Franchises
The Sony PlayStation 5 and Microsoft Xbox Series X will feature significantly improved graphics capabilities and faster processing speed. Each new advancement in technology has a way of making the best games in the industry stand out and sell more copies.
The trend of each new release selling more copies than the previous version is a great sign for investors and bodes well for the new games in the pipeline. It also demonstrates that Rockstar Games has the ability to make its games better over time, which cannot be discounted in explaining the enormous success of the Grand Theft Auto and Red Dead Redemption sequels. In the case of these games it is shown through sales growth of Grand Theft Auto V with over 120 million copies sold since 2013 and Red Dead Redemption 2 more than doubling its sales from the original reaching over 29 copies sold since its fall 2018 release.
New Business Models
As Take-Two looks to continue its growth, it has been stressed, most recently by CEO Strauss Zelnick that the strategy will go beyond developing and releasing new games. Two of those emerging business models include esports and streaming, which as of more recently have been growing exponentially worldwide.
In terms of esports, it has already begun for Take-Two with the NBA 2K League, created through a partnership between Take-Two and the NBA. With a partnership with streaming service Twitch, the league has been able to continue to grow since its inaugural season in 2018. During the COVID-19 pandemic with no other sports able to broadcast, the NBA 2K League came to an agreement with ESPN to broadcast games on ESPN 2 and the ESPN app, which only helped the league grow their brand.
Slatoff said, “Streaming may become a compelling distribution platform for our industry that could expand our market,” and most importantly, he added, “increase margins.” With streaming, players will gain access to a large library of games for a monthly subscription fee. With several tech companies already in the streaming sector, there would be strong competition but Take-Two has a large enough following in order for their service to be successful.
Although Take-Two and other companies in the industry have seen a surge in engagement and sales over these last few months during the lockdown period, and it does seem as if this trend will continue and the gaming industry as a whole especially Take-Two with their strategy going forward, there is still reason to be fairly cautious in when to invest.
John Ballard of The Motley Fool wrote an article (https://www.fool.com/investing/2020/06/07/the-detail-investors-missed-in-take-twos-earnings.aspx) referencing a recent study done by Activate, a media consulting company, and their findings on recurrent consumer spending and the time spent playing video games to decelerate. Recurrent consumer spending (also in-game spending) made up 61% of net bookings for Take-Two in the most recent quarter, and grew 47% year-over-year. The lockdown orders gave gamers more time to play which in turn lead to more spending, as there was less for those consumers to spend their time and money on. The study also references that once the pandemic is over and restrictions are lifted, the growth rate will potentially slow down, and with that it is likely the engagement levels and recurrent spending will follow.
These findings do not outweigh the positive notes outlined above, but it is definitely something to keep track of and follow as lockdowns and restrictions ease up globally.
The company has everything an investor could want in a great gaming stock, including a long track record of best-selling titles and a deep development pipeline. Take-Two is home to some of the most valuable franchises in the industry, and the stock currently offers an attractive value compared to its larger peers.