Take-Two Interactive: Emerging Powerhouse In The Gaming Industry
Summary
- Take-Two Interactive is at the forefront of many promising gaming trends.
- Take-Two Interactive owns some of the industry's most prestigious franchises.
- While Take-Two Interactive has been criticized for the infrequency of major game releases, the company's quality-over-quantity approach is likely to pay off.
COVID-19 has had a major negative impact across nearly all major sectors over the past few months. The video game industry is one of the few industries that may actually come out of the pandemic in better shape. Major video game companies like Take-Two Interactive (NASDAQ:TTWO), Activision Blizzard (ATVI), and EA (EA) are more valuable than they were prior to the pandemic.
Nationwide stay-at-home recommendations have clearly allowed individuals to spend more time playing video games. While this trend may not continue once normal life is resumed, it does point to the gaming industry's growing dominance in the entertainment sphere. Take-Two, in particular, has much to gain from the gaming industry's growing influence.
Take-Two reported Q4 revenue of $729.4 million in Q4, beating expectations by $143.85 million. The company's GAAP net income also increased 21% to $3.54 per diluted share. Despite one of the worst economic downturns in recent memory, Take-Two is still thriving. Take-Two owns some of the gaming industry's most successful franchises and is continually expanding its portfolio.
Take-Two has seen its share prices surge in recent months.
Data by YCharts
Source: YCharts
Technological Trends Favor Take-Two
The exponential progress of technology is making gaming more entertaining than ever. Ever-improving graphics, AI, and gaming systems are quickly pushing video games into the mainstream. Take-Two will arguably benefit the most from these advancements out of all the major video game companies. Take-Two specializes in beautifully constructed open-world games, which are highly dependent upon graphics and AI.
The major appeal of Take-Two's flagship franchises is its immersive qualities. Red Dead Redemption, for instance, enables players to experience a fully fleshed out Western world in which the player has the freedom to do a wide variety of tasks. GTA, on the other hand, allows players to experience a more urban setting.
The closer these virtual game environments reflect reality, the more immersive the experience for the player. The continual advancements being made in graphics, machine learning, and general AI is allowing for such games to break sales records with increasing regularity. In fact, GTA V has now sold more than 130 million copies, which is a figure that would've been unfathomable in the gaming industry just a decade ago.
Red Dead Redemption has experienced similar success with more than 31 million sales despite only being released in 2018. While other massive gaming genres like MOBA and Battle Royale are also made better by improving graphics, AI, etc., they are more popular for their addictive game mechanics and PvP dynamics. Games like League of Legends and Fortnite are not exactly known for their stunning graphics despite their massive popularity.
Open world games, on the other hand, will likely benefit more from the seemingly inevitable technological progress taking place in gaming. Take-Two arguably has the most popular and prestigious franchises in this genre. While Take-Two's flagship products are GTA and Red Dead Redemption, the company is also successfully expanding its portfolio with other notable franchises like NBA 2K and Borderlands.
Open world games like Red Dead Redemption 2 are becoming more and more appealing with the advancements in gaming.
Source: Take-Two
Infrequent Major Game Releases
One of the major criticisms directed at Take-Two is its lack of frequent releases. Take-Two does not release content as frequently as major rivals like Activision Blizzard, which makes for rather volatile financials. Whereas some years are relatively quiet, other years could see enormous spikes in revenue from the release of large titles like Red Dead Redemption.
Take-Two's focus on quality over quantity has allowed the company to gain an almost cult-like following. However, this strategy could backfire if major title releases are too infrequent. No matter how beloved a franchise is, it will inevitably lose popularity given enough time. GTA 6, for instance, will likely be released sometime in 2021 or even 2022. Considering the fact that GTA 5 was released in 2013, this incredibly long development cycle for GTA 6 could hurt the franchise.
Despite the incredibly long development time for GTA 6, Take-Two has still managed to maintain interest in the GTA franchise with its successful GTA Online. In fact, customer engagement from GTA Online helped boost recurrent consumer spending growth by 40% during the year. Take-Two also has a growing portfolio of other popular franchises like Borderlands and WWE to make up for the infrequency of its premier titles.
While GTA Online is helping to maintain interest in the GTA franchise, fans will only wait so long for the next GTA sequel before they begin to lose interest.
Source: Rockstar Games
Conclusion
Take-Two is cementing its place as one of the top gaming giants in the industry. This is especially good news for the company given the rapid ascendance of gaming over the past few years alone. Take-Two still has room to grow at its current market capitalization of $15 billion and forward P/E ratio of 36. The company owns some of the most popular and fast-growing franchises in the entire industry.
Despite the infrequency of major releases, such releases almost inevitably shatter previous sales records. Given the fact that GTA 5 is still showing incredible momentum, GTA 6 will almost certainly break even more sales records. Take-Two has a more promising IP than major rivals like Activision Blizzard and continues to build out an impressive portfolio.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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Comments (14)
Compare it with ATVI. Compare it to other media companies.
This is f**king thin!
