Take-Two Interactive Software: A Promising Investment Opportunity in the Video Game Industry

What can we expect from Take-Two’s future growth?

Take-Two Interactive Software, a renowned video game publisher, has recently made a bold statement about entering its “next growth phase.” While specific details remain limited, the company expects its net revenues from bookings for the fiscal year 2025 to exceed $8 billion. Net revenues from bookings refer to the adjusted revenues, defined by Take-Two as the net products and services sold within a specified period.

For the current fiscal year 2024, Take-Two forecasts net revenues from bookings to reach approximately $5.5 billion, indicating promising growth compared to the fiscal year 2023’s $5.3 billion. This projection of $8 billion for the fiscal year 2025 represents a significant increase in revenue.

One key factor that may contribute to achieving this goal is the highly anticipated release of Grand Theft Auto VI, as announced by Take-Two. Its predecessor, Grand Theft Auto V, holds a position among the top three best-selling video games of all time and accounted for 69% of Take-Two’s revenues after its release in 2013.

Despite being a decade old, the Grand Theft Auto franchise still contributed to more than 14% of Take-Two’s revenues in the first half of the fiscal year 2024. This is primarily due to the online multiplayer mode, which requires a subscription fee and provides a consistent source of income for the company.

It is important to note that Take-Two’s net revenue growth will be supported by several games, one of which could be the popular Borderlands series. The release of a film adaptation based on the series this year might reignite interest in Borderlands games.

What are other factors to consider when investing in Take-Two?

The acquisition of Zynga by Take-Two is another significant aspect to consider when evaluating investment opportunities. In the fiscal year 2022, mobile game revenues accounted for 12% of the company’s total revenues. However, after the acquisition of Zynga, this share rose to 48% in the fiscal year 2023.

With Zynga under its umbrella, Take-Two now has a substantial presence in the rapidly growing mobile gaming market. The industry is projected to reach a value of $98.7 billion this year, witnessing a nearly $10 billion increase compared to 2023. Furthermore, it is expected to expand to $118.9 billion by 2027.

Nevertheless, despite the boost in mobile gaming revenues, the Zynga acquisition did not contribute to Take-Two’s profitability. In the first half of the fiscal year 2024, the company incurred a net loss of $749.6 million, more than doubling the previous year’s net loss of $361 million.

Before the acquisition, Take-Two consistently achieved profitability. However, the costs associated with the acquisition led to net losses.

Should you invest in Take-Two Stocks?

Considering the bold revenue growth projection made by Take-Two’s management, the stock price already reflects these expectations. In January of the previous year, the company’s shares hit a 52-week low of $101.77. However, throughout the year 2023, the stock price gradually rose, reaching a peak of $164.85 in December.

Given that the stock price remains close to this 52-week high, investing in Take-Two stocks at this moment involves some level of risk. However, Wall Street analysts have an average target price of $170 for Take-Two stocks, with a consensus rating of “overweight.” This suggests that the stock price may still have room for growth.

Even if the release of Grand Theft Auto VI is delayed, and its sales spill over into the fiscal year 2026, Take-Two’s long-term revenue growth prospects remain favorable.

The upcoming release of Grand Theft Auto VI has generated immense anticipation, with experts predicting that it could generate over a billion dollars in revenue within the first 24 hours alone. Additionally, Take-Two’s mobile gaming revenues benefit from the industry’s favorable growth trend. If the projected growth in net revenues is achieved, the company is poised to return to profitability.

Considering these factors, investing in Take-Two stocks is certainly worthy of consideration. However, since the stock price has already been influenced by the expected sales growth in the fiscal year 2025, a recommended strategy is to utilize dollar-cost averaging when purchasing shares. This approach involves buying stocks during price declines and continuing to do so during future price drops. By doing this, the risk of overpaying for stocks diminishes, while simultaneously ensuring participation in the company’s potential performance in the fiscal year 2025.