Take-Two Interactive (NASDAQ: TTWO ) made history when Grand Theft Auto V or GTA V, raked in over $800 million in its first 24 hours. This smashed the previous record held by Call of Duty: Black Ops II which debuted at $500 million on its first day of sales. Since its release, GTA V has broken through the $1 billion threshold. This is a big win for Take-Two, but investors wonder what else the company has in store and how it can compare to other video game makers like Electronic Arts (NASDAQ: EA ) and Activision Blizzard (NASDAQ: ATVI ) .
More than Grand Theft Auto
Part of what made the release of Grand Theft Auto V such an event was the five-year wait since the last installment of the series. Though the anticipation for the new game boosted sales, some have complained about the long gap between major releases. In contrast, Activision produces a new Call of Duty every year, ensuring a reliable revenue stream from a loyal following.
While there isn't a new Grand Theft Auto every year, Grand Theft Auto IV was released by Rockstar, the studio that produced other critically acclaimed games, including Red Dead Redemption and LA Noire, which have sold over 13 million and 5 million units respectively.
While Rockstar is Take-Two's "favorite" it is certainly not the only major name in video games under the company's banner. The company's other studios include 2K Games and Irrational Games, the studios responsible for publishing Bioshock Infinite and NBA 2K. Titles like these allow Take-Two to maintain annual revenue above $1 billion on average during years that don't promise a Grand Theft Auto release.
Take-Two's revenue can fluctuate drastically from quarter to quarter depending on game releases. In its most-recent quarter, the company saw net revenue decrease 36% year over year to $144.3 million. That was due to a lack of blockbuster releases. Yet this proved to be positive since Take-Two predicted revenue would be between $100 million and $125 million.
Even though most of Take-Two's games aren't record breaking releases, the company has the talent and fan base to maintain annual revenue growth in between the Grand Theft Auto franchise.
The digital shift
Overall, the video game industry is changing rapidly. The growth of mobile and online gaming options gives game makers an opportunity to enhance their audiences' experiences and increase earnings. Last quarter, 52% of Take-Two's net revenue came from digitally delivered content. This is a 128% increase year over year. This increase can be attributed to Borderlands 2, Grand Theft Auto, NBA 2K13, and Bioshock Infinite.
Moreover, digitally released content allows game makers to increase revenue from its most popular titles and give gamers a chance to enjoy fresh content from established titles. With the success of Grand Theft Auto V, expect Take-Two to produce plenty of downloadable content that will add to earnings in the coming years.
EA, is known for making sports games like Madden and FIFA, shooters like Battlefield, and other games for casual gamers on all major consoles and mobile platforms. Recently, EA scored a big victory by securing the rights to produce games for the Star Wars franchise. The company just announced that it is making Star Wars Battlefront for the next generation of consoles due to debut at the end of the year.
Meanwhile, Activision Blizzard depends on Skylanders, Call of Duty and World of Warcraft to drive earnings. World of Warcraft is the world's largest role-playing game and charges users a subscription fee for access to the digital realm. While it's still the biggest, the game has been losing players and is down to 7.7 million subscribers from 8.3 million in March.
Thanks to yearly consistency of these titles, both EA and Activision are larger companies and have more consistent quarterly earnings than Take-Two. However, I believe Take-two has more growth potential and with a low PEG of 0.59 compared to Activision and EA's of 1.94 and 1.21 respectively.
Take-Two is one of the most respected video game makers in the industry and is in the middle of its most successful game release both financially and critically. The game has brought in over $1 billion, exceeding its current market cap by more than 60%.
Smaller titles like Red Dead Redemption and Bioshock have the potential to achieve the same success of Grand Theft Auto, and considering the consistency of a growing 2K Sports studio, I think the future looks good for Take-Two. I'd buy this stock before others realize just how good this company can be.