Here’s Why You Should Buy Take-Two Interactive On the Pullback

Take-Two shares fell after a weak forecast, but the company can certainly deliver in the long run.

May 27, 2014 at 10:05AM

It seems that Take-Two Interactive's (NASDAQ:TTWO) GTA V catalyst is coming to an end. After starting the year riding high on record sales of its most famous game, Take-Two shares tanked after it posted disappointing fourth-quarter results. The company saw a considerable decline in revenue and earnings despite the stupendous success of GTA V, which is approaching close to $2 billion in sales .

Game titles from Electronic Arts (NASDAQ:EA) and Activision Blizzard (NASDAQ:ATVI) probably knocked some wind out of Take-Two's performance, and the company ended up issuing a light forecast. But looking forward, the company expects to reap the benefits of its new launches.

Positive takeaways from the quarter
In spite of a tough quarter, Take-Two saw record breaking sales of Grand Theft Auto V and received more than 300 perfect scores from reviewers. Grand Theft Auto V has sold more than 33 million units worldwide and is still attracting new fans, according to management.

Similarly, NBA 2K14 has been a big hit. This was the first next-generation title launched by the company, and it has already surpassed its previous version, NBA 2K13. NBA 2K14 has become the top performer in the franchise's history, with sales of more than 6.5 million copies to date. Also, it was the No. 1 online PC sports game in China, with around 19 million registered users. 

Borderlands 2, on the other hand, is still going strong with record sales of more than 9 million units to date. One of the key drivers behind this game's solid performance is Take-Two's add-on offerings. The company has launched eight new content packs for the game in recent quarters.

All in all, Take-Two launched several titles in fiscal 2014, including WWE 2K14, BioShock Infinite, and Sid Meier's Civilization V, and it's looking to build upon its impressive gaming portfolio by delivering even stronger games this year.

The pipeline looks impressive
The company has planned the launch of NBA 2K15 for the PlayStation 3, PlayStation 4, Xbox 360, Xbox One, and PC platforms. It plans to feature Kevin Durant, who was recently crowned as the NBA's Most Valuable Player for 2014, on the game's cover. This shows Take-Two's commitment to strengthening its NBA franchise. The game maker anticipates that NBA 2K15 will set new benchmarks for sports realism and game play. For wrestling fans, the company will launch its annual release from the WWE 2K franchise and promises to take it to the next level. 

Apart from the usual titles, Take-Two would launch a new game known as Evolve for the Xbox One, PlayStation 4, and PC platforms. Evolve is a new concept that blends first-person and third-person shooter action with collaborative and competitive multiplayer. According to Gamespot, "Evolve is one of the most unique ideas we've seen in a while, and a well executed one." 

This game would put Take-Two in direct competition with both Electronic Arts and Activision. EA's Titanfall has been the best-selling game in the U.S. for two months in a row, and it seems that the game has taken some share away from Take-Two's GTA V, which ranked ninth. EA is trying to maintain its lead over others through moves such as flash sales. Recently, EA offered a 40% discount on Titanfall's PC version. Looking ahead, the company will launch Titanfall's sequel on more platforms than just the Xbox, expanding the game's addressable market. 

Activision's Call of Duty: Ghosts was the next most popular game after EA's Titanfall. Activision is now working on Call of Duty: Advanced Warfare, which it expects to become the most valuable title in the Call of Duty franchise. Activision is focusing on delivering an engaging story along with high-end graphics and robust gameplay. 

Considering its competitors' moves, it is important for Take-Two to redefine the action-shooter game genre and it seems to be moving in that direction with Evolve. The game, set for launch in the fall, has been developed by Turtle Rock Studios, which already has a successful game such as Left 4 Dead under its belt. 

The bottom line
Take-Two faltered in the previous quarter, but the company is well-positioned to make a comeback. On the back of a diverse range of new releases and innovative offerings, Take-Two's performance can improve. Investors should consider making the most of Take-Two's pullback in the last month to add more shares to their portfolio.

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Mukesh Baghel has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and Take-Two Interactive. The Motley Fool owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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