Will "Evolve" Give Take-Two Interactive the Growth Investors Are Looking For?

Take-Two Interactive (NASDAQ: TTWO  )  has been on an impressive run. The company's share price trades approximately 43% higher than it did a year ago, largely thanks to strong performance from its megahit Grand Theft Auto 5. With an updated version of the game slated to land on PlayStation 4, Xbox One, and PC this fall, the company looks to have a reliable, low-cost avenue to profitability. That said, it also needs new IP Evolve to land as a success.

Indicating confidence in the game, the president of Take-Two's 2K Games publishing wing recently stated that Evolve will be the defining next-gen experience this holiday season. Is the company in good shape to deliver a hit that makes good on that promise and, in turn, expand its stable of valuable properties? How will Evolve fare against big competition from competitors Activision Blizzard (NASDAQ: ATVI  )  and Ubisoft (NASDAQOTH: UBSFF  ) ?

Interest in Evolve is growing
Since its initial unveiling earlier this year, Evolve has been generating increasing interest, but also lagged behind other big titles in terms of public recognition and hype. Comments from 2K Games president, Christoph Hartman, suggesting that the game will offer the definitive experience on PlayStation 4, Xbox One, and PC this year were greeted with both excitement and skepticism. While it's unlikely that Evolve will approach the sales posted by Activision Blizzard's Destiny, there's a very good chance that Take-Two's upcoming shooter will be the most "next-gen" game available this fall, mostly because it will only have to compete against a handful of other titles for that honor.

Take-Two and Ubisoft win the "next-gen" race by default
Besides Evolve, the only other 2014 multi-platform games that could reasonably stake a claim to offering a generation-defining experience are Assassin's Creed Unity and The Club from Ubisoft. Rising development costs and small user bases have been the chief reasons that games publishers release their games on all viable platforms. This strategy has posted good results so far, but it has also meant that resolution and performance advantages are some of the biggest differentiators between software on new and old systems.

Source: EvolveGame.com

Gaming enthusiasts have eagerly snapped up the new consoles, but experiences built to maximize the advantages of that new hardware will be necessary if the platforms are to continue their success. This year, Take-Two and Ubisoft are the only publishers that will release triple-A multi-platform games developed specifically for the more advanced hardware.

Evolve and Assassin's Creed Unity are different enough that they won't be competing for the exact same segment of the market. By default, each game will offer the defining next-generation experience in their respective genres. Unity will almost certainly be the better-selling title, thanks to the strength of the Assassin's Creed brand, but Evolve is an opportunity for Take-Two to create a hit new property at the beginning of a hardware cycle. The game's success or failure will be largely determined by whether it offers a suitably differentiated experience.

What are Evolve's advantageous traits?
2014 will see the release of more high-profile first-person shooters than any year in recent memory, meaning that Evolve is up against massive competition. The $500 million production and marketing budget behind Activision's Destiny should give an indication as to the level of resources needed to launch a successful new property in the current triple-A games market. Take-Two's approximate $1.77 billion market cap means that it can only devote similarly massive resources to its established Grand Theft Auto series, making Evolve more dependent on critical praise and word of mouth than some of its competitors.

With Evolve launching a little more than a month after Destiny, Take-Two's game is at considerable risk of being overshadowed. Both games are built around cooperative multiplayer experiences and ongoing digital revenue streams, and Destiny's sure-to-be massive player base will mean that smaller titles will face additional challenges in grabbing consumer attention. This is why the "next-gen" distinction is so important for Take-Two and Evolve.

Survival of the fittest
Releasing a game on only PlayStation 4, Xbox One, and PC increases the risk that the title will not be sufficiently profitable, but it also creates an opportunity to stand out from the competition and secure an enthusiastic audience for a budding franchise. Evolve seems to be benefiting from this strategy, having won the E3 "Best of Show" award, in addition to many other honors. Critical praise doesn't always translate to commercial success, but it's almost always a good sign. If Evolve finds success amid the tough competition it faces, it should be a transformative win for Take-Two.

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