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Gaming is big business. Last year, U.S. consumers spent almost $20 billion on games and console systems like the Xbox 360, PlayStation 3, and Wii. This is nearly twice as much as they spent going out to the movies. Everyone from little kids to Kim Kardashian loves games. I find it interesting that even though the economy has been in a prolonged recession, people are still paying up for entertainment.
With all this cash being thrown around, is there a good buy right now in this industry? I think so. Read on.
Take-Two Interactive Software's
In the company's earnings release from last week, management raised guidance for its fiscal year ending Oct. 31. It now expects to break $1 billion in revenue and be profitable for the year. This would be only the second time in the past five years that Take-Two shows an annual profit, and I view it as a sign that the company is on the upswing.
As industry leader Activision Blizzard
Take-Two does not have that problem. It has some of the best creative talent in the industry and has shown an ability to create popular franchises. Its big hit of the year, Red Dead Redemption, has sold almost 7 million units since it hit shelves in May. That's a home run and a new franchise the company will be able to leverage for years.
No gaming company can rely on just one title, and Take-Two also boasts BioShock, Civilization, Max Payne, and, of course, flagship Grand Theft Auto among many other properties in its game portfolio. These are great and long-lasting brands that should continue to perform well for years to come.
The Foolish bottom line
While I like Take-Two at the current price, I do want to caution readers not to fall in love with video game stocks, including Take-Two. This is a feast-or-famine business model where companies need to keep coming up with hit titles year in and year out. Take-Two is a good buy here since the stock is out of favor and depressed. I think it's cheap given the progress it's made building out other game franchises. The ideal scenario for investors today would be for the company to report a few more good quarters, have the market start to like the stock again, and then get out with a nice profit. Alternatively, another acquisition offer would certainly be welcome.
What do you think of Take-Two's prospects? Let us know in the comments section below.
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