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Why TakeTwo Interactive Stock Climbed More Than 17% in October

By Jennifer Saibil – Nov 5, 2021 at 8:24AM

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The video game stock is priced to buy.

What happened

Video game maker Take-Two Interactive (TTWO 2.14%) stock gained 17.5% in October according to data provided by S&P Global Market Intelligence. The company has been steadily launching new products to millions of loyal fans, and despite a tough year after a strong 2020, it's been beating sales expectations.

So what

Take-Two makes some of the most popular video games around, including the Grand Theft Auto series. Its steady outflow of new games plus in-game sales and ad revenue gives it a reliable revenue stream. Pandemic sales were strong, and the company finished the 2021 fiscal year (ended March 31) with a 9% sales increase and $5.09 in earnings per share (EPS), a 46% increase.

Two young boys with headphones on holding video game controllers.

Image source: Getty Images.

Facing last year's record numbers, management warned of a slowdown, which has materialized so far in fiscal 2022. First-quarter results were better than expected, but demonstrated that this year won't be like last year, with a 2% sales decrease. The stock tanked on those results back in August, but they were so low in September that many investors likely saw an opportunity. That helped propel the stock back up in October right before the second-quarter earnings release this week.

And those earnings were better than expected. Sales rose 2% to $853 million, and EPS came in at $0.09, a big decline from $0.86 last year. The company said that it incurred an impairment charge of $53 million for an unspecified game in development that it would not be pursuing. Bloomberg later reported that it was a project from developed Hangar 13, which Take-Two owns, that has been in development since 2017 with many delays caused by COVID-19.

Some other notable numbers from the earnings report were a 7% increase in recurring consumer spending and a 9% increase in digitally delivered revenue, which accounted for 91% of the total.

Now what

Investors were thrilled with the report, and Take-Two stock gained about 5% on the news. The company is releasing many new games and updates, including free content, and it raised its 2022 outlook after the earnings release to around flat sales growth or a slight increase for the full year.

Take-Two stock is down 7% year to date as of this writing, and shares are trading at a reasonable 34 times trailing-12-month earnings. Investors may want to consider buying shares of this video game maker while the price is low and the pipeline is heavy.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Take-Two Interactive. The Motley Fool recommends the following options: long January 2023 $115 calls on Take-Two Interactive. The Motley Fool has a disclosure policy.

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