Take-Two Interactive (TTWO 0.72%) has made significant strides in the gaming market. As a result, investors are starting to take note and looking to learn more about the gaming company that's home to the hit franchise Grand Theft Auto.
Those interested in Take-Two should know the following five things: Most of its revenue is recurring, it has produced several hit titles, it enjoys a vast market opportunity, gaming is becoming a spectator activity, and its profit margins are expanding. What follows is a more in-depth look into each.
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1. Majority of revenue is recurring
In 2018, the company hit an inflection point where most of its revenue came through recurring sources. In the fiscal year 2021, $2.3 billion of the company's total $3.55 billion in revenue was recurring.
Why is that important? Recurring revenue is stickier (more likely to continue). Compare that to non-recurring revenue, for instance, from sales of a new hit title. The company would need to produce another hit title the following year; otherwise, sales will likely decrease.
2. Several popular hit titles
The company is home to several popular hit titles, including Grand Theft Auto, Red Dead Redemption, NBA 2K, and Civilization. The repeated success in producing hits demonstrates skill and creativity. NBA 2K games have sold over 121 million units worldwide, and the Grand Theft Auto series has sold over 370 million units.
That can give investors confidence in its ability to continue producing hits consumers love to play.
3. A significant market opportunity
Gamers spent $233 billion in 2021 and are forecast to spend $286 billion by 2025. The massive and growing market is an enormous opportunity for Take-Two. The company's $3.5 billion in revenue in 2021 is impressive and highlights room for growth within the industry.
Innovations in technology enhancing gameplay on mobile phones, computers, and consoles are likely to fuel continued growth in the gamer economy. An estimated 2.8 billion gamers worldwide in 2021 indicates the industry can get them to spend more by delivering better quality over time.
4. Spectator economy
Surprisingly, people are playing games and spending time watching others play. The global eSports audience rose to 495 million individuals in 2020. These hardcore fans watched 28 billion hours of gaming content through services like YouTube.
5. Expanding operating profit margin
Take-Two has grown revenue from $1.8 billion in 2017 to $3.4 billion in 2021. In that process, economies of scale have emerged, and the company's operating profit margin has expanded from 5.1% to 18.7%. In addition to economies of scale, there is another factor boosting profits. Gamers prefer to purchase digital copies of games instead of physical ones. Since they are typically priced the same, the move to digital saves the company the expense of creating and shipping physical copies.
While investors can learn many more things about Take-Two Interactive, the aforementioned should start you off on your due-diligence journey with a good foundation.
