As a leader in video game development, Take-Two Interactive (TTWO +0.68%) has made a name for itself with the success of its two biggest publishing labels, Rockstar Games and 2K. The two studios are responsible for immensely popular franchises such as Grand Theft Auto, Red Dead Redemption, Borderlands, and NBA 2K.
Yet, its stock is down 30% year to date, taking hits from a decrease in consumer demand across the tech industry and a disappointing quarter following a pricey acquisition. Despite its losses in 2022, there is some crucial information that all investors should be aware of that could help Take-Two's business soar over the long term. Let's dive in.
1. A promising acquisition
In May, Take-Two made a move to diversify its business by purchasing mobile-games star Zynga for $12.7 billion. According to Statista, the mobile gaming market will jump from $152 billion in 2022 to $222 billion by 2027 -- an annual growth rate of 7.77%. As a result, a number of companies have entered the industry.
One of Take-Two's biggest competitors, Electronic Arts (EA +0.03%), has spent several years in the space and has seen its mobile revenue increase 36.5% from $672 million in 2018 to $1.05 billion in 2022. Zynga has similarly seen its revenue soar over the last few years, increasing 208.6% from $907.21 million in 2018 to $2.8 billion in 2021.
Before the acquisition of Zynga, Take-Two's revenue was largely reliant on console game sales. In its fiscal 2019, 83.7% of its revenue came from console gamers, while PC game sales made up 16.3%. This lack of diversification made the company vulnerable to fluctuations in its earnings based on when new titles were released. But mobile gaming provides more stability for Take-Two as it can expect a sustained stream of revenue from in-app mobile game purchases.
2. Lucrative releases on the way
Take-Two's most successful franchise by far has been Grand Theft Auto (GTA), with its 2013 installment GTA V becoming the fastest entertainment release to reach $1 billion. The company has continued to make history with GTA V, which in 2018 became the most financially successful media title of all time when it hit $6 billion in revenue.
The action-adventure game continues to hold the record, even against Minecraft, the best-selling game of all time by copies sold and totaling $3.5 billion in revenue from 2012 to 2021.
And the immense popularity of GTA V has bolstered anticipation for the franchise's next installment. Take-Two said in February that development of the next GTA title is "well underway," exciting its massive fan base. Fans have requested a new entry in the franchise for years; there have only been rereleases and updates of GTA V since 2013.
After the February announcement, Take-Two's stock rose by 5% as investors rallied over the prospect of what a new GTA could mean for revenue. The company has yet to reveal a definite release date for the game, but it projects 14% annual revenue growth through 2024, which led analysts to suspect that might be the year for the subsequent GTA launch.
NASDAQ: TTWO
Key Data Points
3. Bullish analyst recommendations
Despite its stock losing steam throughout 2022, Take-Two has a buy rating from multiple analysts. Its shares currently trade for about $118 and have a 12-month average price target of about $165, implying an upside of nearly 40%.
On Oct. 4, Goldman Sachs boosted Take-Two to a buy, citing the potential over the next few years.The investment bank said that the company's short-term outlook remains uncertain but that its GTA sequel and acquisition of Zynga position it for growth in the next few years.
Take-Two has been a fixture of the gaming community for almost 30 years. It's a powerhouse that will likely continue growing for years to come. With its stock significantly down in 2022, now might be a great time to invest.
