Investors have wildly different opinions about the leading video game stocks today. Take-Two Interactive (TTWO 0.72%), buoyed by its recent acquisition spree, is seen as having an especially bright future ahead in the digital entertainment space. Electronic Arts (EA 0.46%) stock, on the other hand, has underperformed the market in 2023 due to concerns about slowing growth.
Wall Street can be wrong, though, and often focuses too much on short-term issues. So let's take a closer look at these two successful game developers to see which is the better fit for your portfolio.
The latest results
Take-Two's growth has been more impressive lately. Sales in the most recent quarter jumped 53% to $5.4 billion. EA posted a 15% increase to roughly $2 billion.
Most of Take-Two's gains can be attributed to the addition of the Zynga portfolio to its business, which has recently added a large presence in the mobile gaming niche. Other big contributors were its NBA 2K23 and Grand Theft Auto franchises.
After several years of investing in its development pipeline and making big acquisitions, Take-Two today has a large and diversified portfolio that should deliver relatively stable growth through most selling environments.
EA also modestly outperformed expectations this past quarter thanks to hits in the EA Sports catalog and Apex Legends. The company set new records on engagement and on its recurrent spending through content subscriptions.
EA is also highly profitable today while Take-Two is still a few years away from establishing consistent annual earnings.
Looking ahead
Both companies are gearing up for a potentially tough selling period ahead as gamers continue to become more cautious in their spending patterns.
Take-Two canceled several smaller titles to focus on its more well-known franchises. It is projecting essentially flat sales in the 2024 fiscal year. Similarly, EA is calling for sales of between $7.3 billion and $7.7 billion compared to this past year's $7.4 billion haul.
TTWO Operating Margin (TTM) data by YCharts
The subsequent year will be another story. Both companies plan to release several big titles following fiscal 2024, partly because consumer spending will likely be stronger then.
Take-Two's ambitions are more aggressive, though. "Fiscal 2025 is a highly anticipated year for our company," CEO Strauss Zelnick said in a conference call with investors.
The better buy
Given those trends, most growth-focused investors will prefer Take-Two stock today. While its lack of profitability is a negative, the company is expanding sales more quickly and has a good shot at game-changing growth next year.
Shares are also priced at a modest discount compared to Electronic Arts. You can buy Take-Two for 4.2 times sales today while EA costs nearly 5 times sales.
EA stock is less risky due to its stronger financial position and more established portfolio packed with sports games that attract new spending each year.
If you're looking for more market-beating sales gains over the next few years, though, consider adding Take-Two to your watch list. It will be fun to watch this video game developer capitalize on its Zynga acquisition while beefing up its content portfolio through fiscal 2025 and beyond.
