Grand Theft Auto 5 is off to the races, but will the good times last?
Take-Two Interactive Software 's (NASDAQ:TTWO) most successful franchise is a Guinness-certified record smasher with seven world records to its name. Will the title keep Take-Two shares afloat in the long run, or has the stock already harvested its biggest GTA5 gains?
First, let's consider the sheer magnitude of GTA5 's achievements.
Activision 's (NASDAQ: ATVI) Call of Duty: Black Ops used to own the major video game sales records. The military-action romp recorded $360 million in first-day sales and $650 million the first week, topping the $1 billion mark in less than a month.
Those are huge numbers, but nothing compared to GTA5. According to Guinness World Records, the title saw $815 million in first-day sales, passing the billion-dollar water mark just three days later. These are record numbers even outside the video game market, and Guinness certified two of GTA5's records in the wider entertainment market.
That said, Take-Two hasn't been a great financial steward of the fantastic GTA franchise. The company lives and dies by Grand Theft Auto, and took an inexcusably long five years to release this sequel. In the meantime, the company turned down a buyout offer from Electronic Arts (NASDAQ:EA) that valued the company at $25 per share, which is nearly 50% above today's prices. Take-Two has outperformed Electronic Arts, but that's not much of a compliment since EA shares have dropped 23% in five years. An all-cash payout in 2008 would have been a far better outcome for Take-Two shareholders.
Furthermore, CEO Ben Feder left Take-Two in 2010 to become a private equity magnate. In short, it's been a rocky half-a-decade between these two GTA installments.
You might expect Take-Two to build on the gains from GTA4 -- another record breaker on a smaller scale. But Take-Two's fundamentals haven't improved since GTA4 was launched, and neither has the stock price:
Current Take-Two investors are hoping that the company will manage the GTA5 bonanza in a far more productive way. Unfortunately, "hope" is hardly a solid investment thesis -- unless you're investing in lottery tickets. Take-Two is no master of making its hits last. Fellow Fool Tim Beyers believes that Take-Two shares are cheap, but the execution risk outweighs the discount for me.