To say Take Two Interactive Software Inc (NASDAQ:TTWO) has been sizzling might just be an understatement. The game-maker behind hits like Grand Theft Auto V and NBA 2K17 has gained 60% over the past 12 months and 250% over the past five years — a textbook, impressive upward trajectory.
Rival Activision Blizzard, Inc. (NASDAQ:AVTI), which boasts hits like World of Warcraft, Guitar Hero and Call of Duty, had been moving in tandem until recently, losing 5% in the past three months alone.
On Tuesday, TTWO will release its latest quarterly results. Last quarter, the company blew Wall Street’s expectations out of the water. The company’s per-share earnings trend for the current quarter has been down, but estimates for the next quarter, the full year and next year have all been upped significantly in the past three months. Ninety days ago, the consensus was for earning of $1.22 for the full year, but that’s since expanded 44% to an estimate of $1.76.
The only caveat? It represents a 10% decline from the year prior. The silver lining? For the year after, 50% growth is expected. Not too shabby.
Crunch a few numbers and you’ll see it’s still 33% growth when compared instead to Take Two’s earnings before the 10% expected drop. For the cherry on top, it’s on the back of double-digit sales growth.
What’s driving the success of TTWO stock? According to the most recent annual report, the shift to digital delivery has been strong. The company posted record net revenue of digitally delivered content thanks to 53% year-over-year growth. On top of that, recurrent consumer spending — which comes from in-game purchases and add-on content — grew to its highest level ever. This is promising, as it means results are being driven by spending trends as opposed to, say, a one-time launch.
Plus, as I already mentioned, TTWO has some solid games in its portfolio. In the aforementioned report, the company noted:
“Grand Theft Auto V and Grand Theft Auto Online have exceeded our expectations in every quarter since their release, and continue to expand their audience nearly three years after their initial launch.”
So what’s the catch? Well, just the consideration that the portfolio, shift and growth might already be built into the TTWO stock price. Right now, TTWO sports a forward price-earnings of 21 and PEG ratio of 2.5. Activision, on the other hand, has a pretty comparable forward P/E, but a PEG ratio just below 1.
Bottom Line on TTWO Stock
Despite the froth, I still like Take Two as a buy right now. And if it happens to dip after earnings for any reason, I’d definitely snatch up shares. I think investors are willing to pay a premium for the record-setting numbers Take Two has been posting. And for the cherry on top, recent estimates likely don’t include yesterday’s acquisition announcement from the company.
Take Two just bought a company called Social Point that’s been dubbed the “Zynga of Europe.” This is big because it represents yet another shift: the addition of mobile games to its portfolio. Take Two is diversifying its already-growing revenue stream and has momentum. I’d buy now — and if you’re iffy about the pricetag, at least be ready to pounce on any dip.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
