Earlier in October, I covered Take-Two Interactive Software, Inc. (NASDAQ:TWO), where I discussed TTWO’s growth potential in the near term. Today in this article I will cover the company’s recent Q2 2024 earnings, the strong interest in the GTA VI trailer and the short-term outlook for the video game industry. TTWO recorded another quarter of strong performance in the second quarter of fiscal 2024. However, the highlight of the previous quarter was the recent release of the GTA VI trailer, which was received with keen interest and I believes the game has the potential to break records as the best-selling video. game ever. I remain positive about the company’s long-term growth prospects and maintain my Buy rating on the stock.
Second Quarter Fiscal 2024 Review and Outlook
Take-Two Interactive Software, Inc. reported another quarter of impressive performance during the second quarter of fiscal 2024, showing bookings of $1,445 million and EPS of $1.42, beating market expectations of $0.39. The company’s results eased any concerns about the company’s near-term demand and any slowdown in the gaming market. Although mobile revenue declined 7% year-over-year, improved unit sales for GTA V and increased spending on Grand Theft Auto Online more than offset the decline. Management kept guidance for the full year unchanged. TTWO’s forecast for FY25, with over $8 billion in bookings, implies a significant increase in content through March 2025. This suggests the development process is progressing well. Given the forward guidance, I am increasingly convinced that TTWO is well positioned to capitalize on the multi-year growth trajectory with a higher multiple.
Global gaming could remain lukewarm in 2024
The video game industry could face another year of weakening consumer confidence as gamers stick to franchises they know and not new releases they are unfamiliar with. Ubisoft could be the name to watch in 2024, with releases including Assassin’s Creed Codename Red, Star Wars Outlaws, Skull and Bones, and mobile titles like The Division Resurgence and Assassin’s Creed Jade. Electronic Arts will likely see annual updates for the EA FC and Madden sports franchises. Take-Two will likely refresh its NBA 2K and WWE 2K franchises, although attention will be focused on any information regarding Grand Theft Auto IV, scheduled for 2025.
The use of generative AI in video game development appears poised to accelerate in 2024-2025. The technology is gaining traction in conversations between non-player characters, broader game assets, and greater variations in procedurally generated level designs. Still, I don’t think AI generation will be the key to the success of any particular title, but it can help speed up a game’s development by finding and fixing bugs before release and adding more depth to digital worlds.
GTA VI sales could break records
I believe Grand Theft Auto VI has the potential to break records as the best-selling video game of all time and could surpass the record set by its predecessor, GTA V, and achieve sales of over 40 million. exemplary in 2025, with even greater potential. sales of over 55 million in the first year in a more optimistic growth scenario. The high level of engagement with the GTA VI trailer, which received over 105 million views in a single day, suggests high consumer anticipation for this sequel. To put the interest generated by the trailer into perspective, the trailer for Take-Two’s popular title Red Dead Redemption 2 was viewed 23 million times upon release, while other very popular titles expected like Cyberpunk 2077 and Starfield recorded 19 million and 18 million views respectively. The GTA VI trailer even surpassed its predecessor, GTA V, which garnered 101 million views. In comparison, the Modern Warfare 3 trailer from the popular Call of Duty franchise only received 38 million views.
TTWO currently trades at around 40 times forward earnings. Although the stock currently trades at a significant premium to peers like Electronic Arts Inc. (EA) and Activision Blizzard, Inc. (ATVI), I believe the premium is justified given the company’s growth trajectory and GTA’s monetization potential. In terms of valuation, global video game companies did not perform as well as the technology industry as a whole and the S&P 500 Index in 2023. However, Take-Two stood out in 2023 , mainly due to the continued excitement surrounding the release of Grand Theft Auto. VI, and I expect the hype to continue through 2024, until the game debuts in 2025. On the other hand, Electronic Arts and Ubisoft are lagging behind the S&P 500’s performance .I expect TTWO to maintain its premium multiple going forward. in the medium term and maintain my positive view of the company, which led me to reiterate the buy rating of the stock.
GTA VI could be priced at $70, I believe, because a higher price could prevent it from developing a large initial player base. Take-Two may sell more expensive deluxe or special editions, which could include in-game cosmetics, physical goods and potential online currency, in order to generate mixed MSRP increases. The major risk to the consensus on GTA VI could be further delays, which could shift some of the revenue that would otherwise be generated between 2025 and 2026. The predecessor, GTA V, was supposed to launch in spring 2013, but was four months old. delay. While such delays may disappoint investors in the short term, they could mean the difference between a mediocre launch and a successful one.
TTWO delivered impressive performance in the second quarter of fiscal 2024, and management’s guidance for FY25 was strong. GTA VI represents a transformative, multi-year growth opportunity for Take-Two. I believe GTA VI has the potential to set new records as the best-selling video game, as evidenced by the remarkable engagement with its trailer, which garnered over 105 million views in a single day. My long-term growth prospects for the company remain bright and I maintain my Buy rating on the stock.