What Is Take-Two Interactive’s Fair Value?
Take-Two Interactive (NASDAQ: TTWO) is one of the leading video game publishers and has seen impressive growth in recent years, largely due to the digital tailwinds that have strengthened the industry in recent years. The gaming company’s revenue grew 13% annually, while its stock price more than doubled between fiscal 2016-18 (fiscal year ends in March). Further, the company saw robust improvement in its margins as a result of this digital shift, largely due to customers buying games directly from publishers via digital downloads and largely eliminating the need for brick-and-mortar stores. In addition, increased in-game purchases also helped boost the company’s margins. Take-Two’s shares have grown more than any other publisher in recent years, largely due to the great success of Grand Theft Auto V and 2K games. Strong gaming titles lined up for the year, coupled with the robust video gaming environment – led by mobile gaming – should drive solid results for the company in the near and medium term. Below, we take a look at what to expect from Take-Two Interactive in FY2019.
We have created an interactive dashboard analysis Our Outlook For Take-Two Interactive In FY 2019 to estimate the company’s valuation based on its expected near-term results. If you disagree with our forecasts, you can make changes to these variables to arrive at your own price estimate for the stock.
We currently estimate a valuation of $142 per share for Take-Two Interactive, which is about in line with the current market price, based on revenue projections of $2.55 billion for FY 2019, a net margin of about 8%, and a P/E multiple of 85x, which is slightly more than 2017 levels and higher than the industry average.
Gaming Portfolio Strength To Drive Top Line Growth
Take-Two Interactive kicked off fiscal 2019 with a solid start and reported better-than-expected Q1 results, as a result of a favorable digital-heavy sales mix. The robust performance was driven by increased recurrent consumer spending (RCS) – virtual currency, in-game purchases, and add-on content on Grand Theft Auto Online, NBA 2K18, WWE 2K18, Dragon City and Monster Legends, as well as strong ongoing demand for Grand Theft Auto V. Digital purchases account for nearly 65% of overall revenue, and we expect digital purchases to increase dramatically to a mix of 75-80% and race towards full penetration over the long run. As a result, this shift should significantly boost margins in the near term. Additionally, the company’s recent acquisition of Social Point – a mobile gaming company – should further boost its revenue and provide for significant growth going forward. Accordingly, we are upbeat about TTWO’s growth prospects for FY 2019, driven by its new game title releases – NBA 2k19, Red Dead Redemption 2, WWE 2K19, and Social Point’s mobile offerings, coupled with the robust outlook of the video gaming industry – primarily led by the bright outlook of the mobile gaming industry and the shift towards digital purchases – which should lead to increased RCS.
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