Should You Buy MongoDB Over Take-Two Interactive Stock?

TTWO: Take-Two Interactive Software logo
Take-Two Interactive Software

Given its better prospects, we believe MongoDB stock (NASDAQ: MDB), a database software provider, is a better pick than Take-Two Interactive stock (NASDAQ: TTWO). That said, both stocks have the potential for substantial gains in the next three years. Although these companies are from different sectors, we compare them because they have a similar market capitalization of around $24 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better gauge their valuations.

Interestingly, MDB stock has had a Sharpe Ratio of 0.9 since early 2017, higher than 0.5 for TTWO and 0.5 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Looking at stock returns, MDB has fared better. While TTWO is up 34% this year, MDB has surged 71%, and the S&P500 index is up 11%. The rise in MDB stock over the recent quarters can be attributed to its consistent upbeat earnings. There is more to the comparison, and in the sections below, we discuss the possible returns for TTWO and MDB in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Take-Two Interactive vs. MongoDBWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

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1. MongoDB’s Revenue Growth Is Better

  • MongoDB’s revenue growth has been better, with a 45.7% average annual growth rate in the last three years, compared to 21.9% for Take-Two Interactive.
  • Gaming companies at large benefited from lockdowns during the pandemic, as gamers spent more time on gaming. However, this trend has now cooled off.
  • Take-Two Interactive’s revenue growth can partly be attributed to its acquisition of Zynga last year, which has been seeing a steady rise in revenue over the past few years, led by its popular mobile gaming franchises, including Merge Dragons and Empires & Puzzles.
  • Take-Two Interactive’s big franchises, including Grand Theft Auto and NBA2K, have also been doing well.
  • The company is expected to see a rise in sales driven by the continued expansion of Zynga’s games and the much-awaited launch of Grand Theft Auto (GTA) 6, likely to be released next year.
  • MongoDB’s strong revenue growth in recent years can be attributed to a shift toward digital transformation and cloud migration.
  • There has been a massive 3x rise in the company’s customer base to 45,000 now vs. 13,400 in 2019, which has meant a sharp rise in the company’s subscription revenue.
  • Looking forward, MongoDB’s revenue is expected to grow at a CAGR of 23% to $2.4 billion in three years. In comparison, Take-Two Interactive’s revenue will likely rise at a CAGR of 16% to $8.5 billion, based on Trefis Machine Learning analysis.

2. Take-Two Interactive Has Seen Better Profitability

  • Take-Two Interactive’s EBITDA margin has contracted from 24% in 2020 to -14% in 2023 (the fiscal ends in March), primarily due to higher marketing expenses and some one-off costs related to the Zynga acquisition. In comparison, MongoDB’s EBITDA margin improved from –22% to 4% over this period (MongoDB’s fiscal ends in January).
  • Our Take-Two Interactive EBITDA Comparison and MongoDB EBITDA Comparison dashboards have more details.
  • Looking at financial risk, MongoDB fares better with its 5% debt as a percentage of equity, lower than 13% for Take-Two Interactive, and its 74% cash as a percentage of assets, higher than 6% for the latter, implying that MongoDB has a better debt position and more cash cushion.

3. The Net of It All

  • We see that MongoDB has demonstrated better revenue growth and has a better financial position. On the other hand, Take-Two has been more profitable.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe both stocks will offer substantial gains of over 70% in the next three years. Still, if one has to choose between the two, MongoDB appears to be a better pick.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 79% for MongoDB over this period vs. a 73% expected return for Take-Two Interactive, based on Trefis Machine Learning analysis – Take-Two Interactive vs. MongoDB – which also provides more details on how we arrive at these numbers.
  • Note that Take-Two Interactive is expected to launch GTA 6 next year. Its predecessor – GTA 5 – has sold 180 million copies since its release in 2013, garnering close to $8 billion thus far. The new game in the franchise is likely to surpass this figure in fewer years.
  • If we compare the current P/S multiples to the historical averages, both stocks look undervalued. TTWO stock trades at 4.3x revenues, compared to its last five-year average of 8.6x, while MDB stock trades at 19x trailing revenues vs. the last five-year average of 45x.
  • Our Take-Two Interactive (TTWO) Valuation Ratios Comparison and MongoDB (MDB) Valuation Ratios Comparison have more details.

While MDB may outperform TTWO in the next three years, it is helpful to see how Take-Two Interactive’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Oct 2023
MTD [1]
YTD [1]
Total [2]
 TTWO Return -1% 34% 183%
 MDB Return -3% 71% 1032%
 S&P 500 Return -1% 11% 90%
 Trefis Reinforced Value Portfolio -3% 20% 514%

[1] Month-to-date and year-to-date as of 10/5/2023
[2] Cumulative total returns since the end of 2016

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