About Take-Two Interactive
There are so many things I miss about being a kid.
One of the major things is the late night sleepovers with friends, incessantly playing pranks on each other, completely eviscerating boxes upon boxes of Pizza Hut, yapping about teachers and of course, I can’t forget about playing video games for hours and, really, nights on end.
Among our favorites were Star Wars Battlefront, 2010 FIFA World Cup South Africa and Grand Theft Auto (GTA) IV and V (we used cheat codes for days, by the way).
Aside from being able to pile on the pizza and still be able to not gain a single pound (those were the days), video games of all types brought us together and we had a little too much fun yelling, laughing and terrorizing one another in the virtual realm.
Good times.
At any rate, drawing onto such nostalgia I began considering the fact that we have already written about one of the world’s most popular video game (and gaming in general, including mobile) developers, Electronic Arts (EA), and thus it might just be a rather opportune time to write a stock analysis article on one of EA’s most considerable rivals, a game developer and distributor headquartered in The Big Apple, Take-Two Interactive.
Like EA, Take-Two also has a sizable network of video game content that is well enjoyed by the masses (of course, including my eleven-year-old self), including major gaming franchises such as Grand Theft Auto (which was previously just owned by Rockstar Games but Rockstar was later acquired by Take-Two), NBA 2K, WWE 2K, FarmVille (similarly, previously just owned by Zynga but it was later acquired by Take-Two as well), Words with Friends (digital Scrabble, really) along with a few other franchises available to play through various channels, whether one’s gaming console or their smartphone.
It can be said that Take-Two has a fairly impressive franchise lineup, as many of these games have had oodles of longevity among the gaming community and, from our vantage point, this makes the company and its operations as a whole a bit more recession resistant than some of its smaller competitors (i.e., not Electronic Arts), as the gaming crowd tends to be a loyal bunch and also incorporating the rise and potential regarding the metaverse and how it can be integrated into gaming, we feel like the gaming industry overall is ripe with innovation and positive disruption in the near-term as well as the long-term.
With all of this being said and a relatively simple yet accurate picture being painted regarding Take-Two Interactive and its operations, let’s delve into this company’s core financial figures and metrics so as to determine whether or not its stock (NASDAQ: TTWO) is worth considering as a long-term investment holding in one’s portfolio.
Take-Two’s stock financials
Currently trading at a share price of $143.19 with a market capitalization of $24.25 billion, a price-to-earnings (P/E) ratio of 71.53 and no annually distributed dividend to its shareholders at the moment either, there isn’t a whole lot to like about Take Two and its stock (NASDAQ: TTWO), at least yet, anyway, given that its stock price seems quite overvalued given the commonly held price-to-earnings ratio fair value benchmark of 20 and subsequently, any figure greater than 20 implying that a security’s price is trading above what it is actually worth, or is overvalued.
With that, on a strict price-to-earnings basis it seems as though Take-Two’s stock is a bit full of itself at the moment and its actual, intrinsic value has some catching up to do.
Take-Two certainly isn’t out of the game yet, however, this isn’t necessarily the start we were hoping for on the valuation front.
With respect to the company’s balance sheet, Take-Two’s executive team is tasked with tending to and managing approximately $15.8 billion in terms of total assets as well as around $6.8 billion in terms of total liabilities, which, to us, is a balance sheet to be proud of, as this company has managed to remain resoundingly total asset-heavy, even amidst the recent market turmoil while also having some debt on its books, implying that it is still investing and financing new projects, an example perhaps could be its highly anticipated Grand Theft Auto VI, among numerous other developments and projects.
Regarding the company’s income statement, Take-Two’s total annual revenues since 2019 have seen a steady stream of growth, starting at almost $2.7 billion in 2019, rising to just north of $3 billion the following year to around $3.4 billion in 2021, $3.5 billion in 2022 to its latest reported figure (that is, displayed on TD Ameritrade’s platform) of $5.35 billion, in 2023.
This is great growth for a company as established as Take-Two, ladies and gents.
We think much of this growth can be attributed to a few of its recent strategic acquisitions as well as its push into mobile gaming, as it seems, at least from what we have seen around simply as consumers, more and more gamers are getting less interested in going out and buying an expensive gaming console and purchasing compatible games to run on said console and would much rather simply download the games on their personal computer(s) (PC) and/or smartphones and play through those channels.
Take-Two has been and seemingly still is accommodating that and riding this trend, at least, according to its recent growth in total annual revenues.
Onto the company’s cash flow statement, Take-Two’s total cash from operations in particular have been positive since 2019, some years certainly more positive than others, as its total cash from operations in 2019 stood at $844 million, $686 million in 2020, $912 million in 2021, drifting down to $258 million in 2022 and even further down to just $1 million, as reported in 2023.
Perhaps Take-Two is making some rather sizable, aggressive investments in other growing segments of the gaming industry (which, to us, would be a good thing) through investments in its already established platforms or perhaps through some non-organic growth means, such as through mergers and acquisitions (M&A) within the space.
Regardless, we just hope that Take-Two’s trailing twelve month (TTM) net profit margin is strong enough to give us the confidence that it can become and remain more consistent with its cash from operations and net income on a year-over-year (YOY) basis.
Let’s inspect.
Take-Two’s stock fundamentals
According to the figures displayed on TD Ameritrade’s platform, Take-Two’s TTM net profit margin is frankly abysmal.
Specifically, it is listed at -21.02% to the industry’s listed respective average of 3.24%, which is sort of double whammy of bad news, as Take-Two’s TTM net profit margin is apparently horribly low (and obviously, negative) and the industry’s average isn’t even that high, sitting in the low single-digits spectrum, telling us that there isn’t much of anything to look forward to from Take-Two on this front, even if they do become more competitive in this respect, which we certainly hope they do.
We frankly expected a lot more from such a leader in the sector, as we think Take-Two has been around far too long to turn out a negative TTM net profit margin, especially when the aggregate average of its peers is positive, even if not by that much.
Even if Take-Two is doing all of the right things and committing much of its capital back into its business(es), this margin of difference, from our perspective, is still just far too wide for a company as seasoned as this one.
Whatever the cause or reason may be behind its disappointing TTM net profit margin, we hope to see the company make some tangible, meaningful progress in this arena moving forward.
Moving onto the company’s core TTM returns, especially as they relate to the company’s TTM returns on assets and investments, Take-Two’s are both also grossly below that of the listed industry averages, which, again, is far from encouraging.
For example, also according to the figures displayed on TD Ameritrade’s platform, Take-Two’s TTM return on investment(s) sits below at -13.67% to the industry’s listed average of 1.24%.
Should you buy Take-Two stock?
When it comes to the gaming franchises under Take-Two Interactive’s corporate umbrella, there is a lot to like, as its games are spread out among a host of channels such as traditional gaming consoles as well as mobile devices and personal computers and the games themselves are quite well known among the masses, gamers or not.
And, of course, the nostalgia with this company is so real.
Nevertheless, upon further review of some of the company’s core financial figures, metrics and other pertinent ratios, there is a lot to not enjoy regarding Take-Two and its stock (NASDAQ: TTWO), at least at the time of this publication.
With its share price trading in a sorely overvalued state, its TTM net profit margin and core return metrics trading frighteningly below that of the industry’s averages, we are net bullish on the gaming sector overall but right now, we are net bearish on Take Two and its stock’s current and future prospects.
We give this company’s stock a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.