Originally published on May 10, 2024
Executive Summary
Recommendation: Buy
Company and Market Overview
- Take-Two is a leading console, PC and mobile videogame publisher serving a global audience of players with a diverse portfolio of established game franchises and hyper-casual titles across multiple genres
- Take-Two’s revenue is expected to have decreased slightly over the last fiscal year while EBITDA has dipped significantly from pandemic-era highs, driven by the lower margins of their mobile game division
- The video-game industry is highly fragmented and is undergoing significant transformation, as the growing market share of hyper-casual mobile games is pushing companies that have historically focused on established PC and Console videogame franchises into the less profitable and more competitive mobile gaming space
Valuation
- DCF analysis suggests that Take-Two is currently valued at or below its “fair” value. Shrinking implied premiums between precedent transaction multiples and current public trading comps suggest the market sees higher profitability in the horizon for videogame companies given the advances in AI and its potential to lower costs
- Different valuation methods indicate an Enterprise value of between $21B and $31B for Take-Two
- Take Two’s expected cash flows are highly dependent on the success of GTA VI and the revenue surge it is projected to generate. GTA VI’s high expected sales may be masking weaknesses in other areas of the firm
