Yahoo Finance Take-Two Is Set to Soar Higher
- By Harsh Jain
Activision Blizzard (ATVI), Take-Two Interactive Software (TTWO) and Electronic Arts (EA) account for the top three game publishers in the U.S. The most important thing to notice is that all three of the stocks have been displaying stunning performances this year.
Activision Blizzard, though, leads the race as it is up more than 65% year to date followed by Take-Two Interactive Software, which is up nearly 48% year to date. Although all three of the gaming stocks have massive upside potential, I would like to focus mainly on Take-Two Interactive.
Warning! GuruFocus has detected 5 Warning Sign with ATVI. Click here to check it out.
The intrinsic value of ATVI
In the most recent quarter, the company logged strong earnings per share of 89 cents, beating the analysts' estimate by 32 cents. On the other hand, it reported revenue of $407.13 million, representing a surge of 19% year over year.
Most significantly, the company comprises a robust balance sheet compared to most of its competitors. The game publisher has liquidity of $1.73 billion compared to long-term debt of just $250 million. Moreover, its market cap sits at approximately $7.6 billion, suggesting it currently trades for around 4.4x its cash.
Electronic Arts and Activision Blizzard also have robust liquidity positions, but they have considerably more long-term debt.
According to a forecast report from newzoo.com, the worldwide gaming market is projected to reach $109 billion this year, representing a surge of 7.8% on an annual basis. Digital game revenues will account for more than 85% of the worldwide market. Mobile gaming has been growing at a strong pace in recent years and is projected to grow 19% this year to $46.1 billion, accounting for 42% of the gaming market.
Therefore, Take-Two acquired Social Point for $276 million in February to gain benefits from the lucrative mobile segment. That was a smart move by the company that focused more on PC and console gaming, eschewing the mobile games market.
In all, with the acquisition of Social Point, the game publisher has further diversified its business, expanded its portfolio of owned intellectual property and substantially enhanced its position in the rapidly growing free-to-play mobile gaming market.
Apart from this, the company recently acquired developer Squad, the creator of the physics-based space simulation Kerbal Space Program. The game publisher sees it as a new long-term franchise that adds a well-respected and beloved IP to its portfolio as it carries on discovering opportunities across the development landscape.
"Red Dead" is one of the most valuable franchises of Take-Two subsidiary Rockstar Games. The game publisher recently reported that the next installment of the "Red Dead" franchise titled "Red Dead Redemption 2" has been pushed to spring 2018; it was originally scheduled to come out in late 2017.
The company is doing so to ensure that it can deliver the best experience possible for its fans. Although the decision to delay "Red Dead Redemption 2" will hurt results in the second half of this year, its long-term growth prospects still look healthy.
Summing up
Over the past 12 months, the stock has surged more than 90% which looks highly impressive. It is likely that the company will continue moving upward as it has robust gaming franchises such as "Grand Theft Auto."
On the other hand, the company is focusing on developing mobile games keeping in mind the healthy outlook of the mobile game market. The company is placing its emphasis on the e-sports market which is projected to reach approximately $700 million this year.
With the gradually rising share price, though, the company's price-earnings (P/E) ratio has increased abruptly. The stock currently trades at a high P/E ratio of 149, considerably greater than that of Activision (46.33) and Electronic Arts (36.60).
As a result, existing shareholders should continue holding the stock as its long-term prospects look good, and shareholders seeking to initiate a position in the stock should wait for a dip as it currently trades near its all-time high.
Disclosure: No position in the stocks mentioned in this article
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 5 Warning Sign with ATVI. Click here to check it out.
The intrinsic value of ATVI
