Can Take-Two Interactive (TTWO) tap into emerging gaming opportunities?

The gaming industry has witnessed exponential growth in the past few years, transforming the way people consume electronic gaming content. Market leaders like Take-Two Interactive Software (NASDAQ: TTWO) remained largely unaffected by the virus crisis as the shelter-in-place orders pushed up the demand for online entertainment content.

Video game stocks were among the top gainers during the pandemic, and Take-Two Interactive was no exception. It reached an all-time high earlier this month but retreated to below $200 after the latest earnings report, which disappointed investors who were looking for a bigger earnings beat. The subdued sentiment, combined with concerns that the stock is overvalued after the recent gains, triggered a sell-off on Monday evening.

But experts believe there is more room for the stock to grow this year – about 11% to be precise. And, that’s a good reason for investors to add the stock to their portfolios, but those looking for short-term returns might be disappointed. Take-Two’s earnings exceeded the market’s projection in three of the previous four quarters, underscoring its strong fundamentals. Going forward, the game publisher is poised to cash in on the expansion of the industry that is rapidly transitioning from console games into online streaming.

Strong Pipeline

The company behind popular labels like Rockstar Games and franchises like Grand Theft Auto and Red Dead Redemption is planning to launch 93 new titles in the next five years, which is an impressive number considering the volatile market conditions. Last year, more copies of Grand Theft Auto were sold than ever before — except in 2013 when it was first introduced on major gaming consoles like Xbox. The latest version of the game is expected to be out in the second half of the year. It is worth noting that the company and its subsidiaries released a number of games last year, such as Carnival Games, WWE 2K Battlegrounds, Mafia: Definitive Edition, and Disintegration.

Mixed Q3

In the December-quarter, revenues dropped 7% to $861 million while earnings moved up 10% to $1.57 per share, aided by a drop in expenses. Bookings were also below the prior-year levels. In 2021, the digital platform is expected to account for about 87% of total bookings, which represents a 6% rise from last year.

From Take-Two Interactive’s Q3 2021 earnings conference call:

“…We continually explore both organic and inorganic opportunities and maintain a highly disciplined approach to ensure that our investments will be accretive to our shareholders and consistent with our strategy… We are investing prudently to advance our global infrastructure and resources that support our creative endeavors including data analytics and in-game engagement with players. Through all these efforts, we believe that Take-Two is poised to generate growth and margin expansion over the long term.”

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Read management/analysts’ comments on Take-Two’s Q3 results

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Stock Pull-back

The stock witnessed one of the biggest single-day losses this week after the company released earnings. It was down 7% early Tuesday as the post-earnings downturn continued. The shares, which are currently trading slightly below the levels seen at the beginning of the year, have gained as much as 75% in the past twelve months. They experienced a high level of volatility in recent weeks but maintained positive momentum.