Here’s why Take-Two Interactive Software (TTWO) will see further gains in 2021

The video game industry benefited significantly in 2020 due to the rise in gaming trends during the COVID-19 pandemic period. These trends are expected to continue in the foreseeable future thereby paving the way for video game companies to drive growth. Take-Two Interactive Software Inc. (NASDAQ: TTWO) is one of them. The stock has gained 61% in the past one year and 28% over the past three months.

Performance

In the second quarter of 2021, Take-Two saw its digital revenues increase 16% year-over-year to $711 million. Digital accounted for 85% of total revenues. Total revenues in the quarter dipped around 2% due to a drop in physical and other sales.

The company saw a 56% increase in recurrent consumer spending, which comes from ongoing consumer engagement and includes virtual currency, add-on content and in-game purchases. Recurrent consumer spending made up 59% of net revenues.

Net bookings grew to $957.5 million from $950.5 million last year. Net bookings from recurrent consumer spending grew 43% and accounted for 64% of total bookings. Digital net bookings rose 14% and accounted for 83% of total net bookings.

Products and acquisitions

Take-Two benefits from a strong set of franchises which continues to drive revenue for the company. In the most recent quarter, the largest contributors to revenue and bookings growth were the NBA 2K20 and NBA 2K21, Grand Theft Auto, Red Dead Redemption, and Borderlands franchises. These franchises also drove significant growth in digital revenue during the quarter.

The company’s continuous updates and addition of new features to its games helps drive engagement which in turn fuels recurrent consumer spending. Take-Two released new free content updates for Red Dead Online and Grand Theft Auto Online early in FY2021 and plans to release major updates later in the fiscal year for both titles.

Take-Two has been acquiring companies and this strategy is expected to help broaden its portfolio and help drive growth. In calendar year 2020, Take-Two acquired the privately-held mobile game developer Playdots Inc. for $196 million. Mobile games is a fast-growing sector and this acquisition will help Take-Two take advantage of the opportunity in this space. Playdots has a strong development pipeline with a number of puzzle games planned for launch in the coming years.

Take-Two’s Rockstar Games acquired Scotland-based Ruffian Games in 2020 and Take-Two is also considering the acquisition of UK-based games developer Codemasters Group.

Industry trends

Based on data from IDC and MarketWatch, global video game revenue is estimated to rise 20% to $179.7 billion in 2020, making the industry bigger than movies and sports. The report states that experts believe the strong growth will continue in 2021, following the recent launch of next-generation gaming consoles from Sony Corp. (NYSE: SNE) and Microsoft Corp. (NASDAQ: MSFT).

According to MarketWatch, the industry is expected to gain the most from mobile gaming. Excluding in-game ad revenue, worldwide mobile gaming revenues are expected to grow 24% year-over-year to $87.7 billion.

Outlook

For the third quarter of 2021, Take-Two expects revenues of $760-810 million and net bookings of $675-725 million. For fiscal year 2021, revenues are expected to be $3.05-3.15 billion while net bookings are expected to be $3.15-3.25 billion.

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