Anticipated Game Releases Including GTA VI Will Spark Excitement

Key Takeaways

• Anticipated releases and rising consumer spending are expected to drive significant revenue growth and record net bookings in upcoming fiscal years.
  
• Synergies with Zynga's mobile expertise, alongside successful new titles and projects, are projected to enhance profitability and expand market share.
  
• Increased marketing expenses and underperforming mobile titles may reduce net margins, affecting profit growth amid slow revenue trends and franchise struggles.

Catalysts

Develops, publishes, and markets interactive entertainment solutions for consumers worldwide.

• Take-Two Interactive Software is expected to see significant revenue growth from the highly anticipated releases of Grand Theft Auto VI, Borderlands 4, and Mafia: The Old Country, which are forecasted to deliver record levels of net bookings in fiscal 2026 and 2027.
  
• The company's recurrent consumer spending is on the rise with NBA 2K seeing a 30% increase and significant user engagement, which is expected to drive future revenue growth due to the strong performance of its updated game modes and innovative features.
  
• With the early access launch of Sid Meier’s Civilization VII and its positive reception, Take-Two anticipates an uplift in sales and engagement, leading to increased revenue contribution from its strategy game segment.
  
• Mobile gaming remains a core pillar of growth, with Zynga's successful new title, Match Factory!, on track to become its second-largest title, while continued direct-to-consumer improvements are expected to enhance profitability and future earnings.
  
• The potential synergy between Take-Two's existing IP and Zynga's mobile expertise, alongside emerging projects, is projected to unlock new revenue streams and expand their market share in the mobile gaming industry.

Take-Two Interactive Software Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Take-Two Interactive Software compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Take-Two Interactive Software's revenue will grow by 21.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -67.1% today to 12.5% in 3 years time.
• The bullish analysts expect earnings to reach $1.2 billion (and earnings per share of $5.49) by about April 2028, up from $-3.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 54.1x on those 2028 earnings, up from -10.1x today. This future PE is greater than the current PE for the US Entertainment industry at 21.8x.
• Analysts expect the number of shares outstanding to grow by 2.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.46%, as per the Simply Wall St company report.

Take-Two Interactive Software Future Earnings Per Share Growth

Risks

• The persistence of current mobile trends, such as the slow revenue growth in Zynga's portfolio and lower performance in some mobile franchises, could directly impact net bookings and overall profitability in the upcoming quarters.
  
• The shifting of operating expenses into future periods and increased marketing expenditures related to new launches might pressure net margins and reduce earnings in the near term.
  
• Underperformance of key mobile titles like Empires & Puzzles, despite being a profitable franchise, could weaken revenue growth if not mitigated through effective updates and enhancements.
  
• Continued declines in Grand Theft Auto Online revenue, coupled with uncertainties around user retention, could reduce expected earnings and impact overall financial performance.
  
• The necessity for substantial marketing investment to sustain consumer interest across various franchises could limit net income growth if such expenditures do not translate effectively into increased sales or player engagement.

Valuation

• The assumed bullish price target for Take-Two Interactive Software is $270.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Take-Two Interactive Software's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $270.0, and the most bearish reporting a price target of just $135.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $9.8 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 54.1x, assuming you use a discount rate of 8.5%.
• Given the current share price of $209.97, the bullish analyst price target of $270.0 is 22.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.