Don't Think Twice About Take-Two Stock

With shares printing an all-time high during Friday’s session, the video game holding company Take-Two (NASDAQ: TTWO) was showing no signs of its current rally slowing down. It’s been a phenomenal few months for investors of the New York company which has the likes of the widely popular Grand Theft Auto and Red Dead Redemption series under its umbrella.

After previous all-time highs were set in October 2018, a double top was put in last August and for a while, it looked like the momentum needed to take the next leg up was lacking. As part of the flight from equities in February and March of this year, shares shed 25% and were briefly back at 2017 levels.

Silver Lining

But in hindsight, like with many e-commerce companies, the coronavirus pandemic has been a cloud with a very shiny silver lining for Take-Two. As businesses shut and the population went into lockdown, more people than ever before were stuck at home with little to do. Unsurprisingly, video game sales went through the roof which was a welcome boost after years of stagnation. In May, year on year sales growth of 52% was reported with gains seen across all categories; hardware, accessories and games. While the acceleration slowed the following month, it was still the best June on record since 2009.

Earlier this month, Needham highlighted just how big the ongoing shift in the industry was when they noted key driving factors like the “need for social distancing, no movie theaters or live sports, increased in-game revenue from more hours played and “the cultural bias against video games ... ebbing as parents now understand (at home with their kids) the highly social aspect of video games”.

The likes of Amazon (NASDAQ: AMZN) and Zoom Video (NASDAQ: ZM) might be the flashier stocks garnering more headlines but there have been impressive returns for the likes of Take-Two as well. In the last four months, shares are up 55% alone with fresh catalysts sure to keep the momentum going. In the past fortnight alone, the company has announced a publishing deal with Microsoft (NASDAQ: MSFT) and will be developing games for the latter’s new XBOX Series X console through 2023.

Multiple Upgrades

Last week, a string of upgrades on the stock fanned the flames and gave the bulls plenty of reasons to hold onto their positions. Stifel upped their price target from $150 to $170, which implies about another 10% from Friday’s close. They’re particularly bullish on Take-Two’s flagship Grand Theft Auto franchise leading sales into the second half of the year. Wells Fargo also has big hopes for GTA sales and raised its target on the stock to $175 while maintaining an Overweight rating. Not to be outdone, Goldman Sachs was out with an even higher target of $178. They see the in-game spending business line providing a very pleasant surprise to the company’s next earnings report.

Investor’s have plenty to look forward to with the next earnings report due in the middle of next month. In May, the company’s fiscal Q4 report had revenue jumping 49% year on year with more than half of the total revenue number coming from recurrent customer spending - in-game purchases and add-ons.

CEO Strauss Zelnick commented with the release that “Take-Two has the strongest development pipeline in its history, including sequels from our biggest franchises as well as exciting new IP. Our company remains superbly positioned – creatively, operationally, and financially – to capitalize on the many positive trends in our industry, and to deliver continued growth and returns for our shareholders over the long-term.”

With that kind of bullishness and unparalleled industry momentum, you have to say that Take-Two shares are still appealing even here at all-time highs.