It’s Time To Take Another Bite Of Take-Two Interactive

Key Points

• Take-Two Interactive had a strong quarter, with bookings above target. 
• The analysts are raising their targets and driving the stock price higher. 
• A robust pipeline of games is expected to drive industry-leading performance. 

Take-Two Interactive NASDAQ: TTWO had a mixed quarter and gave weak guidance, but the stock is up strongly despite the news. The report was mixed but came with a growth outlook that told the market this company is at a turning point. While it has pushed back the launch date of several new titles, the company’s pipeline of games is robust. On top of that, its oldest franchises and newest acquisition, Zynga, are performing above expectations. The takeaway is that Take-Two is on an upward trajectory, and the market thinks the 2024 guidance is conservative. Assuming the market is correct, this stock could quickly gain double digits by the end of the year. 

“We believe that we will enter our next phase of growth in Fiscal 2025, as we plan to deliver several groundbreaking titles that we anticipate will set new standards of quality and success and enable us to deliver over $8 billion in Net Bookings and over $1 billion in Adjusted Unrestricted Operating Cash Flow.…” said CEO Strauss Zelnick. 

Take-Two Rises On Bookings 

Take-Two Interactive had a good quarter, with most metrics beating by a wide margin. The 1 that didn’t is the GAAP earnings, offset by $519.5 million in impairment charges that make the comparisons meaningless. The details that matter are the 55.9% increase in annual revenue that outpaced the analysts' consensus by 820 basis points and the strength in net bookings. Net bookings rose by 65%, driven by a 118% increase in spending by recurrent customers. Net bookings are worth $1.4 billion and are supported by strength in core franchises and Zynga. 

The guidance is on the weak side but is cautious given the momentum shown in Q4 and the strength shown by others like Electronic Arts NASDAQ: EA and Roblox, which suggest a broad-based increase in in-game spending. The company expects revenue from $5.37 to $5.45 billion compared to the $6.16 billion consensus and is only up 1.7% YOY compared to 2023’s 55% growth. 

The analysts do not appear concerned by the weak growth and are banking on releasing new titles this fiscal year. Marketbeat.com is tracking 7 new reports from 24 active analysts, boosting their price targets. The range of new targets is $145 to $165 compared to the $143 consensus, which implies at least a 15% upside from the pre-release price. The consensus is trending higher compared to last month and last quarter, leading the market higher in 2023, and it may continue higher, given the outlook. The takeaway from the chatter is that Take-Two’s pipeline has the company set up for robust revenue and earnings growth; it’s only a matter of time until the new titles start hitting the market. 

Institutions Put A Bottom In Take-Two Interactive 

The price action over the past year has Take-Two Interactive at a bottom on track to complete a reversal in 2023/2024. That is consistent with the institutional activity, which has been net-bullish for the last 12 months, with spikes in buying coincident with lows hit mid-2022 and early in 2023. If this continues, the stock should continue to climb. 

The price action is favorable to higher prices. The stock is up 12% on the news and breaking above critical resistance. This should open the door to a sustainable rally that could take it up to the $160 to $180 range by the end of the year.