Take-Two Interactive: The Upside Just Got A Lot Clearer

Key Points

• Shares hold their ground in the face of a weak report. 
• Multiple analysts are pointing to the long-term potential. 
• This looks like a serious rally in the making. 

With shares having rallied nearly 30% since last November’s low, there are signs of a recovery rally truly taking off with Take-Two Interactive Software, Inc.’s NASDAQ: TTWO stock. Having fallen pretty much double that from its 2021 high, it’s a much-welcomed uptrend for investors of the video game maker.

Video game sales were red hot during the pandemic, but as the year-over-year comparables have lapped those quarters, the numbers have inevitably cooled. 

Fresh numbers and updates from the company this week have given investors an ever clearer picture of Take-Two’s internal engine and the outlook for the coming months. As we wrote about on Tuesday, the headline earnings numbers were off the mark and below the consensus.

Its bookings for the past quarter were also soft, and management went so far as to even offer guidance on the lighter side for the coming quarter. 

Much talked about slowdowns in its game roadmap from the past year seemingly had a larger than expected impact on the company’s revenue, and they failed to make the most of the usually strong holiday season. However, for what was for all intents and purposes, a weak report, the stock has stayed flat.

This begs the question, was, or is, most of the associated downside for Take-Two already baked into the share price? After enduring a multi-month downtrend as they have, it’s not unreasonable to think this might well be the case. 

Bullish Outlook

This was in line with the team over at Stifel, who, in the wake of this week’s report, acknowledged the miss while reiterating their Buy rating on Take-Two stock. In a note to clients, analyst Drew Crum called it a “frustrating update”, but one that was not all that surprising given the commentary from Take-Two’s peers in recent weeks.

He now expects a shift in investors’ focus to FY2024 as they form a cautiously optimistic view of the longer-term prospects. There’s every reason to think that Take-Two’s pipeline will get back on track with its release dates, which should remove the headwind to the revenue that hurt so much last quarter. 

Take-Two’s product line-up for the next three years includes almost 90 titles, which is the “cornerstone” to Stifel’s decision to maintain its Buy rating. They weren’t the only ones remaining optimistic in the face of the earnings miss, with the folks over at KeyBanc taking a similar stance.

Analyst Tyler Parker reiterated his Overweight rating on the stock and wrote to clients that "it should get better from here” and that "we're nearing the time to look forward toward FY25."

This outlook will be of little consolation to investors who have held onto their positions through the past year and a half of selling. Still, for those considering getting involved, it points to an interesting opportunity. 

Getting Involved

In KeyBanc’s opinion, Take-Two's current share price “represents a potent multi-year story for the investor with duration". In other words, if you can pinch your nose and not watch the stock too closely for the next few months, this could be a solid addition to a portfolio.

MarketBeat has them ranked as a “Moderate Buy” with more than a 25% upside. And of all the video game stocks out there, MKM Partners has named Take-Two as their pick, with Bank of America also forecasting a softer landing for video game sales than expected. If that reality can indeed come true and if Take-Two can get their pipeline sorted, there’ll be a lot to like about the stock. 

Shares are trading back at pre-COVID levels, where they spent much of 2017 and 2018. Having tapped a deep low last November and only moved higher from there, the stock has all the appearance of one ready to rip once the near-term uncertainty is removed.