Down 35%, Is Take-Two Stock a Buy?

Competition in the games industry has intensified in 2022 as several companies have changed the landscape of the industry by acquiring different studios. Microsoft (MSFT -2.42%) started the trend in January when it announced its intention to acquire ActivisionBlizzard (ATVI -1.35%) for a historic amount of $68.7 billion. sony (SONY -1.44%) also joined in buying four game studios during the year, the biggest being Bungie for $3.7 billion.

While Microsoft and Sony acquisitions have been fueled by the ongoing console wars, Interactive Take-Twoit is (TTWO -0.88%) Buying mobile gaming giant Zynga for $12.7 billion helped it diversify its offerings and join a lucrative part of the market. Shares of the company have fallen nearly 35% since January on lower consumer demand in the tech industry and a dismal quarter due to its costly acquisition of Zynga.

However, Take-Two is a solid long-term buy thanks to a catalog of valuable content and projected market growth. Let’s evaluate.

A lucrative content library

Take-Two has become one of the leading companies in the gaming industry thanks to the success of its two biggest publishers: Rockstar Games and 2K. These studios are responsible for some of the most profitable franchises in the world, including Grand Theft Auto (GTA), Red Dead Redemptionand NBA 2K. However, Take-Two mainly owes its position in the market to the immense success of its 2013 game, GTA V.

The game had a lasting presence in the industry, becoming the fastest entertainment release to earn $1 billion. Then in 2018, GTA V became the most financially successful media title of all time when it reached $6 billion in revenue. Same Minecraftthe best-selling game of all time by number of copies sold, hit half that figure at $3 billion.

Nearly a decade after its release, Take-Two earns $911 million a year thanks to GTA V through added content, cross-platform re-releases, and micro-transactions. Additionally, the company is currently developing the next installment of the GTA franchise, which will likely significantly increase revenue when it launches in the next few years.

Additionally, Take-Two’s acquisition of Zynga brought many popular mobile titles into its fold, with its 10 most popular titles earning a total of $808.28 billion in 2021. Take-Two was already a force. powerful in the industry before buying Zynga, but the acquisition elevated its business and made it more competitive against companies such as electronic arts and Activision Blizzard.

Promising market growth

Despite slowing consumer demand in the technology market, analysts expect the video game industry to grow 36.2%, from $235.7 billion in 2022 to $321.1 billion in 2026, an increase of about 9% per year. Gaming is an increasingly popular pastime, attracting an estimated three billion gamers worldwide in 2021, making it one of the biggest entertainment markets in the world.

Additionally, the increase in game subscriptions, streaming, and the use of in-game purchases has opened up new avenues for revenue growth outside of game sales. Take-Two has strengthened the security of its business by offering its games on multiple consoles and platforms, which is particularly relevant in 2022, as the PC market has seen a sharp decline while game consoles continue to register record sales.

Take-Two’s acquisition of Zynga bolstered that security, with the company adding revenue from the booming mobile gaming market. According to Statista, the market value of mobile gaming content will grow from $149.5 billion in 2022 to $173.4 billion in 2026. The meteoric rise of mobile gaming over the years is also reflected in revenue growth from Zynga over the years, which more than doubled from $907.21 million. in 2019 to $1.9 billion in 2020.

Is now the best time to buy Take-Two shares?

Shares of Take-Two have fallen 9% in the past month following a disappointing quarter and leaked images for its next GTA Game. However, the company has excellent long-term prospects. On October 6, Goldman Sachs updated its recommendation from neutral to buy, explaining that despite short-term hurdles, the company has potential for patient investors.

With a catalog of valuable content that has proven its ability to generate revenue from a single title for nearly a decade and a promising business in mobile gaming, Take-Two stock is a great buy for investors. long-term.

Dany Cook has no position in the stocks mentioned. The Motley Fool occupies and recommends Activision Blizzard, Goldman Sachs, Microsoft and Take-Two Interactive. The Motley Fool recommends Electronic Arts and recommends the following options: Long Calls January 2023 at $115 on Take-Two Interactive. The Motley Fool has a disclosure policy.

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