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Take-Two Interactive Soared in 2023 -- and Next Year Could Be Even Better

Motley Fool - Thu Dec 14, 2023

Take-Two Interactive(NASDAQ: TTWO) investors received some unsurprising but still unwelcome news in early December. The next installment in the Grand Theft Auto franchise, the video game developer's biggest brand, won't go on sale until sometime in 2025, according to the first official game trailer.

That timing wasn't a big deal for Wall Street -- the stock is still up more than 50% so far in 2023. But investors have some good reasons to believe that momentum will carry into 2024 and beyond. Let's look at the three biggest factors that could propel Take-Two to the next level.

1. Take-Two has grand plans for the next few years

The lack of a new Grand Theft Auto release in 2024 won't be a big drag on Take-Two's business. Sure, that franchise is the developer's most valuable one, having sold 400 million units overall. Grand Theft Auto 5, released over a decade ago, has sold almost 200 million units and is still a major force in Take-Two's portfolio.

However, the company has a much wider sales footprint than it did back when GTA 5 was released in late 2013. Its purchase of Zynga, for example, gave the company a large presence in the mobile gaming space. Its 2K development studio has a stable of popular sports franchises as well.

Overall, Take-Two's portfolio today looks more like Electronic Arts' large collection of intellectual properties. That helps explain why most Wall Street pros expect sales to jump in the next fiscal year as Take-Two accelerates its pace of launches.

2. Take-Two has other winners scheduled for release

Investors don't know much about that release schedule, except that it will be highly impactful. Thanks to a few delays during the past fiscal year and stepped-up development rates overall, Take-Two is aiming to launch dozens of games, including several big-ticket brand investments, through fiscal 2025. "We believe there are many exciting upcoming catalysts that will enable our company to achieve new record levels of financial performance," executives said in a recent letter to shareholders.

Management has put firm numbers behind that positive talk. Take-Two is targeting roughly $8 billion of annual sales by fiscal 2025, which begins in April. That surge should equate to roughly 40% higher revenue next year.

3. Take-Two's costs are coming down

A big knock against the stock in recent quarters has been that Take-Two has been booking significant net losses. Shares are valued at the same price-to-sales premium as Electronic Arts, yet EA is consistently profitable while Take-Two is losing money on both a net and operating profit basis.

The good news is that those net losses were mainly driven by one-time charges around cost cuts and title cancellations. These moves have been painful, but they are setting the developer up for much stronger earnings ahead. Most Wall Street pros predict it will return to profitability in 2024.

The stock still seems expensive given Take-Two's modest sales growth this year. Investors are putting a lot of faith in the prospects of a group of game releases that could be delayed or suffer from weak demand. But Take-Two has a good shot at continuing its positive momentum in 2024, and that's why investors are right to feel optimistic about this video game giant's stock.

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Take-Two Interactive Software. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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