No surprise here. Take Two Interactive Software Inc (NASDAQ:TTWO) stock is soaring (again) after reporting blowout quarterly numbers and upping its full-year guide (again).
This is becoming a trend for TTWO stock, which has quietly become one of the best performing stocks over the past year. Driven by multiple beat-and-raise quarters in a row, TTWO stock is up about 140% over the past year.
By comparison, hyper-growth tech darlings Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX), and Alphabet Inc (NASDAQ:GOOG,NASDAQ:GOOGL) are all up less than 60% over the past year.
What exactly is the catalyst? Take Two is figuring out how to leverage downloadable content to squeeze tons of high-margin and repeating revenue out of its unparalleled content portfolio.
Can the run continue? I think so.
The TTWO growth narrative is all building to a banner year in fiscal 2019, which is headlined by the launch of Red Dead Redemption 2.
So long as the growth narrative remains positive into that launch (bookings, digitally delivered revenue and recurrent consumer spending all remain strong), TTWO stock will keep heading higher.
Take Two & Its Unparalleled Content Portfolio
The first reason to buy TTWO stock is the company’s robust, diverse, and unparalleled content portfolio. This unparalleled content portfolio means demand for TTWO games will remain strong in perpetuity. Strong demand in perpetuity is a solid foundation for investors to hang their hat on.
Between Rockstar games, which features the likes of Grand Theft Auto and Red Dead, and 2K games, featuring its NBA, WWE and NHL series, Take Two’s content portfolio is arguably the best in the gaming world. Fans simply don’t bore of these titles.
The first game in the Grand Theft Auto series released in 1997. Twenty years later, Grand Theft Auto V has become the best-selling video game of all time and Grand Theft Auto Online just had its best quarter ever, implying demand is still building.
On the 2K games side of things, the first NBA 2K game was released in 1999 (published by Sega). Eighteen years later, NBA 2K18 is on track to become the company’s most successful sports title ever in terms of units sold, again implying demand is still building.
In other words, Take Two is built on a robust, diverse content portfolio with enduring appeal. That means demand for TTWO product has always been there and will always be there.
More Money Now Than Ever Before
The second reason to buy TTWO stock is that the company is successfully leveraging downloadable content to squeeze tons of high-margin and repeating revenue out of its unparalleled content portfolio.
The gaming industry, like retail, is going digital. The days of consumers going into a GameStop Corp. (NYSE:GME) and buying a game are numbered. Now, consumers just buy games at home and download them from the cloud.
This digital shift is a huge opportunity. Take Two now has an infinite amount of cross-selling opportunities within its content portfolio. Because games are now just downloaded from the cloud, Take Two can stick as much downloadable content in the cloud as it wants.
That means not only putting the game on there, but a whole bunch of add-on content like extra maps, new characters and bonus levels. TTWO can also lock that add-on content behind a paywall and call it “bonus content” or “exclusives.”
TTWO is doing just this, and its working really well. Digitally delivered revenue jumped 31% higher last quarter and now represents 68% of total revenue. Recurrent consumer spending, which Take Two defines as money the company makes from virtual currency, downloadable add-on content and micro-transactions, rose 66% last quarter and now represents just under half of the company’s total revenue.
All Building to 2019
The third reason to buy TTWO stock is that this whole growth narrative is building into 2019, which is expected to be a banner year for the company.
Headlined by strong 2K launches and Red Dead Redemption 2, management expects fiscal 2019 to bring in about $2.5 billion in bookings (versus $1.8 billion last year) and $700 million in cash flow (versus $330 million last year).
Because the growth story is building to huge 2019, investor demand will keep building into fiscal 2019. That gives this stock another 2 quarters of growing demand.
Bottom Line on TTWO Stock
I’m sticking with my original thesis, which I laid out when TTWO a $70 stock. This is a buy-and-hold into 2019.
As of this writing, Luke Lango was long TTWO, FB, AMZN, NFLX, GOOG, and GME.
