Take-Two Interactive Software, Inc (NASDAQ:TTWO) exemplifies the old Texas saying, “It’s not the size of the dog in the fight, but the size of the fight in the dog.”
With it key competitors Activision Blizzard, Inc. (NASDAQ:ATVI) and Electronic Arts Inc. (NASDAQ:EA) 4-5 times its size by market cap, TTWO is still a powerhouse when it comes to the gaming community.
Its top two games, the Grand Theft Auto family and NBA 2K, continue to rate among the most popular games in the industry. But, TTWO isn’t about volume as much as it is about quality.
In an earnings-driven and tech-driven space, sometimes this can present the perception that TTWO isn’t able to keep up, or doesn’t have enough content to remain dominant.
But, one of the aces this company has up its sleeve is its CEO, a 60-year-old Harvard guy who doesn’t know much about gaming. That obviously sounds crazy, but it’s true.
CEO Strauss Zelnick may not be a passionate gamer, but he’s a passionate manager, especially in the creative business sector. He’s run film and TV studios, as well as recording companies. And ran them well.
He is the guy who turned Take-Two around when he arrived in 2007 and took the CEO helm in 2011. One thing he brings to the table is the notion that the games are more than just cool graphics. There are stories and developed characters.
Just like the media stories that were told of his previous roles, gaming is similar. That means TTWO games are built to have a longer tail. They are games people become attached to and will continue to play over a longer period of time.
Fortnite Is Not Competition
For example, while the Fortnite craze is booming right now, it may only last a matter of months, rather than years. Grand Theft Auto 5 came out in 2013 and 80 million copies have been sold so far, with another 10 million expected by the end of the year.
Also bear in mind that Fortnite is a free download.
Fortnite is not competition. It’s actually great advertising. It engages new gamers, and better yet, mobile gamers. These are potential new customers for TTWO’s games.
Mobile is the big pivot in the gaming industry right now, and it’s why, even after a 66% run in the past year, TTWO stock still has its best days ahead. As more gamers turn to mobile, it’s a huge advantage to gaming companies because it gets rid of the middleman — i.e., retailers — as well as packaging and distribution costs. Digital downloads make up about 54% of net revenue, but that will continue to grow as technology like 5G will attract more digital gamers.
Also, cutting out the middleman boosts margins, which market analysts love to see. This is also likely why the company has raised its full-year 2018 guidance already. Take-Two stock has slowed since market volatility has increased, but that makes TTWO stock a better buy at today’s prices.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
