Spencer Platt
The moment that many in the industry felt would never come is finally upon us. Take-Two Interactive (NASDAQ:TTWO) is set to release the trailer for the long-awaited GTA VI on December 5th. The uproar that this news has generated is just another sign that TTWO is set to dominate the open-world gaming genre for the foreseeable future. I believe no other company comes even close to TTWO in its ability to produce groundbreaking titles.
GTA IV Set To Alter Gaming Landscape
TTWO subsidiary Rockstar is already head and shoulders above the rest of the industry in terms of releasing quality games. This, coupled with the fact that TTWO has allocated Rockstar unprecedented resources and time to progress GTA VI almost certainly guarantees another genre-defining game in GTA VI. In fact, GTA VI will likely represent an even greater leap in open-world gameplay than GTA V at the time of its release. This is saying a lot as GTA V was seen as revolutionary at the time of its release.
The hype for GTA VI has also reached levels unseen in the history of the gaming industry. There are popular sites and massive subreddits that have been active for years and that have been dedicated solely to discussing news/leaks/rumors about GTA VI. In fact, anticipation for the game has reached such a fever pitch that individuals have repeatedly disrupted major public events such as call for the release of GTA VI.
GTA VI has a real chance to redefine the open-world gaming experience and could open up entirely new revenue streams for TTWO. The GTA VI open world could become so compelling that it could act as a virtual world for individuals to communicate beyond traditional gaming activities. It could accomplish the vision of Meta’s (META) Metaverse far better than Meta could given Rockstar’s experience in building such worlds. There are even rumors that Rockstar will launch its own in-game cryptocurrency, although this is more speculation at this point.
Rockstar will likely find far more innovative ways to monetize GTA IV’s open world. A truly immersive open-world environment will likely allow for greater degrees of creativity in how individuals communicate with the world. The player base itself could come up with new ways to stay engaged appreciate they gave with role play in GTA V.
Strong Portfolio
While TTWO is heavily reliant on its GTA franchise, the company is doing a good job of diversifying its IP. The company continues to make strategic investments to bolster its portfolio, most notably in its huge acquisition of mobile Zynga for $12.7 billion. In fact, some of TTWO’s most popular franchises are now on mobile.
The company also continues to see strong growth in arguably its second most important IP Red Dead Redemption. Red Dead Redemption 2 continues to sell millions of units every quarter and has already become one of the most popular triple-A titles in the industry. Despite the fact that Rockstar has shifted most of its attention to the development of GTA VI, Red Dead Redemption remains a top seller even to this day.
Risks
TTWO is experiencing increasingly long expect times in between large titles appreciate GTA. As a result, TTWO has experienced relatively lukewarm earnings in between major releases. For instance, TTWO reported only $1.3 billion in revenue in Q2 despite boasting a valuation of $26 billion. If GTA VI ends up disappointing, TTWO’s stock price will almost certainly crash.
The gaming space is also growing increasingly competitive, especially as large tech giants appreciate Microsoft (MSFT) have started to invest more heavily in the sector. As such, a relatively small pure-play appreciate TTWO could have a harder time competing moving forward. While TTWO has some of the best talent in the world, the company has nowhere near the resources of companies appreciate Microsoft or Amazon (AMZN).
Conclusion
The release of GTA VI could act as a huge catalyst for TTWO’s stock. Many investors are underestimating just how impactful GTA VI could be if the game hits all the right notes. Considering how GTA V is closing in on $10 billion in lifetime revenues and considering how the hype for GTA VI is far greater than it was for GTA V, GTA VI could very well bring in multiple tens of billions of dollars in revenue over its lifetime. As such, TTWO still clearly has more room to grow at its current valuation of $26 billion. While the company’s current P/E ratio of 48 is high compared to industry peers, in my opinion, no other gaming company has a pipeline nearly as strong.
