TTWO - Take-Two Interactive Is Set To Define Gaming Over The Next Decade

Summary

• Take-Two continues to maintain its lead in the open world gaming genre.
• Take-Two's upcoming GTA 6 title is set to make a seismic impact on the gaming industry.
• If GTA 6 does not live up to its hype, Take-Two could see a sharp downturn, given how much the company has invested in the title.

Take-Two ( TTWO ) is in the midst of developing the most anticipated title in video game history. After years of speculation, there are finally signs that the long-anticipated GTA 6 may be right around the corner. Not only will this game almost certainly shatter previous industry sales records, but it will also likely define the next generation of gaming.

Much of Take-Two's future depends on the success of GTA 6, which is not surprising given how much time, effort, and resources the company puts into its GTA franchise. While Take-Two has done a great job of diversifying its portfolio, GTA is still overwhelmingly the company's main focus for good reason.

Take-Two's Growing Lead

Take-Two has long been a pioneer of the open world gaming genre and continues to widen the gap between itself and competitors. Rockstar's latest open world game, Red Dead Redemption 2, is still a standout in the genre despite being released in 2018. Even more impressive is the fact that GTA 5, which was released a decade ago, is still one of the best-selling games on the market.

There are simply no other open world games that can compete with the likes of Grand Theft Auto and Red Dead Redemption. While CD Projekt Red ( OTCPK:OTGLY ) had a golden opportunity to take Rockstar's crown with Cyberpunk 2077, the company was unable to capitalize on the opportunity given Cyberpunk 2077's disastrous launch .

Now that GTA 6 is well on its way, Take-Two has a chance to extend its lead even further. Given the increasingly expensive nature of developing open world games, it is hard to imagine any games dethroning GTA 6 anytime in the foreseeable future if GTA 6 even meets a fraction of its hype. GTA 6 is likely to make a seismic impact on the industry when it is released and Take Two is well positioned to capitalize on its success.

Cyberpunk 2077 was poised to cement CD Projekt Red as a real competitor to Take-Two. Instead, the game nearly ruined CD Projekt Red's reputation among the gaming community. This failed launch showcases the difficulties in producing triple A open world games.

A Truly Compelling Metaverse

GTA 6 offers Take-Two a perfect opportunity to seize on the metaverse hype. It can be argued that Take-Two has already accomplished what Meta ( META ) hopes to accomplish in the metaverse, albeit on a much smaller scale. Games like GTA 5 and Red Dead Redemption 2 already offers players an opportunity to engage in a huge array of activities, socialize, and even role play .

With the advancements in technology on gaming hardware, software, and AI fronts, there is no telling how far Take-Two can take GTA 6. In fact, there are rumors that Take-Two may even adopt blockchain and crypto in GTA 6, which would further the concept of a GTA metaverse. Given everything that has been leaked so far, GTA 6 will likely be far more than a traditional game and more of a platform.

GTA Online already has many of the social aspects that Meta is trying to popularize in its metaverse.

Large Risks Remain

Much of Take-Two's valuation will be based on how GTA 6 performs, which makes Take-Two inherently more risky than industry counterparts with larger portfolios like EA ( EA ). While Take-Two has done a great job of diversifying through acquisitions , the company is still heavily reliant on its flagship franchises Red Dead and especially Grant Theft Auto.

GTA 5 and Red Dead Redemption 2 have sold 175 million and 70 million copies to date, respectively. While this is certainly impressive, none of the company's other games come even close to these numbers. This makes the underperformance of its flagship franchises particularly damaging. In fact, a sizable portion of the company's Q3 revenue of $1.408 billion revenue still came from GTA and Red Dead Redemption through game sales and recurrent spending.

Conclusion

TTWO stock is relatively inexpensive compared to peers like Activision Blizzard ( ATVI ) at its current valuation of ~$18.7 billion and forward P/E ratio of 31. Given Take-Two's lead in the increasingly popular open world gaming genre , the unprecedented hype surrounding GTA 6, and Take-Two's impressive lineup outside of GTA, the company should still see upside moving forward.

For further details see: