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Zack’s Bull of the Day: Take Two

Somewhere out there, there may be a rock big enough to live under where you wouldn’t have heard of the video game franchise Grand Theft Auto. It’s the perfect scapegoat for everything that’s wrong with America today. The game itself is rated Mature for good reason, it’s crude, obnoxious, violent, obscene, and all those other pejorative verbs mothers across the US can name. But for the testosterone-infused, short attention span fan base, it’s another word; Awesome.

You get to drive exotic cars, live in fancy houses, buy expensive goods and all that fun stuff. Of course then there’s the blowing stuff up, going on murderous rampages and car-jacking. Say what you want to say about the games content, there’s one thing that’s tough to argue with and that’s the money the franchise makes. You’re talking over $1 billion for the latest installment’s Xbox and PS3 release. That’s over 185 million units sold over the franchise’s history.

Who’s cashing in on all this madness? Take Two Interactive (NASDAQ:TTWO) is the company behind Rockstar and 2K Games, the makers of the franchise. The video game maker owns some of the most popular gaming franchises including BioShock, Borderlands, Grand Theft Auto, NBA 2K, Midnight Club, and Sid Meier’s Civilization. In all, Take Two has 10 franchises that have sold over 5 million units a piece.

One area that Take Two is capitalizing in is digitally-delivered content. Before, games had to be printed on CD or DVD, covers made, manuals, then packaged up, delivered to stores and then into the hands of buyers. All this added cost was lost revenue for the game developers. They had to cut the middle man in on this process. Well now with the availability of high-speed internet this is starting to become a thing of the past. Users now can download their favorite games directly from the company’s website or vendors like the XBOX Life Marketplace or Playstation’s Now Network. This means more revenue for the developer. In fact, digitally-delivered revenue accounted for 18% of total revenue for TTWO in FY2014, up from only 8% in FY2010.

We are quickly approaching another major milestone for Take Two. GTA V is set to be released on the PC next month. If you thought console gaming was big, just wait until you see the type of numbers the PC game puts up. PCs allow users to modify their gaming experience, adding hours of gameplay and entertainment along with a much larger community. It’s set to be the biggest PC release this year.

Take Two is a Zacks Rank #1 (Strong Buy) and a big part of that reason is the bullish analyst behavior we’ve seen over the last week. Two analysts have upped their estimates for the current year, pushing consensus up from 88 cents to $1.13. The same bullish attitude is evident for the current quarter’s numbers as well. Consensus has swung from a 25 cent loss to a 10 cents per share gain over the last couple of months.

The stock has been on a run since the start of 2014, rallying from $16 to the low $20s by October. Since then, another big shot in the arm has seen TTWO move all the way up to the low $30s before selling off a bit in February. Currently it’s trading at $28.32, well off the high. Several indicators, such as the commodity channel index, are showing TTWO as being oversold right now. This could be a great time to add a small position ahead of the GTA V release in early March.

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