Shares of gaming company, Take-Two Interactive (NASDAQ: TTWO) are trading 6% higher in pre-market trading today, at the time of writing. Take-Two announced its fiscal fourth quarter of 2022 results (ended in March) yesterday and reported revenue of $930 million, an increase of 11% year over year, compared to sales of $839.4 million in the year-ago period.

Its recurrent consumer spending which is derived from add-on content and in-game purchases was up 1% and accounted for 63% of total sales. Its digitally-delivered net revenue stood at $833.3 million, up 9% year over year, accounting for 90% of sales.

The largest contributors to sales were games such as NBA 2K22 and NBA 2K21 as well as Grand Theft Auto Online and Grand Theft Auto V.

Take-Two also confirmed its net income stood at $111 million or $0.95 per share, compared to a net income of $218.8 million or $1.88 per share in the year-ago period. Its adjusted earnings for Q4 were $1.16 per share, higher than estimates of $1.01 per share, but lower than the year-ago earnings of $1.44 per share.

Investors were buoyed as Take-Two beat consensus earnings estimates in Q4, driving shares higher in pre-market trading on May 17.

 

Take-Two Interactive is poised to deliver outsized gains

Shares of Take-Two Interactive have returned 820% to investors in the last 10 years, easily outpacing the S&ampP 500 which is up 265% since May 2012. Despite its market-beating gains, TTWO stock is also down 48% below all-time highs, allowing investors to buy the dip.

Similar to other gaming developers, Take-Two also banks on a few popular franchises to drive sales. Its most popular game is the Grand Theft Auto V or GTA V which has sold more than 160 million copies since its launch in 2013. The developers of Grand Theft Auto have focused on providing an immersive experience to gamers and its online mode continues to keep players engaged on the back of regular updates and new game modes.

Take-Two has released graphically updated versions of GTA V on consoles and PC devices. In addition to improvements in game-play, the fundamental draw of video games has led to repeat purchases by players. The company also released an updated version of GTA V on gaming consoles such as Xbox and PlayStation. ItU+02019s quite possible for the new versions to sell millions of copies and improve user engagement going forward.

In addition to GTA other popular franchises include Red Dead Redemption and NBA 2K. Earlier this year, Take-Two announced the acquisition of Zynga (NASDAQ: ZNGA) which is a mobile gaming leader that owns titles such as FarmVille, Candy Crush, and Words With Friends. The acquisition should allow Take-Two to gain traction in mobile gaming. It will also get access to expertise related to the monetization of mobile titles for its own portfolio.

 

What next for TTWO stock and investors?

Take-Two Interactive’s net bookings stood at $3.4 billion in fiscal 2022 and expect net bookings between $3.75 billion and $3.85 billion in fiscal 2023. 

The company’s CEO and Chairman, Strauss Zelnick explained, “As we execute on our organic growth initiatives, while unlocking new opportunities presented by our pending transaction with Zynga, we believe that we can broaden our portfolio and capitalize further on new platforms, business models, emerging markets, and distribution channels. As we deliver on these growth drivers, we believe that Take-Two remains incredibly well-positioned to increase its scale and prominence in the industry, expand its margins, and deliver long-term value for our shareholders.”


TTWO stock is valued at a market cap of $12.7 billion and is forecast to increase revenue by 16% to $4 billion in fiscal 2023. Comparatively, its adjusted earnings might grow by 21% in the next 12-months. So, TTWO stock is valued at 3.2 times sales and 18 times forward earnings which is quite reasonable. Analysts remain optimistic and expect Take-Two shares to rise by 40% year over year in the next 12-months.

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