What’s next for Take-Two interactive action after the strong pace of Q4?

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[Updated: 5/26/2021] TTWO stock update

The share price of Take-Two Interactive (NASDAQ: TTWO) has been up 10% in the past five trading days, and we believe the stock will likely continue to rally in the near term. The 10% increase can mainly be attributed to the company’s recently announced fourth-quarter fiscal year figures, which were higher than Street estimates. Take-Two Interactive’s fourth-quarter tax reservations of $ 784 million (up 8% year-on-year) were well above the consensus estimate of $ 664 million. Likewise, his EPS of $ 1.40 per share was much higher than the $ 0.66 for the consensus estimate.

Looking at the recent rally, the 10% increase for TTWO share in the past five days compares to 0.9% growth observed in the larger S&P 500 index. Now, is TTWO stock poised to continue to rise or is a decline after the recent rise imminent? We believe TTWO stock will continue to rally in the near term given the strong momentum in the stock, a strong fourth quarter beat and based on our machine learning analysis of price trends. action in recent years.

On 67 instances Over the past ten years, TTWO stock has seen a five-day increase of 10% or more, 44 of them resulted in an increase in TTWO stock during the period next period of one month (twenty-one trading days). This historic model reflects 44 out of 67, or about 66% chance of winning in TTWO shares in the coming month. See our analysis on Take-Two Interactive Stock Chances of Rise for more details.

Five days: TTWO 10%, vs S & P500 0.9%; Outperformed market

(3% probability event)

  • Take-Two interactive software stock increased by 10.0% over a five day trading period ending 5/24/2021, compared to a wider market (S & P500) rise of 0.9%
  • A change of 10% or more over five trading days is a 3% probability event, which has occurred 69 times out of 2,516 in the past ten years.

Ten days: TTWO 9.5%, vs S & P500 0.3%; Outperformed market

(7% probability event)

  • Take-Two interactive software stock increased by 9.5% in the last ten trading days (two weeks), compared to the larger market (S & P500) rise of 0.3%
  • A change of 9.5% or more over ten trading days is a 7% probability event, which has occurred 178 out of 2,511 times in the past ten years.

Twenty-one days: TTWO 5%, vs S & P500 0.5%; Outperformed market

(39% probability event)

  • Take-Two interactive software stock increased by 5.0% the last twenty-one trading days (one month), compared to the larger market (S & P500) rise of 0.5%
  • A change of 5% or more in twenty-one trading days is a 39% probability event, which has occurred 965 times out of 2,500 in the past ten years.

[Updated: 4/12/2021] TTWO vs. ATVI

We think that Take-Two Interactive is currently a better choice compared to Activision Blizzard

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. TTWO stock is trading at around 6x ending earnings, compared to around 9x for Activision Blizzard. Does this gap in Take-Two’s valuation make sense? We do not think so. As both companies have benefited from the pandemic with an overall increase in demand for games and now focus on releasing remastered games for next-gen consoles, TTWO’s stock is weighed down by fears of slowing down. sales growth in the near future. However, there is more to compare. Let’s go back to look at the more complete picture of the relative valuation of the two companies by looking at the historical revenue growth as well as the growth in operating profit and operating margin. Our dashboard Activision Blizzard vs Take-Two Interactive: ATVI stock seems overpriced compared to TTWO stock has more details on this. Parts of the analysis are summarized below.

1. Income growth

Between 2017 and 2020, Activision Blizzard’s revenue grew by around 16%, from around $ 7.0 billion to $ 8.1 billion, mainly due to continued strong demand for the Call of franchise. Duty, which has garnered more. $ 3 Looking at Take-Two, total revenue grew 72%, from $ 1.8 billion in fiscal 2017 to $ 3.1 billion in fiscal 2020 (the TTWO’s fiscal year ends in March), thanks to strong growth in its core franchises – NBA 2K, Grand Theft Auto and Red Dead Redemption. In the past twelve months, Take-Two’s revenue increased further to $ 3.3 billion.

2. Operating result

Activision Blizzard’s operating profit increased more than 2 times from $ 1.3 billion in 2017 to $ 2.7 billion in 2020, driven by revenue growth as well as expansion operating margins of 18.4% to 33.4% over the same period. The margin expansion was mainly due to a significant reduction in product development expenses, which, as a percentage of revenue, fell from 20% in 2017 to 13% in 2020. Looking at Take-Two, the operating profit jumped 4.5x from $ 93 million. in fiscal 2017, to $ 420 million in fiscal 2020, and it has grown to $ 490 million in the past twelve months. Take-Two’s operating margins have improved significantly from 5.2% in 2017 to 14.9% in the last twelve months. Take-Two’s margin expansion is driven by lower selling and administrative expenses.

The net of everything

Although Activision Blizzard’s operating margins have compared favorably to Take-Two in recent years, Take-Two’s operating margin expansion as well as revenue growth has been comparatively higher. Both companies enjoy continued demand for their existing franchises. However, TTWO stock has been weighed down by investor concerns over slowing growth at Grand Theft Auto, which accounts for about a quarter of the company’s total sales. According to consensus estimates, Take-Two’s total revenue is expected to grow by 14% in FY2021, but the growth rate is expected to drop to just 4% in FY2022 (from 1% and 13% estimated growth for ATVI in 2021 and 2022, respectively). However, the company will be releasing a remastered version of Grand Theft Auto V for next-gen consoles in fiscal 2022, which could bode well for the company’s overall sales growth. Although both companies have consistently improved their operating margins, Take-Two’s expansion has been higher, a trend that is expected to continue in the near term, supporting its earnings growth. As such, we believe that the 9x P / S multiple difference for Activision Blizzard versus 6x for Take-Two will likely narrow in the future in favor of the cheaper TTWO stock.

While the Take-Two stock appears to be undervalued, 2020 has also created a number of price discontinuities which may provide some interesting trading opportunities. For example, you’ll be surprised at how counter-intuitive stock valuation is. Electronic arts vs TeleTech.

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