Today we have a speculative idea: take shares in game developer Take-Two (NASDAQ: TTWO), in order to capitalize on their rebound after a recent fall.
Growth potential and validity: 15% behind 14 Months; 34,5% behind 27 Months; 10% per year for 15 years.
Why stocks can go up: recently they fell hard, but this business has potential.
How do we act: we take shares now by 156,95 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
It is a developer and publisher of video games. Details about the company's business are described in our old investment idea. Main, that most of the revenue - more than half - the company receives from games in the GTA and Red Dead Redemption series (RDR), main sales channel - set-top boxes. It is also necessary to take into account the moment, that a significant proportion of the company's revenue comes from the online modes of its games with the sale of add-ons and in-game items to players.
Arguments in favor of the company
Fell down. The company's shares over the past year have fallen sharply in price - from 213 to 156,06 $. This is partly the fault of Zynga.. But in general, this decline in stocks provides an opportunity to buy them cheaper in anticipation of a rebound..
Cinga or Zynga. There has already been material about, how TTWO bought mobile game developer Zynga. I believe, that in its current form this transaction is contrary to the interests of TTWO shareholders: Zynga bought for $12.7 billion, with a huge prize 64% to the share price before this news and at the same time Zynga is unprofitable!
If I were the shareholders of TTWO, I would organize a campaign to cancel the deal - and very likely, that there is such an investor-activist, who will begin to demand the cancellation of the deal or the purchase of Zynga at a much lower price - with a premium of 15-20% still all right.
Against this background, TTWO shareholders have every right to demand dividends., at least in the form of one-time large payments: TTWO does not pay dividends, and its shares have been marking time for the past year and a half - and this, moreover,, that the company's business is sufficiently marginal and stable. All in all, the situation with Zynga suggests a lot of room for investor activism, which will allow the stock to rise.
As for the deal itself, it's understandable, certainly, that TTWO is haunted by the success of competitors from Activision in the mobile segment. TTWO also wants to develop this direction, because it is more promising than consoles and PC. But Zynga could and should have been bought cheaper. Think, TTWO understands this too, and will strive to prove it to investors, that Zynga is a good addition for business.
TTWO will surely make big announcements throughout the year, that will help raise the value of shares and restore investor confidence.
Black mirror of the past future. With certain reservations, but TTWO's business can be considered online gaming.
I have always considered, that the gaming business will be an extremely promising area of work in the coming decades, as social mobility steadily declines, and economic conditions are deteriorating. And then the corona crisis happened., and the routine of slow erosion of the middle class is now complemented by Orwellianism with the forced locking of people at home and the virtual ban on socially active lifestyles, which is now costing due to tests and quarantines is not at all cheap.
Under these conditions, the business environment for TTWO has become even better., and her competence in squeezing money out of users online will still bring her considerable benefits in the future, because online is one of the few forms of social activity left without significant restrictions.
What can get in the way
Shopping poisoning. If the deal to buy Zynga is still closed on current terms without any revolt from investors, this can cause "indigestion" in TTWO. Company's debt burden, which is not the smallest, will increase, and these investments may not fight back. to me, certainly, I would like to be an optimist and hope that, that this purchase will pay off in the long run. But we'll still be prepared for the worst case scenario..
Nobody, it’s your cousin. Unclear, when will new games from the GTA and RDR series come out, and this is very bad. Already existing games of these series will inevitably lose popularity., and the guarantees, that TTWO will be able to release the same masterpieces, which will allow the company to pump revenue for many more years, no at all.
The company has already left several top igrodelov, including GTA creator Dan Houser. The scandal with the recent re-release of the updated GTA triptych suggests that, that the company's management is at least in a creative crisis. So there is a possibility, that TTWO will not be able to repeat its previous success.
Furthermore, the decision to buy Zynga could be a signal, what TTWO management knows very well, that there will be no GTA VI and RDR III, and if it will, then they will not be able to repeat the success of their predecessors - and therefore “the mobile direction should be developed”. If it is true, then it's very bad: business solutions, taken in despair and hopelessness, rarely lead to good results.
But it's also possible, that this is not a bug, a feature" and the company is just following the path of Konami, which once also switched to mobile business, which had a positive impact on reporting, — even though Konami has turned into a soulless evil corporation.
What's the bottom line?
Shares can be taken now by 156,95 $. And then there is 3 the way:
- wait for them to grow 180 $. Think, here it is better to focus on the time 14 months - most likely, during this time, the situation with Zynga will somehow be resolved: or TTWO will drop this deal, or buy Zynga at a lower price, or swear to shareholders, that the new acquisition will justify its price;
- wait for growth until 210 $. Here you should prepare to wait 27 Months. There is a high probability, that during this time TTWO will release some new popular game, which will positively affect quotes. Also, during this period, you can get a sense of the development of your own mobile division by the company.;
- if you have previously taken these shares for a long time, you can buy them now.
