The Biggest Video Game Launch in Years Is Almost Here, and Its Publisher Still Looks Cheap

Some companies are closing their doors for a day this month so their staff can play one video game.

The publisher behind it has a demand survey Wall Street loves, a record year on the books, and earnings on Monday. Its stock is still sitting closer to its lows than its highs.

Take-Two Interactive (NASDAQ: TTWO) is about to release Grand Theft Auto VI, and the stock is still trading well below its 52-week high. Even after its latest pop, it sits closer to its lows than its highs.

That’s an odd place to find the publisher of a game so hyped that employers are planning around it. Some companies are shutting down for launch day, and 18% of salaried workers say they’re taking it off.

Among Gen Z workers, it’s 32%. Your boss has been warned. The market is treating it like a coin flip.

A survey that got Wall Street’s attention

Take-Two Interactive (NASDAQ: TTWO) jumped after Piper Sandler surveyed 9,000 teenagers on their gaming plans.

Of the current-generation console owners, 70% said they plan to buy GTA VI. Of those buyers, 90% plan to play GTA Online, and 40% expect to spend extra money inside the game.

That last number is the one that moves models. Selling a copy is a one-time payday. Getting players to keep spending in the online world turns one launch into years of revenue.

What management expects next

Take-Two reports its fiscal second quarter on Monday, and it’s the final checkpoint before launch.

Management has guided bookings below last year’s level for the quarter, since last year carried the launches of Borderlands 4 and Mafia. So a softer number is already expected and baked in.

The bigger number is the full year. Management has reiterated its target of $8.0 billion to $8.2 billion in net bookings, which would be a record. CEO Strauss Zelnick has described pre-orders as “record-breaking.”

Monday is about confirming the launch is on track. The payoff comes after.

Recurring spending already runs the show

Take-Two isn’t a company that lives and dies on box sales. In its latest quarter, 84% of net bookings came from recurrent consumer spending: in-game purchases, add-ons, and online content across NBA 2K, GTA Online, and its mobile games.

That’s the business model you want behind a mega-launch. GTA VI gives the online engine a massive new player base to sell to.

GTA VI resets the base, not just one quarter

Wall Street expects earnings per share to jump by more than 70% this fiscal year, with revenue up by more than a quarter.

Wedbush says the GTA VI earnings stream could prove “more durable” than the market expects, and the survey’s online spending data backs that up.

PC players also aren’t part of the console launch lineup, which leaves a second wave of sales sitting on the shelf for later. You get the launch spike now, and another leg down the road.

NBA 2K keeps the lights on

NBA 2K27 launched in September and anchors the 2K label, alongside Borderlands, Mafia, and WWE 2K. Basketball fans buy a new edition every year and keep spending inside it all season long.

That steady, annual cash machine keeps paying whether or not Rockstar has a game coming out. It’s the kind of reliable revenue that gets ignored in every GTA headline.

Zynga gives you a mobile cushion

Take-Two also owns Zynga, the mobile gaming business behind Toon Blast, Match Factory!, Words With Friends, and Zynga Poker.

Mobile has been soft lately, partly because a hit like Color Block Jam is now up against a tough comparison from a year ago.

But mobile doesn’t care about console launch dates, and it gives Take-Two another stream of spending that runs every day of the year.

When GTA VI pulls millions of players into the Take-Two orbit, you’ve got more than one storefront to sell them into.

Priced like a gaming peer on growth

On a simple forward earnings multiple, Take-Two looks pricier than the average gaming stock. Adjust for how fast earnings are expected to grow, and its PEG ratio sits right in line with the gaming industry average.

Put simply, you’re paying a normal price for growth that’s anything but normal. Most companies never get a launch like this. Fans have waited 13 years for this one, and Take-Two is about to cash the ticket.

The Street sees a lot more upside

The consensus rating among the analysts who cover Take-Two is Strong Buy, and the average price target sits well above where the stock trades. Piper Sandler reiterated its Overweight rating, and Goldman Sachs reiterated its Buy.

Even the trims come with conviction. BTIG lowered its target and kept its Buy rating. Wedbush did the same while keeping its Outperform.

When the analysts cutting targets still want you to own the stock, the bear case is running out of road.

Pull up Take-Two on a stock screener, and you’ll see trailing earnings per share in the red. For the coming quarter, management has even guided to a GAAP loss. That makes the stock look like a money-losing business you’d be crazy to pay up for.

Look at what’s driving it. A big chunk of the loss is amortization of acquired intangibles, an accounting charge tied to past acquisitions.

It’s one of the heaviest weights on the quarter, and it doesn’t cost Take-Two a dime in cash. The latest quarter also carried a one-time impairment on a canceled third-party game.

Strip those out, and the picture flips.

Analysts expect adjusted earnings to stay positive this quarter, and management still targets more than $1 billion of operating cash flow this fiscal year and a net cash position by year-end.

The GAAP loss is mostly paperwork. The cash is coming.

A rough launch. A buggy debut, server meltdowns, or a wave of bad reviews would hit sentiment overnight. Rockstar has a strong track record, but nothing is guaranteed at this scale.

Sell-the-news risk. The hype is enormous, and Monday’s quarter is guided lower than last year. If the market decides the good news is already priced in, the stock could wobble even if the launch goes well.

Headlines out of Rockstar. The company is in a UK employment tribunal over fired staff tied to a union Discord server, and that case wraps up just days before launch. It won’t change how many copies sell, but it could create noise right when the spotlight is brightest.

Take-Two has the most anticipated entertainment launch in years, a survey showing strong purchase and spending intent, a record bookings target, and two other engines in NBA 2K and Zynga. The market is still pricing it at a discount it no longer deserves.

I’d buy it here. You get in before the launch, collect the upside if the online engine fires the way the survey suggests, and own a business that keeps earning between Rockstar releases.

What would change my mind is a launch delay, a technical disaster on day one, or Monday’s report pulling back the full-year target. If the stock breaks and holds below $180, step back and reassess.

Entry zone: $200 to $215. Add on weakness toward $190. Target: $260 to $290 over 9 to 15 months. Confidence: high.

Looking to buy? Start a position in the $200 to $215 range before launch. Expect swings around Monday’s report, and use any earnings dip to add.

Already own it? Hold. On Monday, listen for confirmation that the launch is on track, the full-year bookings target holds, and any color on pre-order demand.

Main risk to respect: A messy launch would hit the stock fast. Size your position so one bad week doesn’t shake you out before the online spending shows up.

That's our coverage for today; thanks for reading! Reply to this email with feedback or any value stocks you want me to check out.

Best Regards,
—Noah Zelvis
Undervalued Edge