Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has delivered what may turn out to be the most critically acclaimed video game of all time with Bioshock Infinite. It is also taking impressive pre-orders for the highly-anticipated Grand Theft Auto V, so I thought it was time to look at Take-Two as a company alongside some of the competition to see if now is a good time to invest in video game stocks. I chose Activision Blizzard, Inc. (NASDAQ:ATVI) and Electronic Arts Inc. (NASDAQ:EA) to compare with Take-Two. These three companies are true video game companies. They aren’t multimedia moguls like Microsoft Corporation (NASDAQ:MSFT), Warner Brothers, or Sony Corporation (ADR) (NYSE:SNE), all of whom have great video game divisions, but aren’t really video game companies. The three companies I chose all produce console games aimed at hardcore gamers and they all have market caps over a billion.
Activision Blizzard is the result of the 2008 merger of Activision and Vivendi Games. Activision Blizzard, Inc. (NASDAQ:ATVI) has hits in all categories of video games. It’s best known for World of Warcraft, the Call of Duty series, the Tony Hawk games, and the innovative Skylanders series. They’ve also produced dozens of other best-selling titles. With a market cap of $16 billion, Activision Blizzard is the largest company of the three companies I looked at. Like the other companies I chose, Activision Blizzard lost big in late 2008 and early 2009, but with their price-to-earnings ratio of 14.28 and their earnings per share of $1.01, along with a stable beta of .56, Activision Blizzard, Inc. (NASDAQ:ATVI) is a solid, mature company worthy of your watch list and your money.
Started as a home computing game publisher, Electronic Arts Inc. (NASDAQ:EA) is now home to some of the best-selling game series of all time including Madden NFL, Medal of Honor, Mass Effect and Dragon Age, among many others. Electronic Arts had its difficulties with a steep drop in price in late 2008 into 2009 and while it hasn’t returned to those heady days, it has largely stabilized. Electronic Arts has a market cap of $5.35 billion, but a high price-to- earnings ratio of 32.54. If its earnings per share wasn’t just $.55, I’d be more comfortable with the P/E. Electronic Arts Inc. (NASDAQ:EA) belongs on your watch list, but not in your portfolio quite yet.
Take-Two Interactive Software
Take-Two has some fantastic games. They own Rockstar Games and 2K Games, which means they own the Bioshock series, the Grand Theft Auto series, the Max Payne series, the Red Dead series and many other critically-acclaimed, top-selling series. But do great games go hand-in-hand with good investment? Not always. Take-Two, like Electronic Arts and Activision Blizzard, Inc. (NASDAQ:ATVI), had a sharp drop in stock prices from late 2008 into 2009 that it’s never quite recovered from, but like the other two, the share price has largely stabilized. Take-Two has a market cap of $1.46 billion. Unfortunately, Take-Two has a negative P/E and its earnings per share are -$1.40, which makes me very uncomfortable especially in light of such significant pre-orders for games. I have to look at Take-Two is another stock for the watch list but not your portfolio — yet.