No longer confined to an obscure subculture these days, gaming is serious business. Just how serious was underscored recently by the release of Take-Two Interactive Software, Inc. (NASDAQ:TTWO)'s Grand Theft Auto V. Reportedly the most expensive video game ever produced, the latest installment in the series smashed previous sales records. At the back end of the life cycle of the last range of consoles, this is no small feat. However, does that make the company a wise investment right now?
The word on the web is that the game's budget for development and marketing was around $266 million. This is the largest budget of any game ever produced, beating out the previous record set by "Knights of the Old Republic" at about $200 million. It's also more than the production budget of almost every Hollywood movie ever produced .
This massive investment seems to have paid off already. In its first day, the game sold $800 million worth of copies, which translates into between 13 million and 14 million units. In three days, the game has topped $1 billion. The highest-grossing movie ever was "Harry Potter VII" which made $483 million on its opening weekend. This makes the game the biggest entertainment launch in history.
For further comparison, Take-Two's closest rival Activision Blizzard, Inc. (NASDAQ:ATVI), mainly known for its wildly popular "World of Warcraft" MMORPG, sold $500 million worth of copies of its blockbuster hit "Call of Duty: Black Ops II" when it hit the stores in November 2012 . It took the game roughly two weeks to hit the $1 billion mark. "Diablo III" initially set a sales record for PC games, selling 3.5 million units in its first 24 hours, and has now sold over 12 million copies .
Electronic Arts Inc. (NASDAQ:EA)'s top selling franchise, "Madden NFL 25", sold around one million units in its first week . A testament to the strength of the company's sports franchises, head of the sports division Andrew Wilson was recently named CEO of the company after the previous head resigned unexpectedly . "FIFA 13" sales broke 12 million copies in the third quarter, and "FIFA 14" sales are expected by some to triple those of Madden .
Clearly, the video game industry is nothing to sneeze at. Last year it was valued at around $67 billion, versus box office sales of $10.8 billion . The industry's huge growth is reflected in share prices, with EA, Take-Two and Activision all tacking on double digit share price increases in the past year.
Worth getting in?
These sales figures are all well and good, but the question for investors is whether now is a prudent time to get in on Take-Two or its competitors. One could argue that the recent rally in these stocks has left them trading at a bit of a premium, and looking at trailing twelve month P/E, this is certainly the case.