Take-Two Interactive Software, Inc. (TTWO), Microsoft Corporation (MSFT) & 2014: A Very Good Year?

A producer of some of the most popular video games on the market, Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has more than doubled since reaching its 52-week low of $7.37 last summer. Although the overall video game industry has been on a decline lately, with new hardware due from the major console manufacturers, plus several huge new games set to be released this year, I figure that this software developer is worth a look before it releases earnings next week.

Who is Take-Two Interactive?

Take-Two Interactive Software, Inc. (NASDAQ:TTWO) publishes, develops, and distributes games and accessories for PC’s and the major game systems, such as PlayStation 3 and Xbox 360. The company publishes their games through their wholly-owned subsidiaries, Rockstar Games and 2K. Rockstar games publishes the very famous Grand Theft Auto and Midnight Club franchises, and 2K publishes a variety of titles including the very popular 2K Sports games. As the success of new games is extremely unpredictable, Take-Two Interactive Software, Inc. (NASDAQ:TTWO)’s revenue has been fairly erratic over the years, as seen in this 10-year revenue chart:


Take-Two has partnerships with virtually every big player in the video gaming space, including Sony Corporation (ADR) (NYSE:SNE), Microsoft Corporation (NASDAQ:MSFT), Nintendo, and even Apple Inc. (NASDAQ:AAPL) to produce iPhone and iPod games.

Sony and Microsoft are the two leaders in the console space, with Sony’s PlayStation 3 and Microsoft’s Xbox 360. Sony and Microsoft Corporation (NASDAQ:MSFT) both grant Take-Two Interactive Software, Inc. (NASDAQ:TTWO) rights to develop, market, publish, and distribute titles for their respective consoles, both of which are due for a refresh this year (see below).

2014: A very good year?

There are several positive catalysts in the upcoming 2014 fiscal year (which began in April), including new games for existing consoles, as well as games being developed for new consoles. The biggest event for Take-Two Interactive Software, Inc. (NASDAQ:TTWO) this year is the expected release of the highly anticipated Grand Theft Auto V game, which is set to be released on both PlayStation 3 and Xbox 360 on Sept. 17 this year.

Analysts are projecting revenue of almost $1.8 billion in FY14 for the company, which would be their highest ever, and the new Grand Theft Auto game is expected to contribute about half of that.

While I believe that the pending success of the GTA game has been factored into the share price already, I don’t think the possibilities that come with the new hardware have been fully priced in just yet. Sony Corporation (ADR) (NYSE:SNE) is set to release their PlayStation 4 during the fourth quarter of this year, in time for the holiday shopping season.

As the latest information indicates that the console will notbe backward-compatible, this creates a tremendous opportunity for companies like Take-Two Interactive Software, Inc. (NASDAQ:TTWO) to re-issue their existing lines of games in the new format. I don’t know about all of you, but I bought some of the albums I owned on cassette again when they were re-issued on CD’s in the ‘90’s, because the listening experience was so greatly improved. The same scenario could be the case here.
Similarly, Microsoft Corporation (NASDAQ:MSFT) is expected to release its successor to the Xbox 360, although not as much is known about it yet as the PlayStation 4. For those interested in all of the details, Microsoft has scheduled a launch event on May 21, where it will unveil the new Xbox officially. The unofficial name is the Xbox 720, although the actual name may be completely different. Regardless of the actual specs, I would expect a plethora of games to enter development as soon as the official particulars are announced, which should benefit both the developers and Microsoft Corporation (NASDAQ:MSFT) itself.

Buy, sell, or wait and see?

Even after the recent gains, I think that Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is still fairly valued. Analysts expect forward earnings of $2.25 per share, meaning that the stock trades for just 6.9 times FY14’s earnings. As you can see from the chart above, sustained performance is far from certain, but this one might be worth taking a chance on.

As of now, Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has not announced any titles currently under development for the new PlayStation, and it may be a good time to get in before all of the pre-holiday season hoopla of the new consoles really kicks in.

The article This Should Be a Great Year for Video Games! originally appeared on Fool.com and is written by Matthew Frankel.

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