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Take-Two Interactive Software Inc. Message Board

  • realitydaytrip Feb 4, 2013 2:23 PM Flag

    My (kinda long) view on where TTWO is and where it needs to be

    The quick version:
    +Cheap price
    +Great intellectual properties
    +Good developer tools and resources
    -Bad development cycles
    -Missing opportunities with new technologies and business models
    =/=Risk of censorship?

    Lets start this off with some disclosure, I own this stock and I am very bullish on its future. Right now the market cap for TTWO is just shy of 1.2 billion and I believe that after GTA IV releases, the P/E ratio will go through the roof and emotion traders just won't be able to avoid the value trap. I'm guessing that they will buy in when the p/e ratio is under 6, regardless of whether or not they rationally believe that TTWO will be able to repeat the results in the next year.

    My investment strategy for the stock looks like this: I'm going to add to my position any time the stock goes under 12$ a share, but I usually sell any time it goes over $12.50 and will likely continue to do so until the big day is a little closer (I'm holding now until earnings and might adjust what I believe are profitable upward and downward resistances afterward, I also usually do a yearly "2 weeks before E3" speculative buy regardless of price). My problem with this stock is that right now I'm not really investing in it, so much as trading it. Not keeping this volitile stock long term has made me considerably more profit than a long term investment would have, regardless of when I might have bought in. I feel like if I had enough to buy the company outright, it should be easy to recoup the investment in short term with its earnings... yet for some reason this consistently fails to be the case.
    Why can't I expect them to have that kind of revenue every year?

    On paper TTWO is drastically undervalued, it has a billion dollar franchise, and more than 6 hundred-million dollar plus franchises, but this value is watered down because their development cycle is much longer and more expensive than either of TTWO's main competitors, (EA and ATVI respectively) and it only reliably monetizes these games on an average of about once every four years(with the exception of NBA 2k, which they've done an excellent job with). Furthermore it doesn't have any serious presence in the E-sport multiplayer scene, table/smartphone scene, free2play scene, or subscription scene. Thankfully I'm not the only person who has noticed this trend, and the company has started to react in a couple of ways.

    They've already started cutting development costs. especially with their RAGE(Rockstar Advanced Game Engine) platform which allows them to use an in-house game engine instead of licensing from a competitor, and it allows them to exchange advancements between studios. Red Dead is the most obvious example of the benefits of this, a western glued onto GTA's game engine, Its surprise success almost guarantees another western sandbox sometime in the near future (and you can bet it will be on an engine further refined through the development of GTA5).

    However, I don't feel like they've addressed the main issue that keeps them from success, which is the length of their development cycle. Max Payne 3 came out 8 years after Max Payne 2, and 3 of those years were delays after the game was announced. By the time the game came out, the original fans of the franchise had long moved on(and maybe had a kid, taught them to walk and talk, potty trained them, got them through kindergarten, 1st grade, and 2nd(!) grade). A 4 year development cycle might have made sense for GTA4, since they were updating for the next console generation, but then only being able to get one game from the franchise out in what was one of the longest console generations ever was a massive failure, especially since they already had a complete game engine to work with at this time, as well as the landscapes from Vice City and San Andreas they could have drawn from.

    TTWO could look toward their competitors for examples of what to do(and what not to do!) to address this problem. First look at the big dog, ATVI: they have multiple development studios working on their bread and butter franchises, use the same game engine and many of the same development tools between games with fresh storylines and landscapes thrown in. They also have huge staffs packed with cheap talent from the closures of other collapsed studios, and a man with a whip and a bullhorn forcing them to meet strict development timelines(

    Sentiment: Strong Buy

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    • realitydaytrip Feb 4, 2013 2:30 PM Flag

      awww... too long, they cut off half of my post and I'm too lazy to rewrite the rest... NO WONDER THE AVERAGE PO$T ON THE$E ME$$AGEBOARD$ LOOK LIKE THI$.

      • 1 Reply to realitydaytrip
      • fauxpop Feb 5, 2013 4:26 AM Flag

        A- their slow development and release cycles are what make their games so attractive, anticipated and what makes the company so attractive to a buyer whom already has annual releases. Im not concerned about ttwo's long game cycles as they will soon have enough ip's for a yearly blockbuster release, 3-4 annual releases (nba2k, WWE, mlb2k etc...) in addition to 3-4 DLC's. The company is headed in the right direction.

        B- trading a stock back and forth like you do is the perfect way to miss the lions share of the upside and suffer the lions share of the downside. Multi-million dollar hft systems that do that very thing are hardly even profitable and usually nab gains only because they dont pay comissions like u and I and trade in $1M+ lots.

        C- "look toward their competitors for examples" not really, they are on the right path. The only similar thing i see potentially happening is turning GTA into more of a World of Warcraft type social gaming experience with subscriptions.


        Consolidation is happening quickly. THQ is now gone and COOL will be right behind them with Zynga shortly thereafter. Their demises will take pressure off of the tablet/phone/pc business of the big makers (atvi, ea, ubisoft, ttwo) as they penetrate that market. AAA titles are selling better than they ever have and for the most part AAA titles are the only thing TTWO releases. New consoles are coming and the Chinese market may open up. The big China concern is pirated games but next gen consoles/games will have an effective answer for that. If China opens up it will be "pure profit" because r&d, licensing and overhead will cost about the same except there will be millions more consoles and customers. The gaming market with its consolidation and nigh new gaming console cycle looks very good. I expect pe's of game makers to slowly creep toward the s&p average. Ttwo should be above $20 sometime in the summer and will likely buck any market downtrend forces as we move closer to September.

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