Take-Two Entering New Peak Product Cycle
By Michael Comeau Sep 02, 2009 11:05 am
Company delivered "okay" quarter, but the focus should be longer-term
My reaction? I bought more.
Video-game companies are highly cyclical -- not all that different from a Caterpillar (CAT) or a Boeing (BA). The difference is that a video-game company's product cycles rise, peak, and die a heck of a lot faster. Take-Two is now emerging from a cyclical trough and is about to start a new one that will dwarf the last.
Take-Two just exited a quarter losing $55.5 million on a 68% decline in revenues. And Microsoft (MSFT) and Sony (SNE) recently announced price cuts for their Xbox 360 and PlayStation 3 consoles, respectively, setting the stage for a new leg of growth in their installed bases. That's good news for Take-Two, whose flagship Grand Theft Auto and BioShock franchises focus on those machines.
On October 29, Take-Two will release a downloadable expansion to Grand Theft Auto IV entitled The Ballad of Gay Tony, the trailer for which was just released yesterday. It's already generating massive buzz for the game, which at $19.99 is priced right for the recession. Take-Two will also release a $39.99 game disk which will include both Gay Tony and the previous Grand Theft Auto IV expansion, The Lost and the Damned.
Next year, we'll see Bioshock 2, sequel to the 2007 blockbuster and a guaranteed multi-million unit seller. Take-Two will also release Mafia 2 and Max Payne 3, updates in two highly-successful franchises.
And at some point in the late 2010 to 2011 time frame, Grand Theft Auto V should emerge from the shadows to excite gamers and investors. The Xbox 360/PS3 console cycle installed base will be significantly larger because of price cuts, setting the stage for Grand Theft Auto V to sell 20 million copies or more worldwide. We're talking at least a billion dollars in revenue from this high-margin property in the first year alone -- and judging by the ongoing success of Grand Theft Auto IV, tons and tons of downloadable content and catalog sales after that.
Within the context of my relatively concentrated equity portfolio, Take-Two is one of my biggest long positions and will likely end up being bigger. The Disney (DIS)-Marvel (MVL) deal is a reminder that content is king. Well, Take-Two has amazing content that's about to unleashed.
Gay Tony’s just the start.
Position in TTWO.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
(3)
Reply
2009-09-02 11:19:35
Hey Michael
Glad to see you on Minyanville. One question about the product cycle -- are you concerned at all that this hardware cycle is past its peak (an argument that Macke makes, persuasively)? I love the video game stocks, (especially ATVI with Starcraft 2 on the way), but it seems the time for the best risk/reward entry is when the next generation of systems are on the way (Playstation 4, XBOX 720, or whatever they will call them).
Later, Randal
www.thestocksurfer.blogspot.com
Later, Randal
www.thestocksurfer.blogspot.com
2009-09-02 11:38:36
I don't think the hardware cycle has peaked yet, though the economy is certainly slowing it down. The major factor is console prices - even after the PS3/360 price cuts, they're not nearly cheap enough yet to fully maximize their market potential. The Wii hasn't had its first price cut yet and it's three years old.
When the Wii and Xbox 360 Arcade are $99 or $149, we're probably seeing the beginning of the end.
New consoles would actually be a disaster because software makers would shift resources towards the new ones (less new games being produced) and gamers sit on their hands. They kill sales.
When the Wii and Xbox 360 Arcade are $99 or $149, we're probably seeing the beginning of the end.
New consoles would actually be a disaster because software makers would shift resources towards the new ones (less new games being produced) and gamers sit on their hands. They kill sales.
2009-09-02 11:49:24
TTWO wil get bought by ERTS in about 6 months!
That's my prediction. The growth TTWO will see in 2010 (without GTA V)is enormous and ERTS has about a 3-month window to buy shares while expectations are still low.
How are things bud? Nice to see you are writing again. Call me - I still have the same number.
FXC
How are things bud? Nice to see you are writing again. Call me - I still have the same number.
FXC
Get real-time options trading ideas from Steve Smith, veteran options trader and newsletter author, plus let him show you the way to cut risk and boost your returns through the strategic use of options. Click here for a free 14 day trial to OptionSmith by Steve Smith.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved
