Fundamental analysis of Take two interactive software

1. TAKE-TWO INTERACTIVE
SOFTWARE INC
FUNDAMENTAL ANALYSIS
TICKER:TTWO
BY PASHTUN
08-10-2020

2. BUSINESS (1)
• Four main components
• Rockstar Games
• Publisher of Grand Theft Auto, Max Payne, Midnight Club & Red Dead
redemption
• Main game, achieving cultural phenomena: Grand Theft Auto => 320
million copies sold worldwide
• Red Dead Redemption 2 critically and commersially well appraised =>30
million copies (since oktober 2018)

3. BUSINESS (2)
• 2K
• Publishes games across all platforms
• Genres: shooter, action, RPG, strategy, sports and family entertainment
• BioShock, Mafia, Civ 5, XCOM
• Main game: Borderlands 3 (since oktober 2019)
• Sports: NBA 2k; WWE 2K (wrestling)

4. BUSINESS (3)
• Private Division
• Brings titles from independant developers to the market
• Publisher of Kerbal space program, The outer world,
• Disintegration is planned in 2021; Kerbal space program 2 in 2022

5. BUSINESS (4)
• Social Point
• Delivers free to play games at high quality
• Dragon city & Master legends
• Business is growing in Asia => China, South-Korea =>2k
released NBA simulation => 49 million users
• Relationship with NBA expanded => release of NBA 2k Leageau

6. RISK FACTORS
• Largely dependant on succes and new “hits” of Grand Theft
Auto => 23% of net revenu. Top 5 games account for 87%
revenu
• COVID-19 may disrupt operations; delaying release of games
• Dependant on third parties to sell software titles, subject to
changes in additional costs
• Competition!

7. PRODUCTS

8. FINANCIAL SUMMARY
• Revenu grew 41% to $2.28 billion year to year (YY)
• Net bookings increased 2.1% (61 million)

9. INCOME
STATEMENT
• With the exception of 2018;
revenue has been growing
15-53% last 5 years
• Cost of sales % has gone
lower, while gross margin
remains same
• Operating income has been
increasing steadily, as well
as net income
• Book value has been
growing steadily
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 TTM
Revenue USD Mil 1,137 826 1,214 2,351 1,083 1,414 1,780 1,793 2,668 3,089 3,380
Change revenu in % Year
over Year 12.01 -27.3647.06 93.54 -53.9330.54 25.89 0.74 48.83 15.76 53.82
COGS 60.64 64.04 58.94 60.17 73.40 57.57 57.48 50.10 57.10 49.93 52.60
Gross Margin % 39.4 36.0 41.1 39.8 26.6 42.4 42.5 49.9 42.9 50.1 47.4
Operating Margin % 6.8 -10.2 0.4 17.7 -23.9 4.3 5.1 8.4 7.6 13.8 13.5
Net Income USD Mil 48 -109 -29 362 -279 -8 67 174 334 404 447

10. BALANCE
SHEET
• Has no long term debt
• Current ratio is 1.72; not
that great with quick ratio
of 1.32
• However, debt/equity only
0.06
• Equity has been steadily
growing since 2016
Liquidity/Financial
Health
2011-
03
2012-
03
2013-
03
2014-
03
2015-
03
2016-
03
2017-
03
2018-
03
2019-
03
2020-
03
Latest
Qtr
Total Current Assets 58.31 64.69 67.78 77.76 79.84 78.96 69.71 64.45 66.65 70.59 68.67
Total Current
Liabilities 23.76 19.03 26.37 26.38 43.31 47.12 53.53 46.20 46.00 41.19 40.02
Long-Term Debt 11.04 27.52 26.23 25.23 21.34 19.22 8.00 0.22
Total Liabilities 36.68 48.17 53.99 55.45 74.76 77.56 68.13 60.16 51.91 48.69 50.63
Total Stockholders'
Equity 63.32 51.83 46.01 44.55 25.24 22.44 31.87 39.84 48.09 51.31 49.37
Current Ratio 2.45 3.40 2.57 2.95 1.84 1.68 1.30 1.40 1.45 1.71 1.72
Quick Ratio 1.57 2.13 1.75 2.08 1.36 1.18 0.96 0.97 1.01 1.27 1.38
Debt/Equity 0.17 0.53 0.57 0.57 0.85 0.86 0.25 0.01 0.06 0.06

11. CASH FLOW STATEMENT
Time CFO IO FO Capex FCF
2021.1 1023 970
2020 686 -0.41 -0.06 53 632
2019 844 0 -0.08 67 777
2018 394 -0.22 -0.46 87 306
2017 331 -0.27 -0.26 21 310
2016 261 -0.13 -0.05 37 224
2015 213 -0.32 -0.05 50 163

12. CASH FLOW STATEMENTS (1)
• Cash flow from operations is increasing consistently
• Free cash flow has been rising hard but is inconsistent
• Acquired Social point in 2017 (to expand free-to-play mobile
platform)
• They are buying relatively little to no stocks back
• They are lowering their capital expenditure

13. FUTURE GROWTH BY ANALYST
• Future growth is forecast 19.6% anually based on estimates of 5
analyst

14. DCF VALUATIONS GURUFOCUS
• Projected FCF is $80.8; stock price $161.7; ratio = 2.0
• Median over past 10 years is 1.92
• Industry median 2.08

15. PAST
PERFORMANC
E OF SHARE
PRICE & P/E
RATIO
- RETURN OF 437% LAST 5
YEARS, COMPARED WITH 66%
OF S&P 500
- STOCK IS BECOMING SLIGHTLY
MORE EXPENSIVE RELATIVELY
TO THE PAST
- SMALL DROP IN STOCK PRICE
IN 2018 BECAUSE OF FORTNITE

16. COMPETITORS
• Best performing stock based on
past performance (revenu, FCF
growth) and future is TTWO out
of the stocks with positive
earnings. Second best is ATVI in
past performance, EA in future
growth.
• EA is the most efficient company
• TTWO is the most expensive
company, then depending on
metric, either ATVI or EA
• By far the best returns in past
performance by TTWO
Key ratios ATVI EA UBI TTWO
Market Cap 60.34B 37.35B 11.74B 18.49B
Revenue YY 38% 21% -14% 54%
Past growth earnings 5yr
avg 16% 23% -9% 63%
Projected growth earnings
in % 6% 16% 42% 19%
ROE 13% 26% 19% 17%
Current Ratio 3.02 2.61 1.71 1.72
Debt/Equity 0.2 0.05 0.89 0
FCF YY in % 3.38 16.04 181 25
FCF 5Y in % 0.3% 14.4% N/A 46.26%
EV/EBIT 27.9 21.9 238.3 33.6
P/E 33.51 18.3 N/A 40.9
PEG 5.8 1.1 N/A 2.1
P/B 4.4 4.6 7.4 6.6
Diff intrinsic Value in % 38% 45% -2% 43%
Return last 10 year 631% 736% 974% 1845%

17. DISCUSSION
Strenghts
• Is the most innovative publisher, bringing out new titles on a frequent basis,
not only sequals, but also new original games
• Has one of the best critically appraised games: Grand theft auto, red dead
redemption 2
• Best past- en predicted future performance based
• Best stock performance
Weakness
• Small cap company
• Relatively speaking the most expensive stock