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Feb. 7, 2022, 8:29 a.m. EST

The most lucrative videogame in history is getting a sequel, and boosting damaged game stocks

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By Wallace Witkowski

Take-Two Interactive Software Inc. shares rallied Friday after the videogame publisher’s Rockstar Games studio confirmed active development of the next chapter in its lucrative “Grand Theft Auto” franchise, which analysts forecast to drop as early as 2023.

Take-Two /zigman2/quotes/204008930/composite TTWO +4.28% shares rallied to finish near session highs, with a gain of 7.3% to close the day at $175.00, rebounding after the news was announced from an initial 2.3% drop to start the day. Videogame stocks have been damaged and publishers’ holiday earnings have not made much of a dent so far; Friday’s announcement just happened to fall before Take-Two is scheduled to report earnings on Monday afternoon, a coincidence not lost on analysts.

In a blog post, Rockstar Games said that in addition to “Grand Theft Auto V” and “Grand Theft Auto Online” coming to Sony Group Corp.’s /zigman2/quotes/208567357/composite SONY +1.02% /zigman2/quotes/201361720/delayed JP:6758 +1.11% PlayStation 5 and to Microsoft Corp.’s /zigman2/quotes/207732364/composite MSFT +6.16% Xbox X|S platforms on March 15, the studio was confirming recent speculation concerning the next major iteration of the series, what would ostensibly be called “Grand Theft Auto VI.”

“With the unprecedented longevity of GTAV, we know many of you have been asking us about a new entry in the Grand Theft Auto series,” Rockstar Games said in a statement. “With every new project we embark on, our goal is always to significantly move beyond what we have previously delivered — and we are pleased to confirm that active development for the next entry in the Grand Theft Auto series is well underway.”

The studio said that it will share more details “as soon as we are ready.”

Analysts say timing of announcement ‘not a coincidence, ‘GTA VI’ release likely in 2024

Benchmark analyst Mike Hickey, who has a buy rating and a $200 price target on Take-Two, said Rockstar’s announcement “opens the gates of growth,” and suggested that the game could appear as early as Take-Two’s 2024 fiscal year, which will begin in April of 2023.

“We believe that means the game will be released in FY24-FY25 and should lead to explosive growth,” Hickey said. “We also think the timing of this announcement before Take-Two’s earnings call on Monday is not a coincidence and will enable the Take-Two executive team to discuss the game and potentially include updated financial guidance.”

“We believe Take-Two has set conservative F3Q22 and FY22 targets, somewhat offset by ongoing execution risk related to product delays including the upcoming ‘Grand Theft Auto V: Expanded and Enhanced,’ which we anticipate could be delayed again, potentially shifting into FY23,” Hickey said.

Closer to home as far as game releases go, Jefferies analyst Andrew Uerkwitz, who has a buy rating and a $231 price target, said investors were starting to get worried whether “Grand Theft Auto V” for the PS5 and Xbox X|S would be delayed.

“Having the official launch date now set for March 15th, this risk is off the table,” Uerkwitz said. “We are more confident in a beat/raise expectation for the quarter.”

“The question of the next GTA being in or out of the number often comes up,” Uerkwitz said. “Today’s announcement will surely add to the debate, but getting to mid double-digit growth for the next several years with sustainable EPS above $9 is likely easier knowing the next GTA is in the works…officially.”

As for when “GTA VI” might actually get released, Uerkwitz looked at Rockstar’s track record, noting that Rockstar’s first official mention of “Grand Theft Auto V” was in this not-so-cryptic tweet from Oct. 25, 2011:

“GTAV was rumored for a long time in 2009 & 2010 based on investor earnings call questions and job postings,” Uerkwitz said, adding that “Red Dead Redemption 2” was teased in October 2016 and was launched in 2018.

“Grand Theft Auto V” was officially launched on Sept. 17, 2013, for the PlayStation 3 and the Xbox 360, for the PlayStation 4 and Xbox One on Nov. 18, 2014, and for PCs on April 14, 2015. Since its release, the franchise has brought in well more than $6 billion in all-time sales, making it the biggest selling media title of all time . In its 2021 annual report, Take-Two said that “Grand Theft Auto V” had sold more copies in 2020 than any other year except 2013.

See also: ‘Grand Theft Auto V” has made more money than any movie ever

“We couldn’t find an example of Rockstar acknowledging they were working on the next title as they did today,” the Jefferies analyst said. “In the last two titles, the company shared images/logos.”

Take-Two earnings scheduled for after the close on Monday

Analysts expect Take-Two to report third-quarter unadjusted earnings of 79 cents a share and adjusted earnings of $1.12 a share on revenue of $870.1 million and bookings of $868.4 million. Take-Two forecast unadjusted earnings of 85 cents to 95 cents a share on revenue of $840 million to $890 million, and net bookings of $800 million to $850 million back in November .

Other publishers have already reported holiday earnings. Electronic Arts Inc. /zigman2/quotes/206954087/composite EA +2.50% shares gained 4.4% on the week, even after forecasting slower-than-expected growth in its earnings report late Tuesday, while Activision Blizzard Inc. /zigman2/quotes/200717283/composite ATVI -0.52% shares ticked 0.1% higher for the week despite a ‘disappointing’ earnings report late Thursday. Microsoft’s $69 billion offer for Activision Blizzard likely cushioned any blow there.

Even with Friday’s gain, Take-Two shares have declined 13% over the past 12 months, while Activision Blizzard is down nearly 15% and EA shares are off 0.7%. In comparison, the iShares Expanded Tech-Software Sector ETF /zigman2/quotes/201870252/composite IGV +4.39% is down 5%, the S&P 500 index /zigman2/quotes/210599714/realtime SPX +3.09% is up 16%, and the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +4.41% is up 2%.

Of the 24 analysts tracked by FactSet that cover Take-Two, 18 have “buy” level ratings and six have hold ratings, and an average price target of $202.19, nearly 17% above Friday’s price range.

Other videogame-related stocks finished notably higher Friday: Unity Software Inc. /zigman2/quotes/221035391/composite U +9.69% shares surged to close up more than 17% after strong earnings late Thursday , shares of app-monetization software company AppLovin Corp. /zigman2/quotes/226004863/composite APP +7.22% rallied 12%, Roblox Corp. /zigman2/quotes/223883423/composite RBLX +6.50% shares rose 5.1%, and Playtika Holding Corp. /zigman2/quotes/208028170/composite PLTK +5.00% shares advanced 5.4%.

Playtika’s earnings are expected Feb. 10, Roblox’s on Feb. 15, and AppLovin’s on Feb. 16.

Take-Two acquisition target Zynga Inc. , which reports earnings of Wednesday, saw shares rise 0.6% Friday. In January, Take-Two offered $12.7 billion to acquire Zynga in a cash and stock deal.

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