By Wallace Witkowski
Take-Two Interactive Software Inc. stands to earn nearly $2 billion helped by sales of its next installment of “Grand Theft Auto,” a Goldman Sachs analyst estimated Thursday, and shares outperformed the broader market.
Goldman Sachs analyst Eric Sheridan wrote that a hack last month involving data from “GTA,” as the lucrative series is known, actually seeded some of his estimates in upgrading Take-Two’s /zigman2/quotes/204008930/composite TTWO -0.50% stock to a buy from neutral and hiking his price target to $165 from $131 on Thursday. Sheridan outlined that the “GTA” series collectively has sold about 375 million units, up from 127 million in 2013 when “GTA5” was released, with the series bringing in about $7.7 billion in revenue since then.
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With that in mind, Sheridan said unit sales and the estimated budget are two key variables in projecting the profitability of “GTA6,” and the hack provided some clues about them. Take-Two’s Rockstar Games studio confirmed that “GTA6” was in active development back in February.
“Given that the estimated budget was an input based on a press article from this incident (and is significantly higher than the ‘GTA V’ budget of ~$250-300mm), we flex that variable up and down as well as unit sales in order to assess various EPS outcomes based on those two components,” Sheridan said.
After updating his projections, Sheridan sees earnings from “GTA6” coming in at more than $10 a share, which would imply more than $1.7 billion based on Take-Two’s current shares outstanding.
“Assuming the budget is ~$500mm (nearly 2x GTA V budget) but maintaining 170mm unit sell-through, the implied EPS is $10.44 (~$0.40+ more than our base case),” Sheridan said. “Meanwhile, assuming the unit sell-through is 245mm units but at the same ~$2bn budget, the implied EPS is ~$11.75 (nearly ~$1.70 more than the base case of $10.04), demonstrating significant leverage with every unit sold.”
With an expected $70 list price and microtransactions from the online game, Sheridan expects about $327 million annual operating profit from unit sales and about $372 million of operating profit from microtransactions, or about $699 million total based on about 170 million units over nine years like “GTA5,” a 75/25 digital versus physical split in sales, about $125 in annual player transactions and about a $2 billion estimated budget.
See also: Severity of GTA hack depends on whether source code was taken, analysts say
This past fiscal year, Take-Two reported adjusted earnings of $5.06 a share on revenue of $3.5 billion, and in August the company trimmed its outlook to provide for the integration of Zynga. Sheridan’s figures, though, also take into account about $1 billion from Take-Two’s recently closed acquisition of Zynga by fiscal 2025.
Shares of Take-Two rose as much as 4.5% Thursday to an intraday high of $122.61, and closed up 3.5% at $121.38, while the iShares Expanded Tech-Software Sector ETF /zigman2/quotes/201870252/composite IGV -0.23% declined 0.3% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.03% finished down 1%. Take-Two shares are down 32% for the year, while the IGV ETF has fallen 33%, and the S&P 500 has dropped 21%.
Of the 27 analysts who cover Take-Two, 21 have buy-grade ratings and six have hold ratings, along with an average price target of $164.75.