Take-Two Interactive Software, Inc. (TTWO) and Activision Blizzard, Inc. (ATVI) are two popular video gaming operators that publish interactive entertainment solutions for consumers worldwide. TTWO develops and publishes action and adventure games under the names Grand Theft Auto, Max Payne, Midnight Club, and Red Dead Redemption. ATVI operates through three segments—Activision Publishing, Blizzard Entertainment, and King Digital Entertainment.
The video gaming industry has been far more resilient to the COVID-19 crisis than most other industries. However, a rapid roll out of vaccines this year could mean that people will spend less time at home going forward and, by extension, will spend less time (and money) on video games. Hence, consumer spending on video game consoles and interactive solutions will likely decline sharply. This trend could impact the growth prospects for gaming publishers TTWO and ATVI.
While TTWO has gained 45.1% over the past year, ATVI returned 56.8%. However, in terms of year-to-date performance, TTWO declined 18.6%, while ATVI declined 0.3%. But which of these stocks is a better pick now? Let’s find out.
In January, TTWO’s offer to acquire Codemasters Group Holdings lapsed because shareholders’ meetings were not held on or before the 22nd day after the expected date of such meetings. The offer was withdrawn on December 14, following a decision the Board of Codemasters to withdraw its recommendation that the company accept TTWO’s acquisition offer.
This month, ATVI’s Board of Directors appointed Frances F. Townsend, who has joined the company as Executive Vice President, as Corporate Secretary and Chief Compliance Officer. Her wealth of experience and leadership qualities should help the company grow and thrive in the years to come.
Last month, Blizzard Entertainment, a division of ATVI, unveiled a slew of news and games for a global online audience of fans and enthusiasts on the BlizzConline platform. Later this year, the company plans to roll out new games, such as Hearthstone Mercenaries, Chains of Domination, and Rogue.
Recent Financial Results
In its fiscal third quarter, ended December 31, 2020, TTWO’s net revenue declined 7.4% year-over-year to $860.89 million. The company’s gross profit increased 4.4% from its year-ago value to $514.65 million, while its net income increased 11.4% from the prior-year quarter to $182.25 million over this period. Its total operating expenses rose 7.1% from the year-ago value to $338.59 million.
ATVI’s net revenues have increased 21.5% year-over-year to $2.41 billion in the fourth quarter, ended December 31, 2020. However, its net income declined 3.2% from the year-ago value to $508 million, while its EPS declined 2.9% year-over-year to $0.66. The company’s total costs and expenses increased 18.7% year-over-year to $1.82 billion over this period.
Past and Expected Financial Performance
TTWO’s revenue and EBITDA grew at CAGRs of 19.8% and 34.6%, respectively, over the past three years.
Analysts expect the company’s revenue to increase 14.7% in the current year and 3.6% next year. TTWO’s EPS is expected to grow 15.6% in the current year and 0.2% next year. Its EPS is expected to grow at a rate of 15.3% per annum over the next five years.
In comparison, ATVI’s revenue and EBITDA grew at CAGRs of 4.8% and 11%, respectively, over the past three years.
Analysts expect ATVI’s revenue to increase 1.3% in the current year and 13.4% next year. The company’s EPS is expected to grow 5.2% in the current year and 16.7% next year. Also, ATVI’s EPS is expected to grow at a rate of 17.8% per annum over the next five years.
ATVI’s trailing-12-month revenue is 2.45 times TTWO’s . In fact, ATVI is more profitable with a gross profit margin of 72.1% versus TTWO’s 50.6%.
Also, ATVI’s ebitda margin of 37.4% compares favorably with TTWO’s 18.3%.
In terms of forward PEG, TTWO is currently trading at 3.08x, 49.5% higher than ATVI, which is currently trading at 2.06x. Also, its trailing-12-month ev/ebitda of 27.25x is 22.7% higher than ATVI’s 22.20x.
Both TTWO and ATVI have an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Both TTWO and ATVI have a Momentum grade of C, which is consistent with their price returns year-to-date.
In terms of Quality Grade, both TTWO and ATVI have a B rating given their higher-than-industry ebit margin.
Also, both TTWO and ATVI have a Sentiment Grade of C, which is in sync with analysts’ expectations for their earnings and revenue growth.
Of the 24 stocks in the C-rated Entertainment – Toys & Video Games industry, TTWO is ranked #11 while ATVI is ranked #9.
Beyond what I’ve stated above, our POWR Ratings system also rates both TTWO and ATVI for Growth, Stability, and Value. Get all TTWO’s ratings here. Also, click here to see the additional POWR Ratings for ATVI.
While both TTWO and ATVI can be considered good long-term investments considering their global market dominance and the video gaming industry’s strong potential, we think this is perhaps not the right time to get involved in any of these two stocks given their bleak near-term prospects.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. If you’re looking for better stocks in the Entertainment – Toys & Video Games industry, click here.
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ATVI shares were trading at $94.32 per share on Tuesday afternoon, up $1.75 (+1.89%). Year-to-date, ATVI has gained 1.58%, versus a 6.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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