Morgan Stanley: Take-Two Has 'Best-In-Class' Content

Take-Two Interactive Software Inc TTWO is up 123 percent year-over-year, but the monetization opportunity in digital gaming could drive additional upside, according to Morgan Stanley.

The Rating

Analyst Brian Nowak initiated coverage on Take-Two with an Overweight and $150 price target.

The Thesis

Take-Two's Rockstar studio develops “best-in-class” content to capitalize on a digital shift and gamer trends favoring old, legacy franchises and leading titles, Nowak said in a Thursday note. (See the analyst's track record here.) 

The company boasts average game review scores 16-percent above those of Western competitors, and its “Grand Theft Auto” titles have together outsold any other Western franchise, the analyst said. 

Nowak considers the digital sales potential for “Grand Theft Auto” underappreciated. He forecasts compound annual growth for in-game revenue around 19 percent through 2020 as payer penetration increases from 18 percent to 31 percent.

Surveys suggest Take-Two will sell 23 million units of “Red Dead Redemption 2” upon its 2019 release, and Nowak anticipates $150 million of in-game revenue in 2020.

“NBA 2K” is slated for 34-percent compound annual growth in digital revenue through 2020 based on its 9-million-player monthly base and upcoming in-game improvements, Nowak said. 

Price Action

At the time of publication, Take-Two shares were down dropping 3.16 percent to $122.66 on news that "Red Dead Redemption 2" has been delayed again. 

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Screenshot from "Grand Theft Auto: Vice City."