Bank Of America Calls Take-Two's NBA Deal A 'Vote Of Confidence'

The National Basketball Association extended its partnership with video game company Take-Two Interactive Software, Inc TTWO for a reported seven years in a deal that can be seen as a "vote of confidence," according to Bank of America.

The Analyst

Bank of America's Justin Post maintains a Buy rating on Take-Two with an unchanged $156 price target.

The Thesis

The Wall Street Journal reported the partnership between the NBA and its players' union consists of Take-Two paying up to $1.1 billion over the next seven years, Post said in a note. This would represent more than double the amount paid under the prior agreement and signals a strong and mutually beneficial partnership between the two organizations.

Take-Two likely grew its NBA user base from 5 million to 6 million under the prior agreement era to more than 10 million after the launch of 2K18, the analyst said. Take-Two likely generated more than $250 million in high-margin micro transactions from the basketball game. As such, it "would make sense" for Take-Two's price tag on the NBA franchise to double and is unlikely to have any material impact on fiscal 2020 NBA margins.

Bottom line, investors should continue to view Take-Two's portfolio of games to be high quality, including other franchises like "Red Dead."

Price Action

Shares of Take-Two traded at $105.93 Wednesday afternoon.

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Photo credit: NBA 2K19