Substantial Fair Value Hike on Take-Two

We are raising our fair value estimate for narrow–moat

The success of "GTA Online" over the past four years demonstrates the firm's ability to monetize its games while attracting considerably less backlash than other similar titles. We expect that Rockstar will create a similar online mode for its next big single-player game, "Red Dead Redemption 2," which is expected to launch in October. While "RDR 2" is the firm's most hyped title for the near future, the potential launch of "GTA VI" remains the biggest potential catalyst for the firm even after the diversification of its game portfolio. The fifth installment of the game is one of the most successful media releases of all time with over 95 million units sold since its launch in 2013.

Post-E3, we have become increasingly convinced that a new console generation will launch in the second half of 2020 or 2021. We expect both Microsoft and Sony to release consoles within a year of each other with Sony more likely to launch first. Given this background and the release of "RDR 2" this fall, we now project that Take-Two will likely launch the next installment of "GTA" in fall 2021 or fiscal 2022 which will give "RDR 2" a three-year window. "GTA VI" will also be able to be sold to the large installed base for the current generation while being compatible on the new generation of consoles with improved graphics. Given the success of "GTA Online," we expect Rockstar to include a new and improved version of the mode in "GTA VI," which should help with margin expansion. As a result, we now project that fiscal 2022 revenue for Take-Two will spike up by 78% to $5.5 billion with fiscal 2023 revenue falling from those heights by 24%.

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