Buy Take-Two Stock Before or After GTA 6 Launches? (TTWO)

Take-Two missed and jumped 8%

0:00 Take-Two, ticker symbol TTWO, the company behind Grand Theft Auto, just missed its own sales forecast, with sales down 18%, and the next day the stock jumped about 8%. Because on November 19 it launches GTA 6, and 1 research firm estimates almost 10 million copies have already been paid for, for a game nobody can play yet. That's more commitment than most of us show our gym memberships. But here's the part most people don't expect. The last 2 times Rockstar launched a game this big, Take-Two's stock went down on launch day.

0:26 So is the good news already in the price? My name is Blake. I dig up stocks before the bull stampede, so you're not buying at the top like Wojak. And today on 9to5investing, we're doing the math on GTA 6 before November 19.

The quarter: Take-Two bookings down 18%

0:46 Think of Take-Two like a movie studio the week before its biggest release in over a decade. The quarter it just reported is the previews. The movie hasn't started yet. And the previews were not great. In the September quarter, net bookings, which basically just means the money customers actually spent in the period, came in at about $1.6 billion. That's down 18% from a year earlier, and it was about $20 million below the bottom of the range Take-Two itself had given.

1:08 The company said its new basketball game, NBA 2K27, sold below its forecast, and spending inside its existing games fell 9%, when it had guided for a 5% drop. And its mobile games, the ones that came with the Zynga deal, brought in less than a year ago too. And almost nobody cared. Because none of GTA 6 is in those numbers. The game comes out in the December quarter, so every dollar of it lands in the next report. So what did move the stock?

The GTA 6 preorder number nobody gave

1:34 On the earnings call, CEO Strauss Zelnick said, quote, Zelnick (Q2 call): "Preorders for Grand Theft Auto VI are tracking far in excess of our initial expectations, and we know that the numbers will speak for themselves soon enough." Now, Take-Two has not given an actual preorder number. The number everybody quotes is an outside estimate. It comes from a firm called Sensor Tower, which estimated on November 10 that digital preorders on PlayStation and Xbox had reached 9.69 million copies, worth about $942 million.

2:03 For comparison, the last Grand Theft Auto, GTA 5, did about $800 million of sales in its first 24 hours, back in 2013. So by that estimate, GTA 6 has already passed GTA 5's whole first day, and it isn't even out yet. And here's the detail I find most interesting. The game costs about $80, and there's a deluxe version for about $100. Back in August, Sensor Tower said 89% of preorders were for the $100 version. Normally the expensive version is 10 to 20% of sales.

2:30 Zoomer can't afford rent, but he did upgrade to the $100 edition.

How many GTA 6 copies? The 2 bars

2:36 Now the guidance. For the December quarter, Take-Two expects more than double the bookings it just reported, and it kept its full-year forecast of $8 to $8.2 billion. So a company that just did $1.6 billion in a quarter is telling you that the next quarter will be more than twice that, mostly because of 1 game. Which brings us to the real question. How many copies does GTA 6 have to sell? Because the stock is priced on how many copies. Here's where Wall Street is.

3:00 Wells Fargo's analyst is looking for about 50 million copies at an average price of around $90. JPMorgan says investors in general are expecting more than 45 million. But by those same analysts' math, Take-Two's own guidance seems to assume a lot less, about 16 million fewer copies than that Wells Fargo number. So there are really 2 bars here. There's the low bar the company set for itself, and the high bar investors have already set in their heads.

3:23 A good launch that lands between them could still disappoint. Let me put dollars on it. 50 million copies at $90 is $4.5 billion at the register. Take-Two doesn't keep all of that. The console stores usually take a cut, and by the widely reported numbers, roughly 70 cents of each dollar makes it to Take-Two. Spread across 187 million shares, that's around $17 a share in sales, not profit, before paying for years of development, marketing and taxes.

3:48 And JPMorgan put it more simply. Every extra 5 million copies is worth about $275 million of bookings. So the difference between a 45 million launch and a 50 million launch is significant money, but it's not what decides whether this company is worth $42 billion. What decides that is what happens after launch, which is whether people keep spending inside the game for years, the way they did with GTA 5. GTA 5 came out in 2013, and Zelnick said on this call that it has now sold nearly 235 million copies.

4:14 That game is from 2013, and it's still selling.

What Take-Two stock did on the last 2 launches

4:18 Now the history, because this is where it gets interesting. GTA 5 launched on September 17, 2013, and it made $800 million in a day. Take-Two's stock fell 2% that day. It had already slipped about 5% in the month before, and 90 days later it was basically flat. The payoff came later. 6 months after launch, the stock was up about 29%. Then there's Red Dead Redemption 2, in October 2018. The stock dropped about 11% in the month before launch and slipped a little more on launch day.

4:46 It jumped 11% a few days later, when Take-Two announced a $725 million opening weekend. And then it faded. 6 months after launch it was down about 20%, although to be fair, the whole market sold off hard at the end of 2018. So in both cases, launch day itself was a non-event. What moved the stock was the first real sales number. With GTA 5 that number came the next day. With Red Dead it came 4 days later. Take-Two hasn't said when we'll get it this time.

5:12 And there's 1 big difference this time. In 2013 and 2018, the stock was falling into the launch. This time it's climbing. It's up about 18% from its low on October 30, and that's before a single copy has officially been played. Chad bought the stock, the deluxe edition and a second console. Trad Wife would like to know which of those was the investment.

Positive Pete: the bull case

5:32 Positive Pete has a strong case. Every analyst tracked on TipRanks rates the stock a Buy, 17 out of 17, with an average target around $290. After this report, Goldman Sachs actually raised its target, 2 firms trimmed theirs by a few dollars, and nobody downgraded. He'd also point out the stock is still down about 12% this year and below its all-time high of about $262, so it isn't exactly priced like a victory lap. And Zelnick himself isn't taking 1.

5:56 When an analyst pushed him to raise the forecast, he said, quote, Zelnick (Q2 call): "We're days away from the launch of GTA VI and we tend to avoid claiming success before it occurs."

Negative Nelly: 3 problems

6:08 And that's where Negative Nelly comes in. Her first point is a game called Cyberpunk 2077. In December 2020, it launched with 8 million preorders, which was the record people kept quoting. The game was full of bugs. The developer's stock fell more than 8% on launch day, Sony pulled the game from its store a week later, and within 6 months the stock had been cut in half. So preorders tell you people want the game. They don't tell you how the game works.

6:32 To be fair, Rockstar has a much better track record than that, but when GTA Online launched in 2013, the servers buckled for days and Rockstar ended up handing players free in-game cash as an apology. Her second point is that there's no PC version. Zelnick was asked about it on the call and would only say the game launches on 2 consoles. Her third point is the rest of the business. Everything that isn't GTA just shrank, and before this launch, Grand Theft Auto was only about 12.6% of Take-Two's revenue over the last 6 months.

7:03 And the accountant in me looks at the cash. In the first half of this fiscal year, Take-Two burned about $175 million from operations, and it's promising more than $1 billion of operating cash flow for the full year. So over a billion dollars has to show up in the back half, and most of that is riding on this 1 game. It also carries about $2.5 billion of debt, a lot of it left over from buying Zynga. And then there's the price. At Tuesday's close of about $225, the stock trades around 22 times the earnings analysts expect in the year after launch.

7:31 That's not a price for a good launch. That's a price for a great one.

What I'd watch and how I'd buy before November 19

7:35 So here's what I'd watch, in order. First, the reviews. They're reported to come out on November 18, the day before launch, although Rockstar hasn't confirmed that. If the reviews are great, the Cyberpunk worry mostly goes away. Second, launch day itself, November 19. Do the servers hold, and can people actually download and play the game? And then the first sales number. History says that's the day the stock really moves, and remember, there are 2 bars, the company's and Wall Street's.

8:00 Now, should you buy before November 19? I can't tell you that, but I can tell you how I'd think about it. If you're buying for launch day, history is not on your side. The stock fell or went nowhere on both of the last 2 big launch days. If you're buying for the next few years of people spending money inside this game, then launch day barely matters, and you don't need to rush. Either way, I'd split it into a few pieces. Some before launch, some after the first sales number, so that 1 bad headline doesn't decide your whole result.

8:30 And if Wojak tells you he's going all in the night before launch because the trailer looked amazing, that's him buying a movie studio because he liked the popcorn. So are you buying Take-Two before November 19, waiting for the first sales number, or just buying the game? Tell me in the comments, I always appreciate the chaotic discussion. YouTube already loaded your next video, and unlike GTA 6, you could play it right now.