With GTA VI on the Horizon, Is Take-Two's Stock a Buy?

The total budget was estimated to be as high as $540 million. The story centered on a wandering outlaw in the old American West, dodging run-ins with bounty hunters while looking for the next big score.

The marketing team spared no expense...

Billboards were plastered on city buses, subways, and even on the big screens in New York's Times Square. But it was all money well spent. Within the first three days of release, the project had generated $725 million in sales, easily surpassing that massive budget.

You might think this was a Hollywood summer blockbuster. Not so.

This was the 2018 release of Red Dead Redemption II, a video game developed by Rockstar Games.

Whether you play video games or not, gaming is a big business now.

The industry has come a long way since the early days of Frogger and Duck Hunt. The industry has ballooned to a nearly $200 billion global market with a handful of gaming studios at the top...

One of which is Take-Two Interactive Software (TTWO).

Take-Two is the parent company that owns the studios responsible for popular games like NBA 2K, Red Dead Redemption, and the Grand Theft Auto ("GTA") franchises.

The latter two were released under Rockstar Games. And while Red Dead Redemption II was wildly popular, Grand Theft Auto is even more so.

It is one of the most successful franchises in the history of gaming, selling more than 440 million copies worldwide.

GTA's success is only rivalled by a handful of games, including Mario, Tetris, Call of Duty, and Pokémon.

The sixth mainline installment of the GTA series was one of the most highly anticipated releases of the year, originally set to launch this fall. However, Take-Two recently announced that the release of GTA VI has been delayed until May 2026.

That was unwelcome news for gamers. But it also has TTWO investors nervous. The stock fell just more than 6% on the news.

The delay now begs the question – with the expected blockbuster game still a year away, is TTWO a buy today?

With a $1 Billion-Plus Budget, GTA VI Needs to Be a Success

Initially released in 2013, GTA V has had a historic shelf life, lasting well over a decade.

To put this into perspective, the game debuted jointly on the Xbox 360 and PlayStation 3. Since its release, both Sony and Microsoft have put out two new generations of consoles.

To date, the fifth iteration of the franchise has sold 210 million copies worldwide and brought in more than $8 billion for Take-Two.

It's cemented as one of the best-selling games of all time thanks to its longevity.

At the time, it was also one of the most expensive games to ever be developed, with a whopping budget of $265 million.

But that number is chump change compared with the estimated cost of GTA VI. The game has been in development for over a decade, with initial development starting just a year after the release of GTA V.

Principal development began in 2018 after Rockstar's release of its hit open-world cowboy sequel Red Dead Redemption II.

While no official budget has been released, it's estimated that the game will cost more than $1 billion, with the highest estimates nearing $2 billion.

Admittedly, that's a wide estimate. However, the consensus is that costs will eclipse the $1 billion mark, making it the most expensive game ever released.

Given the high production costs, it's natural that investors shudder at the thought of any more delays in release.

To invest in Take-Two right now is to bet on the success of Grand Theft Auto VI.

There are certainly worse bets than one of the leading franchises in gaming.

So, the question is: Can GTA VI save Take-Two? In short, yes.

Currently, we don't know what the game will cost. But a reasonable assumption is that it will cost at least $70 per copy, the standard price for most blockbuster games.

However, there is nothing stopping Take-Two from extending the price ceiling of video games. Industry analysts have speculated that a copy of the game could retail closer to $100.

That's just for the base copy of the game, not including any special editions or upgraded versions. Traditionally, deluxe versions of AAA (a term used to refer to the budget and scope of a game) games come with additional markups of at least $30.

The next question is demand. While there are no official numbers yet from Take-Two, and the ability to preorder the game is still months away, the hype is building for the game.

Rockstar Games released its second trailer for GTA VI on May 6. Within one week, the video generated a total of 106 million views. The game's initial trailer, released last year, has generated 260 million views.

In its first week alone, GTA V generated $1 billion in sales. Current estimates for GTA VI have the game hitting the $1 billion mark in preorders alone.

Early estimates have the game generating more than $3 billion in revenue in its first year, according to DFC Intelligence, the oldest market analyst firm covering the video-game industry.

Looking longer term...

If GTA VI does sell for $100 per copy, and if the title can match the approximate 200 million-copies-sold milestone hit by GTA V, then GTA VI could result in $20 billion in sales over its lifetime.

That's a rough estimate with a lot of assumptions. But it's certainly in the ballpark for a title as popular as GTA.

On all accounts, GTA VI is expected to break all sorts of gaming records, including the most expensive and best-selling video game of all time.

The release and subsequent boon from the game will provide much-needed relief for Take-Two.

The company has struggled with rising development costs, spending on acquisitions, and a lack of releases as it focuses resources on its biggest franchises.

In 2023 and 2024, Take-Two's losses $3.7 billion and $4.4 billion, respectively.

Moreover, Take-Two is expected to produce its third consecutive year of negative free cash flow.

For Take-Two, GTA VI can't come soon enough. That's why it has become increasingly frustrating for investors every time a delay is announced.

Plus, the sooner the company can release the game, the sooner it can capitalize on its lucrative microtransactions, a revenue source that is becoming increasingly important for the video-game industry.

How Microtransactions Could Make GTA VI a Cash Cow for Years

One of the largest shifts in the gaming industry today has been the rise of microtransactions.

Microtransactions are smaller-denomination purchases inside of games that allow customers to buy new cosmetics and characters. Expansion packs, which provide more gameplay, are also a source of revenue.

In a world where people, especially gamers, crave more stimulation, it's impossible to release a game and move on. The newest challenge for these companies is customer retention.

And it has become clear that the solution is additional content. And it comes with a price.

This is not a brand-new concept. In fact, the first microtransaction took place in 2006, when The Elder Scrolls IV: Oblivion offered users a golden horse skin for $2.50.

Despite receiving backlash initially, the armor was quite popular and set the stage for future microtransactions. Today, it's a big business.

It's estimated that a whopping 58% of gaming revenue on PCs came from microtransactions in 2024. This is a revenue stream companies can't afford to ignore.

In GTA's case, users can purchase in-game funds in varying amounts from $250,000 up to $10 million with real-life prices ranging from $4.99 to $99.99, respectively.

Users can spend this money on whatever in-game items they like. A player could easily spend the virtual $10 million on one or two purchases alone.

This in-game currency system has done wonders for Take-Two, helping the company continue to generate revenue from its games well after its game sales have declined.

The company labels this revenue "recurrent consumer spending" in its quarterly earnings reports. For the company's fiscal quarter ended December 2024 recurrent consumer spending made up 79% of its net revenue.

Before microtransactions became widely adopted, once a game was released and initial sales petered out, that was it. There was no way to keep earning money from the active player base.

But now game developers can squeeze their games for as much revenue as possible by selling virtual currencies.

That's why GTA V, a game that was released more than 10 years ago, is still a top contributor to Take-Two's net revenue.

The company's other flagship series NBA 2K uses a similar virtual currency system, allowing users to upgrade attributes for their custom players.

The model has proved to be extremely viable, especially in periods of heavy development like the one Take-Two is currently experiencing. These recurring revenues have been able to help keep money flowing in as they work on the next big release.

So, putting it all together, is Take-Two worth investing in?

Does GTA VI's Hype Warrant a Buy for Take-Two Stock?

The best way to look at Take-Two's situation is through the lens of a pharmaceutical company.

That may sound strange, but let me explain.

A new drug will go through a lengthy research and development (R&D) phase, which requires boatloads of money and takes upwards of 10 years. As just one example, Novo Nordisk's (NVO) popular weight-loss drug was the result of more than $10 billion in development costs over several decades.

Once the drug is approved and hits shelves, the company begins to see the fruits of its labor, generating massive profits. In Novo Nordisk's case, Ozempic resulted in $17 billion in sales in 2024 alone.

The same can be said for GTA VI. During this development period, the companies are not bringing in any money from the product.

In Take-Two's example, once GTA VI is released, it's expected to bring in more than $3 billion during the first year.

After enough time on the market, patents will expire, and other pharmaceutical companies will begin selling a generic version of the drug. Revenues will decline. As for Take-Two, once a user buys the game, it can no longer resell the same copy. So initial sales will begin to decline.

However, Take-Two will still be able to generate cash from its game with recurrent consumer spending.

So, when thinking about investing in Take-Two, it's important to see where we are in the cycle. Right now, we're in the final stages of R&D, just waiting for approval to launch. This is the spot right before the company begins printing money.

But keep in mind that the game could face more delays. While not disastrous, it could trigger a sell-off from impatient investors.

Investors are banking on the success of GTA VI. And while all signs point to that outcome, this anticipation has pushed TTWO up to a lofty valuation.

There's no point looking at the stock relative to earnings (remember, they're negative). But looking at the company's enterprise value relative to its earnings before interest, taxes, depreciation, and amortization ("EBITDA"), TWWO clocks in at a hefty 102.3 times.

That's why our proprietary Stansberry Score only awards the stock a "C" for valuation.

But, just like a pharmaceutical company on the verge of releasing a blockbuster drug, Take-Two's fortunes could turn around quickly if GTA VI is as successful as it's expected to be.

For the time being, delays and negative, full-year earnings mean that it could be a rocky few quarters for Take-Two, but the payoff has the potential to be huge.

Regards,

Tyler Jarman