Take-Two Interactive: Vice City On The Way, Fasten Your Seatbelts!

Introduction

In January 2023, I initiated coverage on Take-Two Interactive (NASDAQ:TTWO) with a Strong Buy rating. Since then, the stock has gained 90% compared to 52% for the S&P 500. In this initiation, I highlighted the firm’s underperformance since its previous ATH in 2021, which I found unjustified. I was particularly convinced by the firm's strong pipeline and impressive track record. I was also convinced of the huge opportunity represented by the upcoming release of GTA VI.

On November 14th, I reiterated my strong buy rating highlighting the bullish management guidance, mentioning the upcoming release of GTA VI at the end of 2025. This news came in a quarter where the firm announced the acquisition of Cfx and FiveM, a strategic decision suggesting strong potential synergies and huge monetization opportunities for the GTA franchise. Since this update, TTWO has been performing by +36%, in line with the SP500 (SPX).

Recently, the company published Q3 results. They are crucial as they provide more information about the firm’s guidance, pipeline, and upcoming releases, notably GTA VI. I will dive into these earnings and examine the key elements to bear in mind.

Then, I will reiterate, for those who are not familiar with it, my view on TTWO. I will quickly revisit the potential triggers and growth drivers that could support the stock over the short to medium term. Finally, I will proceed with a DCF analysis to determine whether TTWO represents an appealing investment opportunity.

Q3 2025 – The Calm Before the Storm?

TTWO published its Q3 2025 earnings on February 6th. Results were generally well received despite being flat compared to the previous year. I noted a slight miss on the top line, with revenues of $1.37 billion versus $1.39 billion expected. On the bottom line, there was a strong positive surprise, with EPS of $0.73 versus $0.56 expected by the consensus.

Recurrent consumer spending represented 79% of net bookings, highlighting the quality of TTWO’s licenses. This 30% beat was driven by the strong performance of the NBA 2K franchise, with daily active users increasing by nearly 20% this quarter. Regarding Zynga and the mobile segment, mobile net bookings increased by 6%, slightly below guidance.

2025 is expected to be a major year for TTWO, with major upcoming releases such as Sid Meier’s Civilization VII on February 11, Mafia: The Old Country in the summer, Grand Theft Auto VI in autumn, and Borderlands 4 before year-end. Given this impressive pipeline, which excites gamers like me, management expects record bookings for FY 2026 and FY 2027.

For Q4 2024, management forecasts net bookings to range from $1.48 billion to $1.58 billion, supported mainly by Civilization VII and WWE 2K25.

GTA V – A True Phenomenon

GTA V has been a true phenomenon. Released in September 2013, this game stood out thanks to its graphics, realism, and longevity, characterized by multiplayer servers where players can let their imagination run wild. With more than 210 million units sold, GTA V has generated nearly $9.5 billion in revenues through game sales and in-game purchases.

An important reminder: an initial investment of $265 million was made in GTA V, representing approximately a 35x return on investment. I say "approximately" as this figure does not account for the amount spent on marketing and the release of new expansions over the years.

In terms of performance, TTWO has outperformed both the SPX and the Nasdaq 100 (NDX) , especially since the release of GTA V.

GTA VI – Will it Repeat?

There are several elements that lead me to believe that GTA VI will be an even greater success than GTA V.

First, the wait has been long, the hype is real, and expectations are high. As proof of how anticipated and iconic the series is, the GTA VI trailer became the most-watched video on YouTube in 24 hours for a non-music video. The trailer now accounts for 240 million views, which, interestingly, is quite close to the total number of GTA V units sold.

Second, one of the most crucial elements is the unique positioning that the franchise allows it to exploit. GTA is at once a third-person shooter, an open-world game, and a legitimate racing game. As a sandbox-type PvP & PvE experience, it holds an almost monopolistic position after crushing competitors such as Saints Row, Just Cause, and Sleeping Dogs.

The third is respect for the community. I believe that part of GTA V’s success can be attributed to its community and the relationship that TTWO and its Rockstar Games studio have fostered with players over the years. TTWO knows what makes its games great and listens to its community, as demonstrated by recurring free content updates, the GTA RP scene, and its embrace of mods to support players while enhancing the game’s longevity.

The fourth is experience. TTWO and Rockstar Games are among the most prestigious video game studios. They know the recipe for success by heart and understand what makes their games great. Many investors fear a poor launch and a disappointing game as if nothing has been developed between GTA V and GTA VI. In reality, other great games have been developed in the meantime, notably Red Dead Redemption 2, which has sold more than 70 million units and holds a 97% score on Metacritic.

An even greater financial success than GTA V Incoming ?

I also hold the conviction that several elements will heavily support GTA VI dynamic and performance over the upcoming years.

First, the video game industry has shifted from being primarily physical in 2013 to a digital industry today. Back in 2013, almost 80% of video games were sold physically. As of today, close to 90% of video games are sold digitally. This shift from physical to digital sales implies greater profitability for game developers. It drastically reduces manufacturing costs, eliminates the need for stores and retailers who typically take a cut, and prevents reselling.

Second, the massive investment in GTA VI, nearly $2 billion, makes it the most expensive video game ever developed. That’s four times higher than Cyberpunk 2077 and four times higher than Spider-Man 2, two open-world games. This figure is even more impressive when considering how great GTA V was, with only $265 million spent on it.

Finally, an overlooked element that I believe will bring continuity and stability to GTA VI sales is the timing of its release. GTA VI is expected to be released in autumn 2025, launching first on PS5 and Xbox Series X. A year later, a PC version should follow. GTA VI will come out approximately five years after the release of the PS5 and Xbox Series X, which I see as perfect timing, as it coincides with the later stage of a console cycle, typically lasting around eight years. In other words, I wouldn’t be surprised to see players purchasing the game on the PS5 and then rebuying it on the next generation of consoles, just as many did with GTA V on the PS3 before upgrading to the PS4.

TTWO - GTA is Not The Only Strength !

GTA is on everyone's lips, but it hasn’t been TTWO’s only source of revenue for the past 10 years. From 2014 to 2024, TTWO generated close to $32 billion in revenues. This means that GTA V accounted for 30% of the firm’s revenues over the last decade. Over the years, things have changed, and TTWO has become a more diversified company, with the mobile gaming segment now accounting for approximately 52% of TTWO’s revenues.

From FY25 to FY27, 22 immersive core titles are expected to be released, including major names like Borderlands 4 and Mafia: The Old Country, which, in my view, will support the firm’s top line in the coming years.

Recurring Revenue as a Core Strategy

More and more video game companies have tried to implement game pass models and in-game purchases to provide a certain stability and predictability to revenues. The initial issue with AAA video games is that they take a long time to develop. Once a game is developed, it may generate a lot of revenue, with a spike at its release followed by a progressive decline over time. Then, new games must be developed, which consumes cash and can endanger the company if no other revenues are generated in the meantime.

In this context, the integration of Zynga makes a lot of sense, as it helps the company diversify its game portfolio and reach a global hyper-casual player base. This large potential customer pool is initially attracted to free-to-play games, generating engagement, potential retention, and then monetization. When the Zynga acquisition was announced in 2022, I found it interesting as a way to provide consistent cash flow to finance other initiatives.

Thus, it is worth noting that for FY 2024, 78% of TTWO’s revenues were related to recurring consumer spending, compared to 62% before the Zynga acquisition.

Valuation

I believe that TTWO is about to experience a major growth cycle driven by GTA VI and other titles set to launch in FY 2026. In this sense, I expect this release to boost TTWO’s top line by 40% in its release year, which is consistent with the past GTA V release. Aside from record sales, I expect digital purchases and GTA Online monetization to play a key role in the firm's growth. That’s why I expect FY 2027 to grow by 25%, supported by DLCs and a potential next-gen adoption. I also anticipate sustained growth for FY 2028, with a +10% top-line increase, and +7% top-line growth for FY 2029.

I expect gross margins to progressively return to 50% by FY 2029, with net income margins expanding toward 18-20%, driven mainly by higher digital revenue, direct-to-consumer sales, and new monetization strategies. In this scenario, I anticipate the console, PC & other segment to represent close to 70% of the firm's revenues, while the mobile segment will account for a smaller share than it does today. I expect this segment to grow at a mid-single-digit rate over the next five years.

All these assumptions lead me to expect an average 23% FCF growth rate over the next five years, which is consistent with TTWO’s FCF growth rate post-GTA V release, which was nearly 25%. Using a 2% perpetual growth rate and discounting with a 9.5% WACC, I reach a $263 target price, representing a 25% upside potential.

Risks

I acknowledge that TTWO represents a risky investment opportunity. All eyes are focused on GTA VI, which is understandable given the huge amount of money invested in this project. In this sense, I believe the main risk to consider when investing in TTWO is the potential for disappointment with the game's quality, similar to what we saw with the release of Cyberpunk 2077. In my opinion, given the time developers have had and Rockstar Games' track record, this is unlikely.

Another risk to consider is the potential decline in interest toward the GTA franchise. Even if the game is good, there is competition in the video game industry, and it is possible that gamers may choose to allocate their time to other games when GTA VI and other TTWO titles are released.

Finally, my scenario is based on a PC release occurring relatively early, one year after the console release, and a new console cycle starting in 2028, which would boost sales. Any factor contradicting these assumptions could potentially pose a risk to TTWO's growth and thus to my thesis.

Conclusion

Within the video game industry, which I have been following closely for many years, I consider TTWO one of the most promising opportunities given the quality of its franchises and studios. As shown, TTWO is now a diversified company with recurring revenues and a strong pipeline to support its growth.

Aside from that, I believe TTWO has the right culture. Video games are all about respecting players, bringing fun to them through great experiences. Many studios have forgotten this, but not TTWO, which is why the hype is so huge. Significant hype implies high potential, but it is also a double-edged sword in case of failure. I expect TTWO to deliver more than ever, and for GTA VI to represent a milestone in the history of video games.

I maintain my STRONG BUY rating on TTWO and will keep you updated as we get closer to autumn 2025. Fasten your seatbelts, we're heading to Vice City!