Investors could hardly be more optimistic about Take-Two Interactive's (NASDAQ: TTWO) growth opportunities these days. The video game developer's stock price jumped over 50% in 2023 to roughly double the wider market's performance. This spike occurred despite Take-Two's modest sales trends and the significant losses it generated through most of the year.
Less risky options are available for investors seeking exposure to the video game industry. Rival Electronic Arts(NASDAQ: EA) is adding to its impressive market share position, for example, and already enjoys many advantages that Take-Two aims to achieve over the next few years. Let's look at a few reasons you might prefer the established game developer over Take-Two Interactive right now.
EA has the same level of gains without the loses
The main reason investors are excited about Take-Two stock is that the company is entering an unusually busy period for game launches. A new Grand Theft Auto title is expected to arrive in 2025 to mark the first major new installment in the franchise in a decade. Dozens of other big releases are in the pipeline for the next two years as well. With help from Take-Two's recent acquisition of the Zynga casual gaming giant, these titles are predicted to boost sales to nearly $8 billion in 2024, up 40% over 2023, as profits move into solidly positive territory.
EA is already at this excellent level, meaning you don't have to count on unpredictable game launch schedules when owning this stock. Its huge portfolio is on track to generate nearly $8 billion of sales in fiscal 2024 while earnings land at about $1.2 billion. Take-Two is forecasting just $5.5 billion in sales in that period and about $1 billion in losses.
EA's performance is real, Take-Two's is just expected
Don't forget that EA has its own strong pipeline of releases on the way, including in areas that Take-Two is seeking to gain a bigger foothold in fiscal 2025. Its sports franchises were popular this past year, and EA already commands a big lead in several casual and free-to-play niches.
Investors should assign more value to these established brands than to the uncertain launches ahead for Take-Two. There's a good chance that a few of its new titles will underperform expectations, after all.
And yet, the two stocks are valued as if they're already generating comparable operating results. Take-Two and EA shares both cost roughly 5 times annual sales right now. Sure, Take-Two's valuation should shrink as it boosts sales over the next year. But EA offers more concrete financial benefits that investors can own right now.
It's an attractive industry
Video game brands have become more valuable in recent years thanks to the shift toward software-as-a-service sales models extending the useful life of each franchise. And developers are building recurring revenue streams from these brands, making the businesses less risky than just a few years ago.
Major game releases still involve plenty of risk, particularly if you're looking to establish new franchises or unseat established market share leaders. Titles like Grand Theft Auto VI take many years to develop, and there's no telling how strong or weak the consumer spending environment will be when they finally reach the market. As a result, you might want to simply watch Take-Two stock for now and instead put its larger rival in your growth stock portfolio.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Take-Two Interactive Software. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.
