Take-Two Shares Have Struggled but This Analyst Sees an Upside

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Take-Two Interactive Software

shares have struggled in 2022 but an analyst at

JPMorgan

thinks upcoming games and contributions from newly acquired firm Zynga can win back Wall Street.

JPMorgan analyst David Karnovsky put an Overweight rating and a December 2023 price target of $175 on Take-Two (ticker: TTWO) stock on Thursday. The analyst previously had no rating, citing a period of restriction. JPMorgan helped finance Take-Two’s Zynga deal—which closed last month—with a $2.7 billion loan.

Take-Two stock fell 1.7% to $129.23 in Thursday trading.

The stock has fallen 27% in 2022, which Karnovsky chalks up to depressed sentiment toward mobile games.

Apple’s

(AAPL) privacy changes last year forced apps to get explicit consent from users for advertisement tracking, making it harder for mobile games to judge the success of ads they sell.

Karnovsky thinks that in the wake of the changes, firms with scale and large player databases will stand out.

“Sentiment toward Take-Two’s mobile business could further benefit from the deployment of IP from Rockstar or 2K into mid-core games, though we’ve not yet modeled in this potential revenue synergy,” the analyst added.

Karnovsky wrote that following the merger, Take-Two now has a strong mobile game portfolio, in addition to leading computer and console intellectual properties. He also notes that the firm’s pipeline of games is set to ramp up in the coming years.

“On the PC/console side, following a period of investment, the company is setto substantially increase its output of AAA games,” he wrote. “Visibility into the pipeline beyond F23 is limited, but based on management commentary andpresentations, it likely includes current franchises as well as dormant and new properties.”

AAA games are the videogame equivalent to a summer blockbuster film. Take-Two’s Grand Theft Auto 5 and Red Dead Redemption 2 titles have been hugely profitable because they reach massive audiences and continue to engage users and sell digital goods years after their releases. Karnovsky thinks Wall Street will reward the stock as it reveals and releases new titles.

“Execution on the pipeline and integration is a risk, but current valuationprovides a degree of safety and is more than balanced by potential upside,” Karnovsky wrote. “Looking across our coverage, we note TTWO is among the few stocks offering both value and growth and with limited risk to macro factors such as inflation or recession.”