Take-Two: BMO Cuts Target, Foresees Weakness In Microtransactions

On September 1st, BMO Capital Markets reiterated their outperform rating on Take-Two Interactive Software, Inc. (Nasdaq: TTWO) but cut their 12-month price target to $155 from $182. The new price target represents an upside of about 26%. The analyst lowered the price target due to lowering estimates, with the analyst expecting lower monetization rates from free-to-play games and live services.

BMO writes, “We think the historically defensive video game industry has become riskier owing to more reliance on discretionary spending in these monetization models.”

Take-Two Interactive currently has 29 analysts covering the stock with an average 12-month price target of $160, or an upside of about 30%. Out of the 29 analysts, six have strong buy ratings, 14 analysts have buy ratings, and the last nine analysts have hold ratings on the stock. The street high price target sits at $200 and represents an upside of 63%.

BMO notes that in recent years there has been a rise in free-to-play video games, which have been able to “generate high-margin recurring revenue” through microtransactions. They believe that the most recent comments out of both Take-Two and its competitors have been more cautionary than upbeat, which they think is foreshadowing that the current macro environment is hurting the company’s revenue and margins in this segment.

On this, BMO notes that if this is true, then Take-Two might have to lean heavier on advertising for growth which might be troubling as they will now have to deal with the challenges arising from Apple’s new IDFA and Google/Andriod’s interstitial ad protocol.

Not only does BMO believes a pullback in microtransaction spending will hurt all of the company’s games, they also note that the Zynga acquisition might look a lot less accretive in the short-term due to this. BMO notes that Take-Two’s new 2023 bookings guidance came $750 million below their original estimate but still believes that the Zynga acquisition will be positive over the long-term.

Below you can see BMO’s updated estimates.

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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