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Take-Two Interactive Software Inc. stands to earn nearly $2 billion helped by sales of its next installment of “Grand Theft Auto,” a Goldman Sachs analyst estimated Thursday.
Goldman Sachs analyst Eric Sheridan wrote that a hack last month involving data from GTA, as the lucrative series is known, actually seeded some of his estimates in upgrading Take-Two’s
TTWO,
stock to a buy from neutral and hiking his price target to $165 from $131 Thursday. Sheridan outlined that GTA series collectively has sold about 375 million units, up from 127 million in 2013 when GTA5 was released, with the series bringing in about $7.7 billion in revenue since then.
With that in mind, Sheridan said unit sales and the estimated budget are two key variables in projecting the profitability of GTA6, and the hack provided some clues about them.
In-depth: ‘Grand Theft Auto 5’ has made more money than any other single media title in history
“Given that the estimated budget was an input based on a press article from this incident (and is significantly higher than the GTA V budget of ~$250-300mm), we flex that variable up and down as well as unit sales in order to assess various EPS outcomes based on those two components,” Sheridan said.
After updating his projections, Sheridan sees earnings from GTA6 coming in at more than $10 a share, which would imply more than $1.7 billion based on Take-Two’s current shares outstanding.
“Assuming the budget is ~$500mm (nearly 2x GTA V budget) but maintaining 170mm unit sell-through, the implied EPS is $10.44 (~$0.40+ more than our base case),” Sheridan said. “Meanwhile, assuming the unit sell-through is 245mm units but at the same ~$2bn budget, the implied EPS is ~$11.75 (nearly ~$1.70 more than the base case of $10.04), demonstrating significant leverage with every unit sold.”
With an expected $70 list price and microtransactions from the online game, Sheridan expects about $327 million annual operating profit from unit sales and about $372 million of operating profit from microtransactions, or about $699 million total based on about 170 million units over nine years like GTA5, a 75/25 digital versus physical split in sales, about $125 in annual player transactions, and about a $2 billion estimated budget.
See also: Severity of GTA hack depends on whether source code was taken, analysts say
This past fiscal year, Take-Two reported adjusted earnings of $5.06 a share on revenue of $3.5 billion, and in August, the company trimmed its outlook to provide for the integration of Zynga. Sheridan’s figures, though, also take into account about $1 billion from Take-Two’s recently closed acquisition of Zynga by fiscal 2025.
Shares of Take-Two were up nearly 3% Thursday, while the iShares Expanded Tech-Software Sector ETF
IGV,
was up 0.2% and the S&P 500 index
SPX,
was down 0.5%. Take-Two shares are down 32% for the year on par with the IGV ETF, and a 21% drop in the S&P 500.
Of the 27 analysts who cover Take-Two, 21 have buy-grade ratings and six have hold ratings, along with an average price target of $164.75.
