Take-Two Interactive: Strong IP, Stronger Potential

Take-Two Interactive is one of the biggest names in video games, best known for hit series like Grand Theft Auto, NBA 2K, and Red Dead Redemption. The company creates games for consoles, PC, and mobile. With popular titles that keep players engaged for years and new major releases on the way, Take-Two is working to grow both in the U.S. and internationally. It’s also expanding in mobile gaming and live services to build more steady, long-term revenue. The question is: Should Take-Two be part of your investment portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Take-Two Interactive at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Take-Two Interactive, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Take-Two Interactive is a global developer, publisher, and marketer of interactive entertainment content. The company operates through three core labels, Rockstar Games, 2K, and Zynga, and delivers games across console, PC, and mobile platforms. It is best known for franchises such as Grand Theft Auto, Red Dead Redemption, NBA 2K, Civilization, and mobile titles like Empires & Puzzles and Words With Friends. Take-Two’s business model is built around creating premium-quality games supported by ongoing content updates, in-game purchases, and mobile advertising. With over half of its revenue now coming from mobile, the company has evolved into a diversified player in the broader gaming ecosystem. Its competitive moat lies primarily in its portfolio of iconic intellectual properties. Grand Theft Auto V has sold over 200 million copies and remains one of the most successful entertainment products of all time, while NBA 2K benefits from an exclusive licensing deal with the NBA and dominates the basketball gaming genre. These franchises command strong pricing power, reduce marketing costs for sequels, and foster deep player loyalty. Another strength is Take-Two’s global network of over 10.000 developers across numerous internal studios. Rockstar and 2K are widely regarded for producing high-quality, polished titles, a reputation that gives the company an edge that is difficult for competitors to replicate. The company also benefits from a diversified business model. Its presence across console, PC, and mobile allows it to reach a broad demographic, while post-launch content and subscriptions provide ongoing monetization opportunities beyond initial game sales. Take-Two maintains close relationships with key distribution platforms like Sony, Microsoft, Apple, and Google, allowing for global reach and effective digital and physical game launches. Overall, its combination of elite creative talent, powerful IP, platform diversity, and recurring revenue streams provides a strong and defensible position within the gaming industry.

Management

Strauss Zelnick serves as the Chairman and CEO of Take-Two Interactive, a role he assumed in 2007 following an investor-led takeover. He is also the company’s largest single shareholder. Strauss Zelnick brings a strong academic background, holding both an MBA from Harvard Business School and a JD from Harvard Law School. Prior to joining Take-Two Interactive, he held senior leadership roles in the entertainment industry, including CEO of BMG Entertainment and President and CEO of 20th Century Fox. In addition, he is the founder and chairman of ZMC, a private equity firm focused on investments in media and communications. When Strauss Zelnick took over Take-Two Interactive, the company was in turmoil, facing an annual loss of nearly $200 million and grappling with the aftermath of a scandal involving its prior CEO. Under his leadership, the company was transformed into a multi-billion-dollar business, maintaining a debt-free balance sheet for over a decade until the strategic acquisition of Zynga. Early in his tenure, Strauss Zelnick emphasized the importance of creative excellence and talent acquisition, championing the development of richly detailed characters and immersive narratives, hallmarks of the company’s most successful franchises today. His leadership style is often described as talent-centric, pragmatic, and grounded. He is known for being highly accessible and responsive, with a reputation for identifying and empowering top-tier creative and operational talent. In earnings calls, Strauss Zelnick often reflects a culture of humility and accountability. As he once stated, “Arrogance is the enemy of continued success… we know we have to buckle down every day and deliver the results.” This mindset has helped Take-Two maintain its position as one of the most respected companies in the video game industry. I believe Strauss Zelnick is the right person to lead Take-Two Interactive moving forward. His experience in media, his track record of turning the company around, and his focus on creative quality and long-term thinking make him well-suited to guide the company through its next phase of growth.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. "The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Take-Two has had years with a low and even negative ROIC. From FY2016 to FY2018, Take-Two’s ROIC remained modest due to a combination of timing and how the industry works. As a publisher in a hit-driven business, the company relies heavily on blockbuster releases to drive profits, but during that time there were no new entries in major franchises like Grand Theft Auto or Red Dead Redemption. At the same time, Take-Two was spending heavily on game development, especially Red Dead Redemption 2, which would not bring in revenue until its late 2018 launch. These early investments increased the capital base without immediately boosting earnings. On top of that, revenue from digital content or in-game purchases is often spread out over time in the accounts, so even when players pay upfront, that money does not always show up right away in the profit line. All of this made returns appear weaker during those years, even though the company was laying the groundwork for future success. Over the past three fiscal years, ROIC has been negative, mainly due to high investment and low earnings. In 2022, Take-Two acquired Zynga for $12,7 billion, which added a large amount of goodwill to the balance sheet and significantly increased the capital base. Since then, Zynga has not lived up to early expectations, which has kept returns low. On top of that, the company has posted losses, including a $3,7 billion impairment in FY2025. Rockstar has not released a major game since Red Dead Redemption 2, so earnings have not kept up with the growing capital base. Meanwhile, Take-Two continues to spend heavily on future titles like GTA VI and new mobile games, which are not expected to launch until FY2027 or later. This has kept ROIC weak in the near term, even though the company is preparing for a stronger future. Take-Two’s negative ROIC in recent years isn’t an immediate red flag, but it is something worth watching. In the short term, the low returns mostly reflect timing. The company is investing heavily now, especially in GTA VI and mobile, but the benefits will only become clear once those games are released. The recent impairments are accounting changes rather than actual cash losses, and cash flow could improve once new titles start performing well, which would help ROIC recover.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Take-Two’s equity dropped in the past two years mainly because the company has been losing money. The biggest reason for this was a large accounting charge in FY2025, when Take-Two reduced the value of Zynga on its books by $3,7 billion. Even though this did not involve spending any cash, it still counted as a loss and reduced the company’s equity. In FY2024, equity also fell because the company spent more than it earned, while still investing heavily in new games like GTA VI. The recent drop in equity is not an immediate concern. It mostly reflects accounting adjustments and the timing of heavy investment in future game releases. Take-Two is still pouring resources into major upcoming titles, and if those perform well, both earnings and equity could recover. However, if these games face further delays or disappoint in the market, the continued decline in equity could become more problematic over time.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Free cash flow has been negative at Take-Two for the past three years mainly because of rising costs, falling profits, and heavy investment in game development. The company has spent a lot on building out its future pipeline, especially large projects like GTA VI, while not having any major new releases to bring in comparable revenue. At the same time, the Zynga acquisition added more operating costs, and the mobile business has not delivered strong cash flow to offset those expenses. Before this period, Take-Two generally had positive free cash flow, supported by successful titles like GTA V, Red Dead Redemption 2, and ongoing live services. This recent cash burn is not an immediate red flag, but it is something to keep an eye on. If the big upcoming releases perform well and arrive on time, free cash flow should turn positive again and the business would return to a healthier position. However, if delays continue or the games underperform, ongoing negative cash flow could become a bigger concern. Once free cash flow turns positive again, Take-Two has said its top priorities are investing in future game development and maintaining a strong balance sheet. The company has also returned capital to shareholders in the past through share buybacks, and that could resume over time. But in the near term, most of the cash will likely be reinvested in content and supporting growth across console, PC, and mobile. As the free cash flow yield is negative, it does not indicate if the shares are trading at an attractive valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a three-year period. We calculate this by dividing the total long-term debt by earnings. I cannot perform the calculation based on fiscal year 2023, fiscal year 2024, or fiscal year 2025, as Take-Two Interactive had negative earnings. I cannot base it on free cash flow either, as free cash flow has also been negative over the past three years. However, using fiscal 2022 earnings, where the company posted an EPS of 3,58, and applying the current number of shares outstanding, the company had the equivalent of 3,98 years of earnings in debt. This exceeds the three-year threshold. Still, it is worth noting that Take-Two Interactive has historically operated with little or no debt and only took on significant debt to fund the Zynga acquisition. Because of that, I will not exclude Take-Two as an investment solely due to its current debt levels, but I would like to see management prioritize repayment in the coming years. Encouragingly, in May 2025, the company proposed issuing up to 5,5 million new shares at $225 per share, aiming to raise up to $1,2 billion. While this would lead to a share count increase and about 3 percent dilution, the stated use of proceeds includes the repayment of outstanding debt and potential acquisitions. This suggests that management is taking steps to strengthen the balance sheet and improve financial flexibility.

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Risks

Competition is a risk for Take-Two. The interactive entertainment industry is intensely competitive and constantly evolving, with many players competing for both consumers’ attention and spending. Take-Two competes directly with large publishers like Electronic Arts, Activision Blizzard, Ubisoft, and Tencent, as well as platform owners like Sony, Microsoft, and Nintendo, who not only develop their own games but also control the platforms Take-Two depends on. These companies often have more financial and technical resources, allowing them to spend more on development, marketing, and talent acquisition. In mobile gaming, Take-Two’s Zynga unit faces pressure from a crowded field of free-to-play games developed by both major companies and small studios. The rise of live-service and subscription models has also raised the bar, requiring constant content updates to keep players engaged. On top of that, Take-Two competes with other forms of entertainment like streaming services, social media, and short-form video, which are often cheaper or easier for consumers to access. As the cost of developing a successful game continues to rise, and the number of competing titles increases, it becomes harder to stand out. If Take-Two fails to keep pace with innovation, player expectations, or shifts in consumer preferences, it could lose market share or see weaker sales from its key franchises. The company also risks losing key talent to better-funded rivals or seeing its most successful games imitated by fast-moving competitors. With tech giants like Apple, Google, and Amazon expanding their focus on gaming, the competitive landscape is only getting tougher, and Take-Two will need to continue investing in quality content and player engagement to maintain its position.

Development risks are a significant concern for Take-Two Interactive. The company relies heavily on the success of a relatively small number of high-profile titles, many of which take several years and hundreds of millions of dollars to develop. As games become more complex and expectations rise, the time and cost required to deliver a polished AAA title have increased dramatically. For example, while Grand Theft Auto IV reportedly cost around $100 million to develop and market in 2008, Grand Theft Auto V cost approximately $300 million. Now, analysts estimate that GTA VI could cost as much as $2 billion when including marketing, underscoring how much more expensive and risky development has become. With such high upfront investments, any delay, budget overrun, or poor execution can be costly. Take-Two’s emphasis on quality means longer development cycles, which increases the chances of project delays or technical challenges. If a major title launches with bugs, lacks polish, or receives poor reviews, it can seriously impact sales and damage the company’s reputation. In addition, Take-Two must continually adapt to new technologies, business models, and player preferences. Whether it is cloud gaming, subscription services, or free-to-play mechanics, failing to keep up with industry trends could leave the company behind. Development also depends on the ability of both internal studios and third-party partners to deliver on time and within budget. If any studio faces financial difficulties, staffing issues, or unforeseen challenges, key projects could be pushed back. These risks are amplified by the fact that Take-Two has several major releases expected in the next few years.

Portfolio concentration is a risk for Take-Two because the company relies heavily on a small number of blockbuster franchises to drive its revenue and profits. In fiscal year 2025, Grand Theft Auto alone accounted for over 12 percent of net revenue, and the company’s top five franchises together made up more than half. This level of dependence means that any delay, underperformance, or loss of momentum from one of these key titles, especially Grand Theft Auto, NBA 2K, or Red Dead Redemption, can have an outsized impact on financial results. The video game industry is hit-driven, and while Take-Two has been successful at producing top-performing titles, the pressure to deliver another hit with each release is high. If a major game like GTA VI is delayed or fails to meet expectations, it could significantly reduce earnings and hurt investor confidence. At the same time, competition in the industry is intense, and rival publishers may capture more of the market with better-timed or more innovative releases. If consumers shift their attention to competing titles or platforms, Take-Two’s narrow portfolio focus could leave it more vulnerable than a more diversified competitor. The company must not only maintain the strength of its existing franchises but also invest in new IP to reduce its reliance on a few core brands. Without successful diversification, Take-Two risks growth stagnation and greater financial swings tied to the performance of just a few games.

Reasons to invest

The Grand Theft Auto franchise is a reason to invest in Take-Two. It is one of the most successful entertainment properties of all time, with over 215 million units of Grand Theft Auto V sold and millions of players still actively engaged through Grand Theft Auto Online. Despite launching more than a decade ago, GTA V continues to outsell many new releases, supported by regular content updates, live services, and paid memberships like GTA+. This level of continued engagement is extremely rare in the industry and has helped establish a dependable revenue stream for Take-Two. The next installment, Grand Theft Auto VI, is expected to launch in May 2026 and is already being described as the most anticipated entertainment release in history. The excitement surrounding it is unprecedented, with the second trailer receiving over 475 million views across platforms within 24 hours, setting a new record. Rockstar Games, the studio behind the series, is known for its commitment to quality and cultural relevance. Their ability to shape pop culture is unmatched, as seen in the viral response to both trailers and even the surge in music streams from songs featured in them. GTA VI has been in development since 2020 and is expected to be Rockstar’s most ambitious and complex title to date. Analysts estimate the development and marketing cost could reach $2 billion, a figure that underscores the scale of the project and the company’s confidence in its potential. Management expects this release to drive significant growth, and while they are cautious about making early claims, they have hinted at a new baseline for the business once GTA VI is out, with long-term expectations of strong cash flow and record net bookings. The Grand Theft Auto franchise is not just a one-time event, it is a long-term ecosystem. Even now, GTA V and GTA Online continue to deliver steady revenue through in-game purchases and subscriptions. This makes GTA not only a blockbuster franchise but also a platform for ongoing engagement and monetization. Given the strength of the brand, the scale of consumer anticipation, and the track record of previous releases, GTA VI represents a major growth catalyst and a key reason why Take-Two remains a compelling long-term investment.

Mobile games is a reason to invest in Take-Two. Since acquiring Zynga in 2022, the company has steadily built a strong position in the mobile gaming space, which is now an important part of its long-term growth strategy. While the acquisition initially resulted in a large accounting write-down, Zynga has proven its ability to launch profitable titles in a highly competitive market. Recent hits like Match Factory! and Color Block Jam became profitable shortly after release and climbed the U.S. app store rankings, showing that Zynga’s multi-studio approach and focus on live operations can consistently deliver results. Take-Two also plans to expand its mobile portfolio by bringing five new titles to market this year, including a WWE 2K game for Netflix, and it sees strong potential in developing mobile games based on popular franchises like Grand Theft Auto, Red Dead Redemption, and NBA 2K. Beyond game development, mobile has become a more profitable channel thanks to the growth of Take-Two’s direct-to-consumer business, which allows the company to market directly to players and reduce reliance on third-party app stores. Management believes recent legal decisions will make this channel even more attractive going forward. In addition, Zynga and Take-Two share consumer data and best practices across teams, giving them an edge in how they promote and optimize their mobile offerings. While mobile remains a tough market, Zynga is one of the few companies consistently launching successful titles. With a growing pipeline, strong execution, and the opportunity to leverage well-known IPs, mobile gaming has become a valuable growth engine for Take-Two.

International growth is a reason to invest in Take-Two. While nearly 40 percent of the company’s revenue already comes from outside the United States, management sees significant room for expansion, especially in regions where its presence is still limited. In particular, Take-Two is underpenetrated in fast-growing markets like Asia, India, and Africa, areas with large populations, growing internet access, and increasing interest in gaming. Management has described these regions as major opportunities and made it clear that geographic expansion is a key part of their long-term growth strategy. The company is working to broaden the reach of its existing titles and strengthen its online gaming presence, especially in China, where it hopes to bring more of its content to a large and increasingly engaged gaming audience. There is also untapped demand for premium content in these regions. While free-to-play and casual games have dominated so far, there is growing interest in high-quality, story-driven games like Grand Theft Auto and Red Dead Redemption, particularly as incomes rise in markets like India and Southeast Asia. In addition, Take-Two’s live-service titles such as GTA Online and NBA 2K Online can scale across international markets and generate steady recurring revenue, not just one-time purchases. Compared to peers like Activision Blizzard and Electronic Arts, Take-Two still has room to grow internationally. If it successfully executes its global strategy, it could close the gap and unlock meaningful upside over time.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

Take-Two Interactive's EPS, operating cash flow, and free cash flow were all negative in fiscal year 2023, fiscal year 2024, and fiscal year 2025. That means I cannot use those years to do any calculations. I have chosen to use the numbers from fiscal year 2022 instead, because it was the most recent year with positive earnings and cash flow.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 3,58, which is from fiscal year 2022. I have selected a projected future EPS growth rate of 11%. (Management has mentioned 11% growth) Additionally, I have chosen a projected future P/E ratio of 22, which is double the growth rate. This decision is based on the fact that Take Two Interactive has historically had a higher P/E ratio. Lastly, our minimum acceptable rate of return is already set at 15%. Doing the calculations, we come up with the sticker price (some call it fair value or intrinsic value) of $55,28. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Take Two Interactive at a price of $27,64 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is called the Ten Cap price. The rate of return that an owner of a company (or stock) receives on the purchase price of the company is essentially its return on investment. The return should be at least 10% annually, and I calculate it as follows: The operating cash flow in fiscal 2022 was 258 and capital expenditures were 159. I attempted to review their annual report to determine the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated for maintenance purposes. This means that we will use 111 in our calculations. The tax provision was 47. We have 170 outstanding shares. Hence, the calculation will be as follows: (258 – 111 + 47 / 170 x 10 = $11,41 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Take Two Interactive's Free Cash Flow Per Share at $5,76 and a growth rate of 11%, if you want to recoup your investment in 8 years, the Payback Time price is $75,82.

Conclusion

I believe Take-Two Interactive is an intriguing company with strong management and a solid moat built around its portfolio of iconic intellectual properties. The company has posted negative ROIC and free cash flow over the past three years due to heavy investment in upcoming releases, but these metrics should improve once major titles hit the market. Competition remains a risk as Take-Two operates in a fast-moving, hit-driven industry and faces pressure from larger rivals like Electronic Arts, Tencent, Sony, and Microsoft, all of which have greater resources for development, marketing, and talent. Development risk is also notable given the long timelines and rising costs of producing blockbuster titles, where delays or missteps can hurt both financial results and reputation. Portfolio concentration adds further risk, with a large share of revenue dependent on a few franchises like Grand Theft Auto, NBA 2K, and Red Dead Redemption. The Grand Theft Auto franchise, however, is a major strength, with over 215 million units of GTA V sold and the upcoming GTA VI widely expected to drive significant long-term growth. Mobile gaming is another bright spot, with Zynga launching profitable titles and expanding its pipeline by leveraging Take-Two’s popular IP and direct-to-consumer strengths. International expansion offers further upside, especially in underpenetrated regions like Asia, India, and Africa, where rising demand for premium content and live services could fuel meaningful revenue growth. While there are many reasons to like the company, I personally do not favor the cyclical nature of its earnings between major releases and therefore will not be investing at this time.

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