The video game market is projected to hit $300 billion by 2025, according to a study by GlobalData, more than double the 2018 value of $130 billion. With a compound annual growth rate of 13%, investors need to take the video game industry seriously. Take-Two Interactive (TTWO -3.83%) is a giant in video game development, publishing, and distribution. An interest in mobile gaming in addition to highly anticipated unreleased titles has investors eyeing further growth in Take-Two's future.
Heavy hitters
The recent release of Borderlands 3 has set a record for Take-Two's video game developer 2K, selling 5 million copies in five days. Selling 50% better than Borderlands 2, the new title is showing growth in popularity and revenue, hitting $1 billion in revenue for the franchise.
The largest game in Take-Two's portfolio is Grand Theft Auto with 290 million units sold across the franchise, 110 million of Grand Theft Auto 5 alone. Gamers are anxiously awaiting the next release, which should be in 2022 or 2023, as there is an average of four years between the releases from developer Rockstar Entertainment. The release of Borderlands 3 and the upcoming 2019 releases of Ancestors: The Humankind Odyssey and The Outer Worlds are expected to deliver positive results.
Stepping into mobile
Take-Two's largest weakness is within the fastest-growing segment in the video game market, mobile gaming. With a small portfolio of mobile games, Take-Two has acknowledged the weakness in mobile and acquired Social Point to fill the hole. An acquisition in 2017 for $250 million, Social Point develops games primarily for Facebook that collect microtransactions to drive revenue. Titles include Dragon Land, World Chef, and Monster Legends. As one of six developers to have two games in the top 100 highest-grossing mobile games at one time, Social Point has a proven track record of success and will get the ball rolling into mobile gaming.
It's all in the numbers
In the recent first quarter of fiscal 2020, net revenue grew 39% year over year. A net income of $540.5 million, 58% made up from recurrent customer spending -- ongoing customer engagement including in-game purchases, add-on content, and virtual currency. Recurrent spending grew 31% year over year, and there was a growth of net bookings with a rate of 46% from the same quarter last year. Net bookings from recurrent customer spending grew 55%, accounting for 67% of total bookings.
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Looking forward, Take-Two Interactive raised the 2020 financial outlook with an expected revenue of between $2.83 and $2.93 billion, an increase from 2019 revenue of $2.67 billion. Earnings per share are expected to follow suit with an expected $3.71 to $3.96 per share in 2020, rising 26% to 34% from 2019.
Game on
Take-Two Interactive is a strong company financially and strategically within the video game industry. With positive momentum from releases in addition to strong financials, Take-Two is expanding across the industry, taking on competitors such as Electronic Arts (EA -0.40%) and Activision (ATVI).
Investing heavily in employees, Take-Two has gone from an employee base of 1,100 in 2007 to 3,400 in 2018, generating forward momentum to release new versions of franchise titles and entirely new games. The balance sheet is strong with cash and a short-term investment balance of $1.542 billion at the end of the quarter. With a free cash flow per-share growth of 144% over the trailing 12 months, Take-Two will continue investing in growth -- increasing its mobile footprint and impressing investors.
