Better Buy: Take-Two Interactive vs. Electronic Arts Stock
Investors’ opinions on leading video game stocks differ greatly, with Take-Two Interactive and Electronic Arts being two companies at the center of debate. Take-Two’s recent acquisition spree has garnered attention and positioned the company for a bright future in the digital entertainment space. On the other hand, Electronic Arts has faced concerns about slowing growth, causing its stock to underperform the market in 2023.
While short-term issues often dominate Wall Street’s focus, it is important to take a closer look at these successful game developers to determine which one is the better fit for your investment portfolio. In terms of growth, Take-Two has had a more impressive track record recently, with sales in the most recent quarter soaring 53% to $5.4 billion. Electronic Arts, in comparison, experienced a 15% increase to approximately $2 billion.
Take-Two’s gains can be attributed to the addition of the Zynga portfolio, which has expanded its presence in the mobile gaming niche. Additionally, franchises like NBA 2K23 and Grand Theft Auto have contributed significantly to its success. With years of investment in development and major acquisitions, Take-Two now boasts a large and diversified portfolio that is poised to deliver stable growth in various selling environments.
Although Electronic Arts modestly exceeded expectations this past quarter with hits in its EA Sports catalog and Apex Legends, its growth rate remains a concern. Nevertheless, the company has achieved high profitability while Take-Two is still a few years away from establishing consistent annual earnings.
Both companies anticipate a potentially challenging selling period ahead as gamers become more cautious in their spending habits. Take-Two has responded by canceling several smaller titles to focus on its well-known franchises, projecting flat sales for the 2024 fiscal year. Similarly, Electronic Arts expects sales between $7.3 billion and $7.7 billion, compared to the previous year’s $7.4 billion.
Looking ahead, both companies have plans to release several major titles after fiscal 2024, anticipating stronger consumer spending. Take-Two’s ambitions are particularly aggressive, with CEO Strauss Zelnick expressing high anticipation for the company’s performance in fiscal 2025.
Given these trends, investors seeking growth are likely to prefer Take-Two stock at present. Although its lack of profitability is a drawback, the company is expanding sales rapidly and has a strong potential for transformative growth next year. Moreover, Take-Two shares are priced at a modest discount compared to Electronic Arts, with a price-to-sales ratio of 4.2 versus EA’s nearly 5.
However, EA stock carries less risk due to its stronger financial position and well-established portfolio, especially its sports games that attract new spending each year. If market-beating sales gains are the priority in the coming years, Take-Two should be considered and added to the watch list. The company’s Zynga acquisition and the expansion of its content portfolio through fiscal 2025 and beyond could provide significant opportunities.
In conclusion, both Take-Two Interactive and Electronic Arts have their own merits and considerations. Investors should carefully assess their investment goals and risk tolerance before making a decision. Ultimately, the video game industry is constantly evolving, and success may hinge on the ability to adapt and capture emerging trends.
