Vice President and Portfolio Manager, Intrepid Capital Management Wide-Moat Investing Summit 2020 Hosted by MOI Global
Take-Two Interactive Durable Engagement
Instructor: Hunter Hayes Disclosures This presentation is a publication of Intrepid Capital Management. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author, Hunter Hayes, as of the date of publication and are subject to change. This presentation is confidential and solely limited for use by MOI Global Members and its 2020 Best Ideas Conference Participants. Any member and conference participant may not share the presentation with others without Intrepid Capital Management’s expressed written permission. Information on this presentation does not involve the rendering of personalized investment advice but is limited to the dissemination of information for research and discussion purposes. Content should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. This presentation mentions other companies as part of the general discussion. We disclaim any responsibility for information, services or products mentioned herein. All market data in this presentation is as of June 29, 2020 and is sourced from Bloomberg. Any other information, when not otherwise attributed to a source, is internal research. As of June 30, 2020 Intrepid Capital Management owns a position in TTWO stock in one or more of its accounts or strategies About Me:
• Portfolio Manager at Intrepid Capital Management • Work across capital structure on both debt and equity • Before Intrepid: • Eaton Vance - High Yield Associate Analyst • Deloitte Advisory – Valuation Consultant • Graduated from Auburn University INTREPID’S INVESTMENT PHILOSOPHY
Founded 1995 Goals Philosophy Experience over multiple market cycles ✓ Participate on upside ✓ Valuation-centric ✓ Seek to reduce downside ✓ Strong FCF generation ✓ Steady growth Take-Two Interactive (TTWO)
Thesis Video Game TTWO’s Moat Valuation Risks Conclusion Industry Overview TTWO Stock Price Since Last Year +24%
TTWO Stock Price $150.00 $145.00 $140.00 $135.00 $130.00 $125.00 $120.00 $115.00 $110.00 $105.00 $100.00 TTWO Thesis – Still Intact
VALUABLE INTELLECTUAL PROPERTY
STRONG MANAGEMENT
GROWTH PROFILE, NET CASH
DURABLE, SMOOTHING CASH FLOWS ANCILLARY REVENUE STREAMS GROWTH OF STREAMING TTWO 4Q20 Earnings
• Strong 4Q20 (FYE 3/31) – smashed Guidance/Street expectations • Net bookings were up 49% year-over-year • EBITDA margins rose to 28.6%, still well below ATVI and EA • Balance sheet remains pristine with over $2 billion of cash and equivalents • Engagement in all titles rose, led by NBA 2K20, GTA, and RDR • The 7-year old GTA V Warhorse continues to deliver • Has now sold 130 million units • Became free on Epic game store causing the entire store to crash • Announced massive slate of new games • Company is stronger than ever Premier Intellectual Property (IP)
3.784 research and development staff
Three Network company- effects owned studios
IP rights to 26 brands Massive Pipeline
• TTWO announced there will be 93 titles released over the next 5 years • 63 are core gaming experiences, including 15 “platform extensions.” • GTA6 would fall into this platform extension category • 17 are arcade titles, 13 are casual • 47 are from existing franchises, 46 are completely new IP • 72 are for console, PC, or streaming with 7 also available on mobile • 21 are for mobile specifically • 67 must be purchased, 26 are free-to-play Strong Management
STRAUSS ZELNICK HAS JOINED THE COMPANY PAID WELL APPROPRIATE RUN TTWO AS CEO SINCE DURING A TIME OF INCENTIVES 2011 BUT SERVED AS TURMOIL EXECUTIVE CHAIRMAN SINCE 2007 TTWO has a growth profile and net cash
Recurrent Consumer Spending Net bookings have steadily over (RCS) has grown at a 30% CAGR past 10 years over the past 6 years
$2,000.0
$1,500.0
$1,000.0
$500.0
$- 2015 2016 2017 2018 2019 2020
Margins have more room to grow to catch up to the Strong Balance Sheet Big 2 (EA & ATVI) Cash Flows Broader publishing base Should Start to Smooth More titles and cycle Free Cash Flow to the Firm releases $900.0
$800.0
$700.0
$600.0 Games lasting longer $500.0 $400.0
$300.0
$200.0
$100.0
RCS growing as a % $- of net bookings 2015 2016 2017 2018 2019 2020 Video Game Industry: AAA Titles Have Moats! Game-Streaming $9.99/month Services & Distribution
12% vs. 30% TTWO’s Moat
• “If you're invested in our company this is what you're investing in. You're not investing in our data analytics, you're not investing in our technology, you're investing in the intersection of our people and the IR talent and the intellectual property that we currently have and own and the intellectual property you believe and we believe will create in the future with the backdrop of this growth business.” – Strauss Zelnick, Bernstein Strategic Decisions Conference May 30, 2019 TTWO Valuation Risks
• Waning Demand • Shifting Monetization Trends • Game Busts & Delays • Regulatory • Macro-Level Take Two is a premium publisher of video game content with best-in-class IP Conclusion There is strong demand for high quality content that has only been augmented by stay-at home orders during the COVID-10 pandemic There are significant potential tailwinds for publishers over the next few years
Although not the cheapest video game publisher, we believe TTWO is best-in-class Q&A Hunter Hayes
E-mail: [email protected] Contact Information Work Phone: 904-242-5073
Mobile Phone: 904-545-2117