Krause Fund Research Fall 2020

Home , 2K (company), Grand Theft Auto, PGA Tour 2K21, Private Division, Red Dead

November 17th, 2020 Take -Two Interactive Software, Inc.(NASDAQ: TTWO) Stock Rating: BUY Interactive Home Entertainment

Analysts Target Price $200-$210

Daniel Poncer Adam Topping Stock Values [email protected] [email protected] DCF/EP $206.76 Connor Hoeft Hieu Nguyen DDM $144.26 [email protected] [email protected] Relative Valuation (2020 P/S) $181.28 Investment Thesis We recommend a buy rating for Take Two Interactive Stock Performance Highlights WeSoftware, recommend Inc. a We buy believe rating on Take-Two Interactive Software, Inc. We believe the company is currently undervalued considering the projected growth of the industry as a 52 Week High $180.61 result of COVID-19. We expect Take-Two to continue to drive growth through largely 52 Week Low $100.00 successful titles while also expanding its mobile gaming presence and portfolio of games Current Price $162.39 with the release of Madden 2K and the purchase of Codemasters. Share Highlights Investment Drivers: • Take-Two is well positioned to continue to capitalize on pandemic video game Market Cap(M) $18,678.35 buyers. Recurrent consumer spending accounts for roughly 64% of revenue and is Shares Outstanding(M) 115.021 core to their business model. As players continue to engage in Take-Two’s games, Beta 0.66 they are more likely to purchase digital content like virtual currency past the EPS(2021E) $3.14 pandemic. P/E Forward 48.60 • Their continued focus on the mobile gaming space opens avenues to drive revenue growth as category is projected to grow at an annualized rate at 25.3% Company Performance Metrics over the next five years. ROE 17.7% Investment Risks: ROA 8.8% • Dependency on the Grand Theft Auto series leaves Take-Two vulnerable to declining revenues as consumer preferences may change. Financial Ratios • Smaller cash balances relative to its peers could hinder ability to acquire software Debt/Assets 3.08% licensing rights and bid on potential acquisitions targets, stunting future growth. Cash Ratio 1.25 12 Month Performance Company Description

Take-Two Interactive Software, Inc. is a Data from leading developer, publisher and 12 Month Return Compared to the S&P Yahoo Finance marketer of interactive entertainment for 50% Take-Two Interactive Software, Inc. S&P 500 consumers around the globe. We 40% develop and publish products through 30% our labels Rockstar Games, 2K, and 20% Private Division, as well as Social Point, 10% a leading developer of mobile games. 0% Our products are designed for console systems and personal computers, -10% including smartphones and tablets, and -20% are delivered through physical retail, -30% digital download, online platforms and 12/1/2019 2/1/2020 4/1/2020 6/1/2020 8/1/2020 10/1/2020 cloud streaming services.

1 Economic Outlook reduced hours are not factored into this calculation regardless of their underutilization. As a result of the pandemic, businesses nationwide have reduced their U.S. Real Gross Domestic Product (GDP) hours of operation affecting many employees. Due to Real GDP represents the market value of goods and this we believe the true unemployment rate to 7.3%, services produced within a given year on an inflation 0.4% points above the Bureau of Labor Statistics most adjusted basis. Therefore, steady gains in real GDP are a recently reported figure. positive indicator of the overall strength of the economy and suggests increased consumer spending and The unemployment rate has continued to steadily decline personal consumption expenditures (PCE). As real GDP from April’s all-time record unemployment rate of declined in the first and second quarters of 2020 due to 14.7% as millions of Americans were laid off as the COVID-19 shutdowns, third quarter real GDP businesses were forced to close. However, with recent increased by 33.1% from the preceding quarter.1 The news regarding positive test results of a COVID-19 rebound in the latest quarter is attributable to second vaccine, we expect this rate to decline slightly into the quarter’s decrease of 31.4% being the largest end of the year and drop to roughly 4% in 2021 Q1 as an quarterly contraction of real GDP in 75 years.2 effective vaccine becomes widely available The increase in third quarter real GDP reflects the for distribution and jobs in the hardest hit industries such continued attempts to reopen businesses that have been as hospitality are able loosen social distancing restricted due to the coronavirus pandemic.3 requirements.

Take-Two Interactive has benefitted from stay-at- home orders; however, an extended shutdown will greatly hurt consumer spending on home entertainment. We anticipate uncertainty of coronavirus related news to continue to elongate the recovery of GDP. As cases have seen a resurgence in the recent weeks and restrictions have been reinstated, a slow recovery is imminent. We forecast that GDP will not return to pre-pandemic levels until early 2022.

Consumer Confidence The Consumer Confidence Index is the leading indicator in predicting consumer consumption and gives detail on how consumers view the overall economy and their individual financial situations. The University of Michigan puts out a monthly report detailing the index reading and is one of the leading economic indicators in predicting the performance of the American economy

4 as consumer spending accounts for roughly 68% of GDP.6 The most recent report in October gave us a Current Employment Statistics reading of 81.8, a 14.3% YoY decline from 95.5 and much lower than the pre-pandemic reading of 101 in Unemployment rates are still heightened above usual February of this year.7 These results indicate that levels as a direct result of the COVID-19 pandemic. The consumers are less likely to consume as much as they most recent unemployment statistics released by the Bureau of Labor Statistics for October indicated that had prior to this pandemic, and feel more sensitive in nonfarm payroll employment rose by 638,000. The their financial situation. However, due to the release of unemployment rate in October fell to 6.9% but is still positive vaccine results, we believe that this does not nearly double what the unemployment rate had been pre- accurately the true confidence of consumers in the pandemic.5 Due to the way unemployment is calculated, economy. As positive vaccine results indicate a return to many employees that are still employed but working normalcy in the near term, we believe many consumers 2 negatively affected financially by the COVID-19 pandemic will look more favorably upon the economy in the near term and their financial situations going forward. As a result of this, we estimate that the true Consumer Confidence Index to be 89.

Industry Analysis

Industry Description Inflation The interactive home entertainment is a specific The Consumer Price Index is a measure of the average subset of the media and entertainment industry within change over time that consumers pay for a basket of the communications sector. Companies within the market goods and services and is the most widely interactive home media companies primarily develop, used index to measure price inflation. As a result of the publish, and produce video game software. These companies may internally develop, design, and publish, COVID-19 pandemic, trillions of dollars have been or may exclusively publish titles. A growing operation in pushed into the system to help support capital markets the industry is sale of virtual in-game currency, in-game and to help consumers support themselves as many find add-ons, or other additional content. themselves still unemployed. An influx of cash like this has never been seen before, not even during the financial Recently, the industry has outperformed previous crisis of 2008. This influx in cash has caused the price of expected forecasts as consumers search common goods across the board to raise YoY by for entertainment during widespread lockdowns because 1.4%.8 Without factoring energy costs into the CPI, of the COVID-19 pandemic. Technological advances which has seen cost decreases as global consumption of will continue to drive growth for the industry as oil has decreased, consumer goods such as food has seen consumers online presence continues to increase, YoY price increases of 3.9%. Certain food items such as especially in mobile gaming. As mobile connectivity meat and poultry have seen larger price increases of improves, the smartphone game market will expand rapidly. IBIS World projects that over the next five years roughly 6.3%, used car prices have risen 10.3%, and the the mobile gaming market will grow at an annualized cost to eat out has roughly increased 3.8%. rate of 25.3%. Emerging technologies and high Due to the deflationary effects that energy costs have on consumer spending will drive revenue growth by an the overall CPI, we believe the true CPI has been much annualized rate of 10.1% over the next five years. We higher than reported throughout the pandemic. anticipate continued expansion of online users and therefore, a wider market for video game publishers. As Disregarding the deflationary effects that oil prices have well as a shift from physical manufacturing and had on the overall CPI basket of consumer goods, we wholesaling requirements to online based believe the true CPI to be closer to 3.1%. Higher sales which will contribute to lower future expenses.9 inflation rates harm consumers as their purchasing power is negatively affected as consumer goods prices Industry Trends rise. COVID-19 Impact

As a result of COVID-19 shelter in place orders were instituted across the country and internationally. This positively affected the video game industry as

3 consumers restricted to their homes sought other forms of entertainment. We expect this shift to correlate with strong video game sales and increased margins throughout calendar year 2020 as many video game producers shift from traditional retail distribution and wholesale, to entirely focusing on digital sales through platforms such as Xbox’s Microsoft Store and PlayStation’s PlayStation Store. According to Statista, 87% of gamers in 2019 purchased downloadable content which includes items such as virtual currency, expansion packs, and full games in 2019 and we expect the COVID-19 pandemic to accelerate this trend. According to Statista, July of this year generated the highest monthly video game revenue of the past three years, beating out months linked with holiday sales such as November and December that 10 typically drive larger amounts of revenue. Source: Statista 13

Franchise Popularity

The video game industry is highly dependent on the release schedule and product pipeline of its most popular franchise titles. Franchises such as Grand Theft Auto, Call of Duty, NBA 2K, and others continue to sell vast amounts of units based on brand popularity and customer loyalty years past the initial release date. Grand Theft Auto V, released in 2013 is regarded as one of the 10 Source: Statista best-selling video games of all time selling 32.5 million units in 2013, in 2019, 6 years after its initial Consumer Demographics release, GTA V sold an astounding 20 million units. When it was first released in 2013, it was the fastest Video games are widely used as a form of entertainment selling entertainment product ever, reaching 1 billion and maintain a wide consumer audience. The largest dollars in revenue in only 3 days, taking 20% of the time consumer base is those aged 18-34, which captures to reach this mark in comparison to the next best-selling roughly 38% of the total video gaming market according entertainment product. Release schedules for to Statista. Those under the age of 34, including those various big-name franchises are often what drives under the age of 18 capture 59% of the total market in growth for major video game producers in the industry.14 the United States. Video games introduced and made popular in the 80’s and 90’s have translated to a larger base of older consumers than expected with those aged 34-64 representing roughly 35% of the total user base. Females have largely improved their consumer base over the past decade, yet male users still dominate the industry representing nearly 60% of the total userbase according to Statista. 11

The ideal consumer would be a young male under the age of 34, as they tend to utilize video games more than any other age or gender demographic.12 According to Statista, males under the age of 18 spent on average 79 minutes a day playing video games and are largely seen as the strongest user base amongst all demographics of players. Source Statista:14 4 franchises, FIFA and Madden. Their titles are successful by developing a loyal fan base and including Competitive Analysis in-game currency. For example, the in-game currency and other add-ons for FIFA’s “Ultimate Team” mode Peer Comparisons has grown to account for more revenue than sales of the game itself. EA has focused on owning rights and Peer comparisons provide insight into how each intellectual property for games that will company operates within the industry. Revenues remain successful for them, while also aggressively are largely dependent on success of titles released, even acquiring other companies. if the company only publishes the game. The major players that comprise the industry are Electronic Sony (SNE) Arts (EA), Activision Blizzard, Sony, Take-Two Sony’s market cap is $105.6 billion with revenues Interactive, among others.15 Electronic Arts, Activision eclipsing $77 billion, but much of their revenue is not Blizzard, and Take-Two rely on successful releases of considered relevant to the interactive home media titles and continued development of new industry.20 Sony produces and sells a wide range of titles. However, companies such as Sony are only devices from TVs to the PlayStation console. The involved in the publishing of games. revenue that Sony generates from publishing of franchises and through publication of titles The interactive home entertainment from independent game developers are considered industry had total revenues of $31 billion in 2019. The applicable to this specific industry. They have published leaders by market share are Electronic Arts and popular franchises such as Grand Theft Auto (a Take- Activision Blizzard’s, while Sony and Take-Two lag Two Interactive franchise), Gran Turismo, and Final close behind. Each company has seen success through Fantasy. Sony’s industry-specific revenue is expected to franchise popularity with titles like Grand Theft Auto, decline within the space to $275.4 million over the next Call of Duty, and Madden. 16 five years. 21 Although Sony is not close to its peers as far as industry-specific revenue, it is important to Activision Blizzard (AVTI) understand role in the industry, especially with Activision Blizzard’s market cap is $58 their PlayStation console. billion with revenues surpassing $7.5 billion, as they have many popular franchises such as World of Competitive Landscape Warcraft (WoW), Overwatch, and Call of Duty.17 Activision Blizzard has three main business Asset Turnover Comparison segments: Activision Publishing, Blizzard Entertainment, and Activision Blizzard The asset turnover comparison is a measure of a Distribution. Activision Blizzard’s success, like many in company’s operating efficiency and their ability to drive the industry, is a result of their franchises continued sales based upon a set asset base. The ratio is calculated popularity. The Blizzard Entertainment segment of the by taking the company’s revenues for the year and company is unique because they own their own gaming dividing by their total assets. The higher the ratio, the service for their personal computer (PC) titles. One of more efficient the company is operating as their most popular titles, WoW, also takes on a unique they can drive larger sales given their relative asset business model where users pay a monthly fee. base. The COVID-19 pandemic has positively impacted The model has significantly enhanced their profitability video game producers and will continue to do so going because the style of these games encourages players to forward, the asset turnover ratio will help determine play for years. World of Warcraft was released in 2004 which company will be able to effectively translate and is still one of Activision Blizzard’s most popular increased customer demand to sales growth. titles.18 Take Two Interactive has the highest asset turnover ratio Electronic Arts (EA) in comparison to their most direct comparable at a ratio Electronic Art’s market cap is $34.5 billion with of .63, this is larger than Electronic Art’s .50, and revenues in excess of $5.5 billion from owning the rights Activision Blizzard's .39. When comparing LTM sales to brands such as Battlefield, FIFA, and Madden.19 Like across the competitors, Take Two’s revenue of the rest of the industry, their household names are key $3,363.12 is smaller than Electronic Arts’ of $5,548 and drivers for revenue. EA is one of the few companies Activision Blizzard’s $7,638. Take Two Interactive also which can utilize annual releases of their most popular

5 has roughly half of the asset base of Electronic Arts and roughly a quarter of Activision Blizzards.

Cash Ratio Comparison

The cash ratio is a financial liquidity metric that tests the Return on Equity Comparison ability of a company to meet their current liabilities only using the cash and equivalents they have on hand. The Return on equity is a measure of financial performance ratio is computed by taking total cash and equivalents that takes net income and divides it by beginning and dividing it by the current liabilities on the balance shareholder’s equity. Since shareholders equity equals sheet. Throughout the COVID-19 pandemic, many assets minus liabilities, ROE is also seen as a return on companies and industries have found themselves in a net assets. Due to COVID-19, Take Two and its precarious financial condition, however the video game direct comparables have cited unexpected increases in and recreational product industry is in quite the opposite demand as those sheltered in place for most of the spring position. Many of these firms have sizeable cash and summer sought different forms of entertainment, balances on hand that provide them financial flexibility positively impacting the sales of video games, and and opportunities to acquire fast growing game increasing growth in recurrent consumer spending. Take- developers as the industry continues to consolidate. Two’s direct comparables have vastly different amounts of shareholder’s equity and shares outstanding and Take Two Interactive has a weaker cash ratio in utilizing this operating metric will help us objectively comparison to its peers, with a ratio of 1.25. Electronic assess returns to shareholders. Arts’ cash ratio is 2.15, while Activision Blizzard’s is 3.39. However, current liabilities represent fundamental Utilizing LTM financials will help us capture the differences across the board. Current liabilities for Take positive impact that COVID-19 has had in the first half Two represent 80% of total liabilities, while for of the fiscal year for Take Two and Electronic Arts and Electronic Arts and Activision Blizzard they the first three fiscal quarter for Activision Blizzard and represent 73% and 30% of total liabilities, respectively. help us compare each company's ability to generate Take Two also accounts deferred revenue for 50% shareholder returns. Take Two Interactive leads both of current liabilities, which eventually will be converted Activision Blizzard and Electronic Arts in generating into revenue once performance obligations are returns for shareholders with an ROE of 17.66%, while completed. Electronic Arts accounts deferred revenue as Electronic Arts’ ROE is 17.25%, and Activision 26% of current liabilities, while Activision Blizzard Blizzard lags behind both with an ROE of 16.64%. This accounts deferred revenue as roughly 50% of current also largely outpaces the performance of the liabilities, similar to Take Two. As of September 30th, recreational products industry (interactive home media), Take Two had drawn about 1.7 million dollars down which generated a ROE of 14.74%. from their 200 million lending facility. Electronic Arts and Activision Blizzard had not drawn down their revolvers.

6 to produce games under their title, like Call of Duty or Super Mario. These games benefit from reduced marketing expenditures due to the previous popularity of the brand. The competition is high within the industry as leaders compete to grow existing successful titles and produce new games.

Threat of New Entrants: Moderate and Increasing

New companies venturing into the interactive home entertainment industry are significantly higher for console and PC gaming as compared to mobile gaming. Development and publishing of console and PC Leverage Ratio Comparisons titles have considerable barriers to entry due to the large financial requirements for development, scalability, and Total debt to total assets is a leverage ratio that measures high-skilled workers. On the contrary, the mobile how the assets of the business are funded and gives a gaming category has much lower barriers to proportion of the capital structure comprised of debt. It entry considering new developers only require a is calculated by taking the total debt and dividing it by computer and an internet connection to access millions the company's total assets. Although debt does not play a of consumers. Mobile game developers also reduce large role industry wide as these firms have large cash distribution cost by making their titles available on the balances and healthy balance sheets, there are large Google Play and Apple App stores. Technological differences amongst the comparable firms in terms of advances continue to make the barrier of entry easier for total debt to total assets. Take Two’s total debt in independent developers. comparison to total assets was 3.08%, Electronic Arts’ was 9.43%, and Activision Blizzard’s was 16.70%. Threat of Substitutes: High and Increasing

Consumers are spending more time than ever consuming online forms of entertainment. Interactive home media faces substantial threat from substitutes such as movies, sports, or TV which draw consumers away from video games. Entertainment is often away for people to break away from their daily lives and the video game industry is competing for their time. Mobile gaming has allowed the industry to capture larger portions of consumers’ days decreasing the level of external competition.22 For example, during commercial breaks consumers are more likely to play mobile games to occupy the break.

Bargaining Power of Buyers: High and Steady Porter’s Five Forces Because consumers of video games are playing for Rivalry Amongst Existing Competitors: High entertainment, developers are pressured to produce high and Steady quality games. According the Entertainment Software Association, consumers value three key variables: Competition in the interactive home media industry quality of graphics, price, and storyline.23 However, is fierce as companies attempt to introduce new titles to these are subjective to the consumer. Ultimately, the end consoles and PC’s. Success within the industry is largely consumer determines whether a new release is successful dependent on popularity of new releases. New releases or not. drive growth for the companies and they are continually competing to produce the next big title. However, a loyal Bargaining Power of Suppliers: High and Steady fan-base to popular titles can extend the life of the game and enable the company to drive revenue growth through in-game purchases. Furthermore, the industry The suppliers within the interactive home media industry leaders are able utilize their existing franchise popularity are the high-skilled workers who develop new titles. EA, 7 Activision Blizzard, and Take-Two Interactive compete successful launch was Red Dead Redemption 2 in 2018 for top talent with other major technology which set many industry records. Rockstar Games companies. According to IBIS World, wages grew from continues to utilize its successful brands by creating 24 2015 to 2020 at an annual rate of 21.1%. The increase sequels and offering in-game purchases. in wages showcases the desire for top talent within the industry. The top talent has bargaining power over 2K, along with Rockstar, are Take- companies because of their specialized expertise and Two Interactive’s most successful and stable demand for their skills in other technology-based subsidiaries. Each are key to the continued growth of the industries. The employees have substantial bargaining company. 2K is positioned well by internally power as they perform the most essential task within the owning and developing franchises as well as externally industry. developing franchises. 2K has had continued success with their NBA 2K series. The game's first month sales were the most by any sports game in history and is Company Analysis considered the sixth biggest gaming franchise based on full-game dollar sales. Additionally, internally developed franchises such as BioShock, Mafia, the Business Overview Civilization series, and XCOM series are strong multi- million-unit sellers for 2K. They have also seen success Take Two Interactive Software, Inc. is a leading with the Borderland’s series, WWE 2K series, and PGA developer, publisher, and marketer of interactive 2K series. In March of 2020 they announced a multi- software games. It designs products for console systems, year deal with the National Football League to develop handheld gaming systems, and personal computers and publish multiple non-simulation games which are set including smart phones and tablets. The company to launch in fiscal year 2022. focuses on creating wide selection of titles to become sequels which supplement their revenues through virtual Additionally, Take-Two has two smaller subsidiaries currency, add-on content, and in-game purchases. The which have seen promising growth. The Private company’s revenue is driven by its wholly owned Division, a publisher of titles created by independent subsidiaries Rockstar Games and 2K. In addition, the developers, and Social Point, a developer and publisher company owns many successful franchises like Grand of free-to-play mobile games. The Private Theft Auto, Red Dead, and Sid Meier’s Civilization Division released The Outer Worlds, which was their series, among others. These titles are sold in both most successful launch to date. Social Point’s most physical and digital copies through retail stores and successful titles thus far have been Dragon City and online platforms. Monster Legends, with many new titles moving through the pipeline. Social Point is an important business Products and Markets segment as the importance of mobile gaming has increased. Take-Two focuses on creating titles that will allow for incremental revenue opportunities through sequels and Recent Earnings Analysis additional paid content. Since they own the intellectual property rights to 26 proprietary brands, they can create Take Two Interactive reported 2021 Q2 earnings on high quality sequels of their video game series with the November 5th, delivering another better-than- reputation that the brand carries. Revenue comes from expected quarter. As a result of continued the sale of internally developed software titles and titles outperformance of previous expectations, Take developed by third parties. Operating margins depend on Two raised their fiscal year expectations to in between the company’s ability to successfully release new titles 3.05-3.15 billion dollars of net revenue, exceeding their and products; and effectively manage development and previous projections of in between 2.8-2.9 billion dollars marketing costs. of net revenue. Driving this growth has been an Rockstar Games is expected to continue to be a leader in outperformance in digital recurring revenue. Recurrent the action and adventure product category. Rockstar is consumer spending grew 43%, vastly outpacing the most well-known for the Grand Theft Auto series which 10% growth projected and represented 64% of total has shattered records and is the video game industry’s revenue for the quarter. As a result of the COVID-19 most iconic brand. Grand Theft Auto alone has sold over pandemic, they have also grown digital delivery of their 320 million units worldwide (as of most recent 10K) and products to represent 83% of total sales for the quarter continues to grow year over year. Their most recent and expect 82% of total sales for the year to be delivered 8 digitally. As a result of increased digital deliverance, SWOT Analysis selling costs have decreased roughly 7% due to lower marketing costs. Titles leading this outperformance Strengths have been NBA 2K21, Red Dead Redemption, Grand Theft Auto V, PGA Tour 2K21, and WWE Existing Franchises Battlegrounds. Recurrent consumer spending, full game Take-Two Interactive’s has many different established sales, and average user usage all surpassed previous brands in many categories. They annually release NBA expectations across all titles. 2K which has been ranked in the top five video games sold worldwide for the last five years. Along with this Recent and Potential Acquisitions annual hit, they rollout shooting games such as Borderlands and Red Dead Redemption, both of which During the second quarter Take Two Interactive have ranked in the top five games sold in recent years. purchased Playdots, a leader in the mobile puzzle genre, Along with these releases, Take-Two Interactive owns for 195 million dollars in a 50/50 cash and stock deal. 25 the Grand Theft Auto series which ranks at the top of Their most popular games have been downloaded more charts for all time sales and has dozens of awards from than 100 million times and coincides with Take Two’s the most recent iteration, GTA V. Grand Theft Auto V advancement in the mobile gaming industry. Take Two was released in 2013, however, the GTA product sales in is also currently in talks to buy Codemasters, a British FY20 still accounted for 23% of their net game developer responsible for producing franchises revenue. Developers have been working on the next like F1, Dirt, and Grid. The purchase price is roughly 1 Grand Theft Auto game since 2014. We believe that the billion dollars and the deal is expected to close in the next release will shatter expectations as gamers have first quarter of next year. This would allow Take Two to been eagerly waiting to see what the developers have expand their current portfolio of sports and first- created. The continued growth in GTA V will only person shooter games to include three successful racing create more pent-up demand for the new release. The game franchises. 26 success of their existing franchises allows them to continue to build of their already outstanding brands. 30 Catalyst for Growth Weaknesses Take-Two Interactive continues to put more products onto the mobile gaming market. Seventy-four percent Gross Margin of their revenue currently comes from two platforms, Take-Two Interactive has the lowest gross margin of all Sony’s PS4 and Microsoft’s Xbox One. Mobile the US video game developers and publishers. The gaming’s fast growth has driven revenue estimates to gross margin is helpful in assessing different companies' have mobile gaming represent a larger portion of total overall profitability of its manufacturing activities. Take- gaming revenue. Mobile gaming is most opportunistic Two Interactive had a gross margin of 48.3% for the area for industry players. Additionally, Take-Two most recent fiscal year. 31 While Electronic announced a partnership with the National Football Arts and Activision Blizzard have gross margins of League signally the return of the NFL 2K series. A 74.6% and 67.5%, respectively.32,33 Take-Two has return of NFL 2K will be the first time since 2004 that increased this margin as they have shifted from 2K has released a football centered game.27 Electronic externally developed titles to more internally developed Art’s, Madden, was the third best-selling game in titles. We anticipate Take-Two to continue to improve 2019 and representing popularity amongst football fans. their business model to increase their margin. If NFL 2K is successful, they will put direct pressure on EA and be able to drive revenue growth.28 Alongside of Opportunities continuing their efforts to create attractive new titles, Take-Two is working on expanding its initiatives in Mobile Gaming Asia, especially with their NBA 2K series, where the The biggest opportunity for Take-Two Interactive is in NBA is a rapidly growing area. 2K has secured a multi- the mobile gaming sub-industry. Mobile gaming year license from the NBA to develop their online NBA continues to see rapid growth and is projected to grow at 34 simulation game in various parts of Asia. NBA 2K an annualized rate of 25.3%. Take-Two Interactive Online is one of the top online PC sports game in China will continue to push for mobile gaming growth through with over 49 million registered players. 29 their subsidiary Social Point. The mobile gaming industry is continuing to expand and provide opportunities for Take-Two Interactive.

9 Threats 2021 and we project this lack of share repurchases to continue throughout our projection period as Take Two Competition’s Cash Levels trades near all-time highs. We believe the only change in The largest threat to Take-Two is the cash positions of shares outstanding will be through stock based Electronic Art’s and Activision compensation from restricted stock units. Blizzard. EA and Activision Blizzard have over double We evenly allocated the remaining 5,065,000 shares the amount of cash on their balance sheet than Take- from the 2017 stock incentive plan over the projection Two. Lower levels of cash compared to peers could put period. them at a disadvantage, especially when bidding for licensing and software rights or acquiring other gaming Dividends companies. 35,36 The high cash levels of their biggest competitors could hinder Take-Two's ability to grow. Take-Two has never declared or paid cash dividends to shareholders. Our analyst project that this will remain Valuation Analysis the case for the foreseeable future. Management’s guidance indicates that a dividend will not be paid for the foreseeable future so the Key Assumptions company can continue to finance growth with their retained earnings. Revenue Decomposition Debt Revenue growth is projected to decrease by 4% in fiscal year 2021. We predict sales will strongly rebound in Long-term debt was held constant at zero for our fiscal year 2022 and 2023 with a 15.90 and 27.50% projection period. Take-Two paid off all its long-term increase as newly released console generations and the debt in fiscal year 2019, and our analysts do not projected release of GTA VI will positively impact anticipate an increase unless they were to have an revenue. Video game revenues are highly cyclical and acquisition. However, the financing of an acquisition is strongly depend on product pipeline and release near-impossible to forecast. Therefore, our debt levels schedules. Due to this we predicted a 5.10 and 3.90% will remain constant over the forecast period. decline in revenue for fiscal 2024 and 2025 before growing at 3.40% in 2026. We calculated these numbers Marginal Tax Rate using projected release dates for big name titles and Take Two Interactive includes in their 10-K product pipeline given in the latest 10-K. We then reported federal, state, and foreign tax rates. Marginal projected future growth in recurrent consumer spending, tax rates in fiscal 2021 are expected to increase as a full game purchases as a result of newly released result of limited tax credits available for use consoles, historical metrics, and company guidance. Our domestically and internationally to offset taxes. We estimates regarding revenue growth and declines are project that marginal tax rates will increase and stay roughly in line with other analysts’ estimates. constant at 22% throughout the projection period, closer to the federal statutory rate of 21%, the blended state rate Cost of Goods Sold of 2.1% reported in their latest 10-K, and the foreign rate of 3.15%, the average of the 2018 and 2019 marginal Our analysts project that cost of goods sold will remain rates. relatively stable over the projection period with a slight decrease in overall costs due to increased Weighted Average Cost of Capital (WACC) efficiencies. We project cost of goods sold as a percentage of sales to slightly decrease in fiscal 2021 to Cost of Equity 49.65% before slightly increasing to 50.07% in fiscal 2022. After fiscal 2022, cost of goods sold as a The capital asset pricing model was used to calculate our percentage of sales remains relatively stable in between cost of equity. The risk-free rate of 0.89% was the rate of 48-49%. Our analysts’ projections for cost of goods sold the 10-year treasury bond and the raw beta of 0.66 was are roughly in line with other analyst projections. taken from Bloomberg. The equity risk premium of 5.35% was derived from Damodaran Online. 37,38 The Shares Outstanding calculated cost of equity came out to 3.83%.

Take Two Interactive did not participate in any share Cost of Debt repurchases in fiscal 2020 or halfway through fiscal 10 Take-Two has no debt, however financial sources (SNE). The model yielded a share price of $79.78 based listed a pre-tax cost of debt. According to FactSet, the on a 2021 forward P/E multiple. pre-tax cost of debt is 2.43%. Our analysts assumed that this pre-tax cost of debt was the rate of Take-Two's We believe that this does not represent the best estimate revolver because there is no debt on the balance sheet. for share price as three of We calculated a WACC of 3.81% by taking their weight our comparable companies operate in other areas in of equity multiplied by their cost of equity and weight of addition to video games. Taking out Sony and Nintendo, debt by their cost of debt. which also produce consoles for the gaming industry, our 2021 forward P/E yields a price of $97.83, Valuation Models still much lower than the current share price.

Discounted Cash Flow (DCF) & Economic Profit Our analysts believe a better metric for comparing our (EP) comparable companies would be using a Price/Sales Per Share metric, as this objectively compares sales and The DCF and EP models were created by forecasting shares outstanding to derive a multiple based on sales TTWO’s free cash flows and discounting them by the per share. Using 2020 reported and expected sales weighted average cost of capital. Free cash flow was results, the model yielded an implied share price determined by subtracting the change in TTWO’s $181.28, much closer to the implied share price derived invested capital from their net operating profit less from the DCF and EP models. Take Two is adjusted taxes (NOPLAT). Economic profit was experiencing growth not seen by its competitors and is determined by multiplying TTWO’s beginning invested continually expanding with acquisitions and internal capital multiplied by the difference between return on development to bolster their product offerings, as a invested capital and their weighted average cost of result the comparable companies are not in similar stages capital. of maturity and variances in their P/E ratios are to be expected. We assumed that TTWO will reach steady state growth by fiscal 2026, 5 years after the release of new consoles and 3 years after projected release of their Sensitivity Analysis largest title, Grand Theft Auto. We projected 1.5% Beta vs. Equity Risk Premium growth in perpetuity, keeping pace with current inflationary levels and GDP growth. This sensitivity analysis presents the volatility of the The DCF and EP models yield a share price of $206.83. implied share price computed with the discounted cash Our analysts believe that the DCF and EP model provide flow and economic profit model. The beta (0.66) and an accurate intrinsic valuation as it captures the implied equity risk premium (5.35%) are key components of our short-term growth in the video game and recreational valuation model as they are used to calculate our product industry before reaching a steady state in 2026 WACC. It is expected that our model would be sensitive as the industry matures. to changes in both variables because the WACC is our discount rate. Dividend Discount Model (DDM)

The DDM model produces an implied current share price of $144.26, 43.37% below the implied share price determined by the DCF and EP models. Due to the DDM’s dependence on dividends, which TTWO does not pay, the implied share price is solely based on 2026 EPS. Due to these factors and single input Risk-Free Rate vs. CV Growth of NOPLAT dependence, we believe the DDM does not provide an accurate representation of implied intrinsic value. Our analysts tested how variances in the risk-free rate (0.89%) and continuing value (CV) growth of Relative P/E Valuation NOPLAT (1.50%) would impact our valuation model. The CV growth of NOPLAT has a significant Our relative valuation model is comprised of five impact on our implied share price. We were curious to comparable companies to TTWO, Activision Blizzard see how the risk-free rate would alter our valuation as (ATVI), Electronic Arts (EA), Nintendo (NTDOY), Ten pressure is being put on the Federal Reserve to help our Cent Holdings (TCEHY), and Sony Corporation economy recover from the effects of COVID-19. 11 WACC vs. CV ROIC

Our analysts tested how variances in the WACC (3.81%) and continuing value (CV) ROIC (31.60%) would impact our valuation model. We analyzed the weighted cost of capital and the return on invested capital to grasp how fluctuations in Take- Two's financing philosophy will impact implied share price.

Terminal Year Gross Margin vs. Terminal Year Sales Growth

This sensitivity analysis shows how the terminal year gross margin (51.63%) and the terminal year sales growth (3.40%) impacts the valuation. Our analysts used these financial metrics to see areas that could potentially provide increased value to stakeholders.

Terminal Year Cost of Goods Sold Margin vs. Terminal Year Selling and Marketing Costs (%)

Our analysts evaluated the sensitivity between the terminal year cost of goods sold margin (48.37%) and the terminal year selling and marketing costs as a percent (12.09%). We were particularly curious about this relationship as TTWO is emphasizing digital sales. Digital sales can greatly reduce the necessary selling and marketing costs.

12 Important Disclaimer Citations This report was created by students enrolled in the Security Analysis (6F:112) class at the University of 1, 4. Gross Domestic Product. (n.d.). Retrieved from Iowa. The report was originally created to offer an https://www.bea.gov/data/gdp/gross-domestic-product internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report 2. US GDP shows largest economic contraction in 75 also provides potential employers and other interested years, with only limited recovery in sights. (n.d.). parties an example of the students’ skills, knowledge and Retrieved from https://conference-board.org/press/gdp- abilities. Members of the Krause Fund are not registered q2-july-2020 investment advisors, brokers or officially licensed financial professionals. The investment advice contained 3. News Release. (n.d.). Retrieved from in this report does not represent an offer or solicitation to https://www.bea.gov/news/2020/gross-domestic- buy or sell any of the securities mentioned. Unless product-third-quarter-2020-advance-estimate otherwise noted, facts and figures included in this report 5. Unemployment rate falls to 6.9 percent in October are from publicly available sources. This report is not a 2020. (2020, November 12). Retrieved from complete compilation of data, and its accuracy is not https://www.bls.gov/opub/ted/2020/unemployment-rate- guaranteed. From time to time, the University of Iowa, falls-to-6-point-9-percent-in-october- its faculty, staff, students, or the Krause Fund may hold 2020.htm?view_full a financial interest in the companies mentioned in this report. 6. An In-Depth Look at COVID-19's Early Effects on Consumer Spending and GDP. (2020, April 29). Retrieved from https://www.whitehouse.gov/articles/depth-look-covid- 19s-early-effects-consumer-spending-gdp/

7. Surveys of Consumers. (n.d.). Retrieved November 17, 2020, from https://data.sca.isr.umich.edu/data- archive/mine.php

8. CPI Home. (n.d.). Retrieved from https://www.bls.gov/cpi/

9, 15, 16, 18, 21, 22, 23, 24, 34. Cool, D. (2020, September). US Industry (NAICS) Report 51121E. Retrieved from https://my.ibisworld.com/us/en/industry/51121e/

10. Gough, C. (2020, October 16). U.S. monthly video game industry revenue by segment 2020. Retrieved from https://www.statista.com/statistics/201073/revenue-of- the-us-video-game-industry-by-segment/

11. Gough, C. (2020, July 24). U.S. video gamer gender statistics 2019. Retrieved from https://www.statista.com/statistics/232383/gender-split- of-us-computer-and-video-gamers/

12. Gough, C. (2020, July 24). U.S. average age of video gamers 2019. Retrieved from https://www.statista.com/statistics/189582/age-of-us- video-game-players-since-2010/

13. Shaulova, E., & Biagi, L. (n.d.). Video games market in the U.S. Retrieved from 13 https://www.statista.com/study/12321/video-game- market-in-the-united-states-statista-dossier/ 35. Factset Balance Sheet EA. (n.d.). Retrieved from https://my.apps.factset.com/navigator/company- security/balance-sheet/EA-US 14. Gough, C. (2020, February 26). Annual sales of Grand Theft Auto V worldwide 2019. Retrieved from 36. Factset Balance Sheet AVTI. (n.d.). Retrieved from https://www.statista.com/statistics/1097608/gta-v-unit- https://my.apps.factset.com/navigator/company- sales-worldwide/ security/balance-sheet/AVTI-US

17, 19. Factset TTWO Comps. (n.d.). Retrieved from 37. U.S. Department of the Treasury. (2020, November https://my.apps.factset.com/navigator/company- 13). Retrieved from https://www.treasury.gov/resource- security/comps/TTWO-US center/data-chart-center/interest- rates/Pages/TextView.aspx?data=yield 20. Factset Estimate Summary. (n.d.). Retrieved from https://my.apps.factset.com/navigator/company- 38. Damodaran, A. (n.d.). Damodaran Online. Retrieved security/estimate-summary/6758-JP from http://pages.stern.nyu.edu/~adamodar/

25, 30. Annual Reports: Take-Two Interactive Software,

Inc. (n.d.). Retrieved from https://ir.take2games.com/financial-information/annual- reports

26. Take-Two Interactive Software, Inc. Reaches

Agreement for Recommended Acquisition of Codemasters Group Holdings PLC. (2020, November 10). Retrieved from https://www.businesswire.com/news/home/2020111000 5649/en/Take-Two-Interactive-Software-Inc.-Reaches-

Agreement-for-Recommended-Acquisition-of- Codemasters-Group-Holdings-PLC

27. Gough, C. (n.d.). Mobile Gaming. Retrieved from https://www.statista.com/topics/1906/mobile-gaming/ 28. What EA Investors Should Know About Early

'Madden NFL 21' Sales Figures. (n.d.). Retrieved from https://www.yahoo.com/now/ea-investors-know-early- madden-115515180.html

29. Calvin, A. (2019, August 06). China-exclusive NBA

2K Online has 46m users, Take-Two reports. Retrieved from https://www.pcgamesinsider.biz/news/69454/china- exclusive-nba-2k-online-has-46m-users-take-two- reports/

31. Factset Ratios TTWO. (n.d.). Retrieved from https://my.apps.factset.com/navigator/company- security/ratios/TTWO-US

32. Factset Ratios EA. (n.d.). Retrieved from https://my.apps.factset.com/navigator/company- security/ratios/EA-US

33. Factset Ratios ATVI. (n.d.). Retrieved from https://my.apps.factset.com/navigator/company- security/ratios/ATVI-US 14

Take-Two Interactive Software, Inc. Revenue Decomposition (Did not segment by game title) Fiscal Years Ending Mar. 31 2018 2019 2020 2021E 2022E 2023E 2024E 2025E 2026E Growth Rate 0.74% 48.83% 15.76% -4.31% 15.92% 27.47% -5.09% -3.87% 3.35% Service and Other Revenue - 1,319,033 1,839,696 1,592,749 1,736,096 2,170,120 2,387,132 2,578,103 2,655,446 Product Revenue - 1,349,361 1,249,274 1,363,177 1,690,339 2,197,441 1,757,953 1,406,362 1,462,617 Total Revenue 1,792,892 2,668,394 3,088,970 2,955,926 3,426,435 4,367,561 4,145,085 3,984,465 4,118,063 (Did not segment until 2019) Type of Spending Full Game and Other - 1,597,478 1,703,971 1,363,177 1,690,339 2,197,441 1,757,953 1,406,362 1,462,617 Recurrent Consumer Spending - 1,070,916 1,384,999 1,592,749 1,736,096 2,170,120 2,387,132 2,578,103 2,655,446 (Did not segment this until 2019) 2,955,926 3,426,435 4,367,561 4,145,085 3,984,465 4,118,063

Take Two Interactive Software Historical Cash Flow Statement in thousands Fiscal Years Ending Mar. 31 2018 2019 2020 Operating activities: Net income (loss) 173,533.00 333,837.00 404,459.00

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Amortization and impairment of software development costs and licenses 77,887.00 201,221.00 167,925.00 Depreciation and amortization 32,202.00 39,726.00 47,628.00

Loss (income) from discontinued operations - - - Amortization and impairment of intellectual property 34,830.00 23,879.00 20,990.00 Stock-based compensation 116,349.00 247,700.00 257,881.00 Gain on sale of intellectual property - - - Loss on sale of subsidiary - 809.00 - Deferred income taxes (32,523.00) 110,603.00 (3,486.00) Amortization of discount on Convertible Notes 15,662.00 91.00 - Impairment of in-process research and development 11,257.00 - - Impairment of long-term investments - - 5,333.00 Amortization of debt issuance costs 578.00 809.00 - Gain on long-term investment, net - - - Loss on extinguishment of debt - - - Gain on convertible note hedge and warrants, net (4,900.00) - - Other, net 6,375.00 (225.00) 3,741.00

Changes in assets and liabilities, net of effect from purchases of businesses: Restricted cash (99,580.00) - - Accounts receivable (26,998.00) (98,075.00) (195,484.00) Inventory 3,917.00 (14,403.00) 8,489.00

Software development costs and licenses (225,269.00) (206,831.00) (48,434.00) Prepaid expenses, other current and other non-current assets (74,544.00) (275,800.00) (259,817.00) Deferred revenue 198,397.00 304,713.00 (55,460.00) Deferred cost of goods sold (11,959.00) (24,882.00) 32,180.00

Accounts payable, accrued expenses, income taxes payable and other liabilities 198,733.00 201,152.00 299,733.00 Net cash (used in) provided by discontinued operations - - - Net cash provided by (used in) operating activities 393,947.00 843,515.00 685,678.00 Investing activities: Change in bank time deposits (40,918.00) (171,057.00) 196,720.00

Proceeds from available-for-sale securities 241,012.00 325,133.00 400,635.00 Purchases of available for sale securities (369,998.00) (282,534.00) (499,991.00) Purchases of commercial paper - - - Purchase of fixed assets (61,557.00) (66,969.00) (53,384.00) Purchase of short-term investments - - - Purchase of long-term investments (5,000.00) - (27,891.00) Proceeds from from sale of long-term investments - - - Cash received from sale of long-term invesment - - -

Business acquisitions, net of cash acquired (9,401.00) (28,149.00) (12,040.00) Cash received from sale of business - - - Net cash provided by discontinued operations - - - Cash received from sale of intellectual property - - - Payments in connection with business combinations, net of cash acquired - - - Asset acquisition (25,965.00) - - Other - - - Net cash (used in) provided by investing activities (271,827.00) (223,576.00) 4,049.00 Financing activities: Tax payment related to net share settlements on restricted stock awards (112,884.00) (101,293.00) (87,968.00) Exccess tax benefit from stock-based compensation - - - Other (13,791.00) - - Proceeds from exercise of employee stock options - (362,392.00) - Repurchase of common stock (154,792.00) - Issuance of common stock - - 10,515.00

Net (payments) borrowings on line of credit - - - Proceeds from issuance of Convertible Notes (1.00%) - - - Payment for extinguishment of 4.375% Convertible Notes - - - Proceeds from termination of convertible note hedge transactions - - - Payment for termination of convertible note warrant transactions - - - Purchase of convertible note hedges - - - Issuance of warrants to purchase common stock - - - Payment of debt issuance costs - - - Net cash (used in) provided by financing activities (281,467.00) (463,685.00) (77,453.00) Effects of exchange rates on cash and cash equivalents 24,924.00 (10,639.00) (10,868.00) Net increase (decrease) in cash and cash equivalents (134,423.00) 145,615.00 601,406.00 Cash and cash equivalents, beginning of year 943,396.00 1,246,371.00 -

Cash and cash equivalents, end of period 808,973.00 1,391,986.00 1,993,392.00

Take Two Interactive Software Forecasted Cash Flow Statement Fiscal Years Ending Mar. 31 Operating Activities 2021E 2022E 2023E 2024E 2025E 2026CV Net income 358,637 417,488 590,857 530,693 514,046 547,992 Depreciation and Amortization 47,558.81 43,769.81 61,645.53 73,251.79 85,199.12 96,895.35 Amortization and impairment of intellectual property 20,527 18,934 7,010 3,831 524 434 Deferred Income Taxes 15,636.24 13,540.76 11,726.11 10,154.64 8,793.78 7,615.29 Changes in Working Capital Accounts: Change in Other Long Term Liabilities 8,267.44 14,839.97 24,329.81 49,687.07 (969.27) 1,956.29

Changes in Current Restricted Cash (655.92) (656.71) (657.50) (658.29) (659.08) (659.87) Accounts Receivable 202,150 (62,074) (124,432) 29,422 21,352 (17,889) Inventory (35,254.35) (8,643.61) (17,326.64) 4,096.96 2,973.19 (2,490.92) Software development costs and licenses (8,373) (7,741) (15,518) 3,669 2,663 (2,231) Prepaid expenses 117,248.92 (24,844.40) (49,802.08) 11,775.93 8,545.86 (7,159.68) Deferred Revenue 343,817 80,398 207,074 (31,749) 24,807 7,185 Deferred COGS (101,586.17) (20,456.40) (32,495.01) 6,313.79 7,071.35 (3,764.92) Accounts payable, accrued expenses (202,420) 164,271 329,290 (77,862) (56,505) 47,340 Net Cash provided in operating activities 765,554.43 628,824.44 991,700.81 612,627.48 617,842.23 675,222.25 Investing Activities Changes in Long Term Restricted Cash (793.20) (800.26) (807.39) (814.57) (821.82) (829.14) Change in Right of Use Assets (26,199) (30,648) (35,852) (41,940) (49,062) (57,394) Purchases from available for sale securities ------Proceeds from available for sale securities ------Change in Software Development Cost and Licenses (55,947.75) (72,778.39) (145,888.64) 34,496.03 25,033.97 (20,973.33) Purchase of fixed assets (45,667) (93,865) (90,725) (109,258) (121,531) (134,154) Purchase of short term investments (772.80) (773.73) (774.66) (775.59) (776.52) (777.45) Change in Other intangibles, net ------Change in LT other asset accounts 70,047.49 (8,574.79) (17,188.68) 4,064.34 2,949.52 (2,471.09) Net cash (used) provided by investing activities (59,333) (207,441) (291,236) (114,228) (144,208) (216,599) Financing Activities Change in Lease Liabilities 30,098 35,209 41,188 48,182 56,364 65,936

Cash at beginning of period 1,357,664 2,093,984 2,550,577 3,292,230 3,838,812 4,368,810 Cash Provided 736,320.08 456,593.14 741,652.59 546,581.85 529,998.65 524,559.22 Cash at end of the period 2,093,984 2,550,577 3,292,230 3,838,812 4,368,810 4,893,370

Take Two Interactive Software Common Size Income Statement As a % of sales Fiscal Years Ending Mar. 31 2018 2019 2020 2021E 2022E 2023E 2024E 2025E 2026E Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Cost of Goods Sold 50.10% 57.10% 49.93% 49.65% 50.07% 48.28% 49.03% 48.87% 48.37% Gross Profit 49.90% 42.90% 50.07% 50.35% 49.93% 51.72% 50.97% 51.13% 51.63% Selling and Marketing 14.28% 14.67% 14.84% 12.25% 12.82% 12.63% 12.51% 12.40% 12.09% General and Administrative 13.82% 10.54% 10.30% 11.45% 11.15% 11.10% 11.16% 11.05% 11.00% Research and Revelopment 10.95% 8.63% 9.60% 9.56% 9.10% 9.26% 9.31% 9.22% 9.26% Depreciation and Amortization 2.45% 1.51% 1.56% 41.93% 31.38% 30.17% 37.34% 45.63% 31.42% Business Reorganization 0.82% -0.19% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total Operating Expenses 42.33% 35.16% 36.30% 34.87% 34.35% 34.40% 34.74% 34.81% 34.70% Income From Operations 7.56% 7.75% 13.77% 15.48% 15.58% 17.32% 16.23% 16.32% 16.93% Interest and Other, net 0.06% 0.98% 1.25% 0.35% 0.20% 0.15% 1.20% 1.35% 0.85% Gain(Loss)On Long Term Investments,net 0.00% 0.00% -0.17% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Loss on Extinguishment of Debt 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Gain on convertible note hedge and warrants 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Income Before Income Taxes 7.62% 8.72% 14.84% 15.83% 15.78% 17.47% 17.43% 17.67% 17.78% Provision For(Benefit From) Income -2.06% -3.79% 1.75% 1.94% 1.76% 1.57% 2.02% 2.16% 1.79% (Loss)income from discontinued op 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Net Income 9.68% 12.51% 13.09% 13.89% 14.03% 15.90% 15.41% 15.51% 15.99% Take Two Interactive Software Common Size Balance Sheet % of Assets

Fiscal Years Ending Mar. 31 2018 2019 2020 2021E 2022E 2023E 2024E 2025E 2026E

Assets Cash and Cash Equivalents 21.64% 19.48% 27.43% 38.16% 41.14% 44.54% 48.52% 51.71% 53.66% Short Term Investments 16.46% 17.55% 13.01% 11.75% 10.41% 8.74% 8.18% 7.67% 7.11% Restricted Cash 11.70% 13.33% 11.05% 9.97% 8.84% 7.42% 6.94% 6.51% 6.04% A/R, net of allowances 6.63% 9.33% 11.97% 7.11% 7.30% 7.80% 6.92% 6.23% 5.97% Inventory 0.41% 0.66% 0.39% 0.99% 1.02% 1.09% 0.96% 0.87% 0.83% Software Development Costs and Li 0.89% 0.68% 0.81% 0.89% 0.91% 0.97% 0.86% 0.78% 0.74% Deferred Cost of Goods Sold 3.15% 1.22% 0.40% 2.21% 2.28% 2.36% 2.12% 1.90% 1.80% Prepaid Expenses and Others 3.57% 4.40% 5.53% 2.85% 2.92% 3.12% 2.77% 2.49% 2.39% Prepaid Taxes and Taxes Receivable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Assets of Discontinued Operations 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total Current Assets 64.45% 66.65% 70.59% 73.93% 74.82% 76.04% 77.28% 78.15% 78.54%

Fixed Assets,net 2.74% 3.01% 2.67% 2.37% 2.90% 2.83% 3.10% 3.33% 3.50% Right of Use Assets 0.00% 0.00% 3.12% 3.29% 3.41% 3.34% 3.65% 4.00% 4.34% Software Development Costs and Li 17.11% 14.22% 8.12% 8.34% 8.56% 9.15% 8.11% 7.30% 6.99% Goodwill 10.69% 9.00% 7.81% 7.04% 6.23% 5.23% 4.89% 4.57% 4.24% Other Intangibles, net 2.77% 1.72% 1.04% 0.56% 0.19% 0.06% 0.01% 0.01% 0.00% Deferred Tax Assets 0.00% 3.18% 2.36% 1.84% 1.41% 1.03% 0.83% 0.67% 0.54% Long Term Restricted Cash and Cash 0.00% 0.00% 1.80% 1.64% 1.46% 1.24% 1.17% 1.10% 1.03% Other Assets 1.52% 2.22% 2.51% 0.98% 1.01% 1.08% 0.96% 0.86% 0.82% Deferred Cost of Goods Sold,net of 0.71% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Current Liabilities Accounts Payable 0.94% 1.72% 1.33% 2.45% 2.51% 2.69% 2.38% 2.14% 2.05% Accrued Expenses and Other Curren 24.47% 24.41% 23.64% 16.38% 16.80% 17.97% 15.93% 14.34% 13.73% Deferred Revenue 20.79% 19.87% 15.72% 20.47% 19.34% 18.91% 17.29% 16.50% 15.36% Liabilities of Discontinued Operation 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Lease Liabilities 0.00% 0.00% 0.51% 0.54% 0.56% 0.55% 0.60% 0.65% 0.71% Total Current Liabilities 46.20% 46.00% 41.19% 39.84% 39.21% 40.11% 36.20% 33.64% 31.85%

Long Term Debt 0.22% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Income Taxes Payable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Deferred Income Taxes, net of curre 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Liabilities of Discontinued Operatio 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Deferred Revenue, net of current po 9.51% 0.50% 0.57% 0.48% 0.50% 0.53% 0.48% 0.43% 0.41% Non-current Lease Liabilities 0.00% 0.00% 3.07% 3.24% 3.36% 3.29% 3.60% 3.94% 4.27% Other Long Term Liabilities 4.23% 5.41% 3.85% 3.63% 3.45% 3.22% 3.64% 3.39% 3.17% Total Liabilities 60.16% 51.91% 48.69% 47.19% 46.52% 47.16% 43.92% 41.40% 39.70%

Stockholders Equity Preferred Stock $.01 par value, 500 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Common Stock 50.55% 47.62% 43.16% 38.93% 34.46% 28.90% 27.00% 25.28% 23.42% Retained Earnings 1.97% 20.68% 25.91% 29.90% 33.20% 35.84% 40.19% 43.72% 46.51% Treasury Stock, at cost -12.26% -19.34% -16.58% -14.95% -13.24% -11.10% -10.37% -9.71% -9.00% Accumulated OCI(loss) -0.42% -0.88% -1.18% -1.06% -0.94% -0.79% -0.74% -0.69% -0.64% Total Shareholders Equity 39.84% 48.09% 51.31% 52.81% 53.48% 52.84% 56.08% 58.60% 60.30% Total Liabilities and Shareholder's E 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Take Two Interactive Software Common Size Balance Sheet % of Sales Fiscal Years Ending Mar. 31 2018 2019 2020 2021E 2022E 2023E 2024E 2025E 2026E Assets Cash and Cash Equivalents 45.12% 30.97% 43.95% 70.83% 74.44% 75.37% 92.60% 109.66% 118.79% Short Term Investments 34.32% 27.90% 20.85% 21.81% 18.84% 14.80% 15.61% 16.26% 15.75% Restricted Cash 24.40% 21.19% 17.70% 18.51% 15.99% 12.56% 13.25% 13.80% 13.36% A/R, net of allowances 13.81% 14.83% 19.18% 13.21% 13.21% 13.21% 13.21% 13.21% 13.21% Inventory 0.85% 1.06% 0.62% 1.84% 1.84% 1.84% 1.84% 1.84% 1.84% Software Development Costs and Li 1.86% 1.08% 1.31% 1.65% 1.65% 1.65% 1.65% 1.65% 1.65% Deferred Cost of Goods Sold 6.57% 1.94% 0.63% 4.10% 4.13% 3.99% 4.05% 4.03% 3.99% Prepaid Expenses and Others 7.44% 7.00% 8.85% 5.29% 5.29% 5.29% 5.29% 5.29% 5.29% Prepaid Taxes and Taxes Receivable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Assets of Discontinued Operations 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total Current Assets 134.37% 105.98% 113.09% 137.24% 135.39% 128.68% 147.48% 165.74% 173.87%

Fixed Assets,net 5.72% 4.79% 4.27% 4.40% 5.26% 4.79% 5.91% 7.07% 7.74% Right of Use Assets 0.00% 0.00% 4.99% 6.11% 6.16% 5.65% 6.97% 8.48% 9.60% Software Development Costs and Li 35.66% 22.61% 13.01% 15.48% 15.48% 15.48% 15.48% 15.48% 15.48% Goodwill 22.28% 14.31% 12.51% 13.07% 11.28% 8.85% 9.32% 9.70% 9.38% Other Intangibles, net 5.78% 2.74% 1.66% 1.04% 0.34% 0.11% 0.02% 0.01% 0.00% Deferred Tax Assets 0.00% 5.05% 3.78% 3.42% 2.55% 1.73% 1.58% 1.43% 1.19% Long Term Restricted Cash and Cash 0.00% 0.00% 2.89% 3.04% 2.65% 2.10% 2.23% 2.34% 2.28% Other Assets 3.17% 3.54% 4.01% 1.82% 1.82% 1.82% 1.82% 1.82% 1.82% Defferred Cost of Goods Sold,net of 1.49% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Total Assets 208.48% 159.01% 160.21% 185.62% 180.94% 169.22% 190.83% 212.08% 221.38% Current Liabilities Accounts Payable 1.95% 2.73% 2.13% 4.55% 4.55% 4.55% 4.55% 4.55% 4.55% Accrued Expenses and Other Curre 51.02% 38.81% 37.87% 30.40% 30.40% 30.40% 30.40% 30.40% 30.40% Deferred Revenue 43.35% 31.60% 25.18% 38.00% 35.00% 32.00% 33.00% 35.00% 34.00% Liabilities of Discontinued Operation 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Lease Liabilities 0.00% 0.00% 0.82% 1.00% 1.01% 0.92% 1.14% 1.38% 1.57% Total Current Liabilities 96.32% 73.14% 65.99% 73.95% 70.96% 67.87% 69.09% 71.33% 70.52%

Long Term Debt 0.45% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Income Taxes Payable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Deferred Income Taxes, net of curre 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Liabilities of Discontinued Operatio 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Deferred Revenue, net of current po 19.83% 0.79% 0.92% 0.90% 0.91% 0.91% 0.91% 0.91% 0.90% Non-current Lease Liabilities 0.00% 0.00% 4.92% 6.02% 6.07% 5.57% 6.87% 8.36% 9.46% Other Long Term Liabilities 8.83% 8.61% 6.17% 6.73% 6.24% 5.45% 6.94% 7.20% 7.01% Total Liabilities 125.43% 82.54% 78.01% 87.59% 84.18% 79.80% 83.81% 87.80% 87.89%

Stockholders Equity Preferred Stock $.01 par value, 500 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Common Stock 105.38% 75.73% 69.15% 69.15% 69.15% 69.15% 69.15% 69.15% 69.15% Retained Earnings 4.10% 32.89% 41.51% 53.12% 66.63% 85.76% 102.94% 119.58% 137.32% Treasury Stock, at cost -25.56% -30.75% -26.56% -26.56% -26.56% -26.56% -26.56% -26.56% -26.56% Accumulated OCI(loss) -0.88% -1.39% -1.89% -1.89% -1.89% -1.89% -1.89% -1.89% -1.89% Total Shareholders Equity 83.05% 76.47% 82.20% 93.81% 107.33% 126.46% 143.64% 160.28% 178.02% Total Liabilities and Shareholder's E 208.48% 159.01% 160.21% 177.64% 200.70% 239.31% 256.11% 273.52% 295.22% Take Two Interactive Software Value Driver Estimation Numbers denoted in thousands Fiscal Years Ending Mar. 31 2018 2019 2020 2021E 2022E 2023E 2024E 2025E 2026E

NOPLAT: Operating revenues 1,792,892 2,668,394 3,088,970 2,956,144 3,426,171 4,368,368 4,145,582 3,983,904 4,119,357 Cost of Goods Sold 898,311 1,523,644 1,542,450 1,467,726 1,715,484 2,109,048 2,032,579 1,946,934 1,992,533 Selling and Marketing 256,092 391,400 458,424 362,128 439,235 551,725 518,612 494,004 498,030 General and Administrative 247,828 281,234 318,235 338,453 382,048 484,799 462,592 440,283 452,987 Research and Development 196,373 230,170 296,398 56,202 311,779 404,307 385,754 367,402 381,390 Depreciation and Amortization of Non-Goodwill Intangibles 32,202 39,726 47,628 47,559 43,770 61,646 73,252 85,199 96,895 Implied Interest On Operating Leases 2,841 4,340 4,317 4,819 4,386 5,130 6,002 7,021 8,213 EBITA 164,927 206,560 430,152 688,896 538,241 761,974 678,795 657,102 705,734

Income Tax Provision (36,908) (101,052) 53,980 101,154 117,753 166,652 149,683 144,987 154,562

+tax shield on business reorganization expense' (3,715) 739 (12) ------tax shield on net interest (264) (3,891) (5,699) (496) (284) (213) (1,708) (1,924) (1,213) - tax shield gain on long term investments - - 789 ------+tax shield on loss of extinguishment of debt ------gain on convertible note hedge ------+implied interest on leases 716 647 639 1060 965 1129 1320 1545 1807 Total Adjusted Taxes (33,645) (98,547) 58,263 100,590 117,072 165,737 150,071 145,367 153,968 Change in Deferred Taxes (32,523) 110,603 (3,486) (15,636) (13,541) (11,726) (10,155) (8,794) (7,615) NOPLAT: 166,049 415,709 368,403 572,669 407,628 584,511 518,570 502,942 544,151

Invested Capital (IC): Operating Current Assets Cash and Cash Equivalents 420,666 429,793 705,985 1,088,872 1,326,300 1,711,960 1,996,182 2,271,781 2,544,552 A/R, net of receivables 247,649 395,729 592,555 390,405 452,479 576,911 547,488 526,136 544,025 Inventory 15,162 28,200 19,108 54,362 63,006 80,333 76,236 73,262 75,753 Software Development Costs and Licenses 33,284 28,880 40,316 48,689 56,430 71,948 68,279 65,616 67,847 Deferred Cost of Goods Sold 117,851 51,867 19,598 121,184 141,641 174,136 167,822 160,750 164,515 Prepaid Expenses and Others 133,454 186,688 273,503 156,254 181,098 230,901 219,125 210,579 217,738 Prepaid Taxes and Taxes Receivable ------Total Current Operating Assets 968,066 1,121,157 1,651,065 1,859,765 2,220,954 2,846,187 3,075,131 3,308,125 3,614,431

Non-interest Bearing Liabilites Accounts Payable 35,029 72,797 65,684 134,363 155,726 198,551 188,425 181,076 187,233 Accrued Expenses and Other Current Liabilities 914,748 1,035,695 1,169,884 898,786 1,041,693 1,328,158 1,260,422 1,211,266 1,252,449 Deferred Revenue 777,152 843,302 777,784 1,123,335 1,199,160 1,397,878 1,368,042 1,394,366 1,400,581 Income Taxes Payable ------Total Non-interest Bearing Current Liabilites 1,726,929 1,951,794 2,013,352 2,156,483 2,396,579 2,924,587 2,816,889 2,786,708 2,840,263 Net Operating Working Capital (758,863) (830,637) (362,287) (296,718) (175,625) (78,400) 258,242 521,417 774,168 Plus: Net PPE 102,478 127,882 131,888 129,996 180,092 209,171 245,177 281,509 318,767 Plus: Net Other Operating Assets 743,050 676,551 453,038 488,459 542,303 681,182 642,855 617,297 637,836 Plus PV of Operating Leases 177,643 138,899 198,303 180,483 211,131 246,983 288,924 337,986 395,380 Less: Deferred Revenue (long-term) 355,589 21,058 28,339 26,605 31,178 39,534 37,621 36,104 37,074 Invested Capital (IC): (91,282) 91,637 392,603 475,615 726,723 1,019,403 1,397,577 1,722,105 2,089,077

Free Cash Flow (FCF): NOPLAT 166,049 415,709 368,403 572,669 407,628 584,511 518,570 502,942 544,151 Change in IC (88,709) 182,918 300,966 83,012 251,108 292,679 378,174 324,528 366,973 FCF 254,758 232,791 67,437 489,657 156,520 291,832 140,395 178,414 177,178

Return on Invested Capital (ROIC): NOPLAT 166,049 415,709 368,403 572,669 407,628 584,511 518,570 502,942 544,151 Beg. IC (2,572) (91,282) 91,637 392,603 475,615 726,723 1,019,403 1,397,577 1,722,105 ROIC -6455.7% -455.4% 402.0% 145.9% 85.7% 80.4% 50.9% 36.0% 31.60%

Economic Profit (EP): Beg. IC (2,572) (91,282) 91,637 392,603 475,615 726,723 1,019,403 1,397,577 1,722,105 x (ROIC - WACC) -6459.47% -459.23% 398.21% 142.05% 81.89% 76.62% 47.06% 32.17% 27.78% EP 166,147 419,192 364,907 557,692 389,484 556,788 479,681 449,626 478,456

Take Two Interactive Software Weighted Average Cost of Capital (WACC) Estimation

Cost of Equity: Risk-Free Rate 0.89% Beta 0.66 Equity Risk Premium 5.35% Cost of Equity 3.83%

Cost of Debt: Risk-Free Rate 0.89% Implied Default Premium 1.54% Pre-Tax Cost of Debt 2.43% Marginal Tax Rate 15% After-Tax Cost of Debt 2.07%

Market Value of Common Equity: MV Weights Total Shares Outstanding 113510 Current Stock Price $162.39 MV of Equity 18,432,888.90 98.94%

Market Value of Debt: Short-Term Debt 0 Current Portion of LTD 0 Long-Term Debt 0 PV of Operating Leases 198,302.56 MV of Total Debt 198,302.56 1.06%

Market Value of the Firm 18,631,191.46 100.00%

Estimated WACC 3.81% Take Two Interactive Software Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth of NOPLAT 1.50% CV Year ROIC 32% WACC 3.81% Cost of Equity 3.83%

Fiscal Years Ending Mar. 31 2021E 2022E 2023E 2024E 2025E 2026CV

DCF Model: NOPLAT 572,669 407,628 584,511 518,570 502,942 544,151 Less: Change in Invested Capital 83,012 251,108 292,679 378,174 324,528 366,973 Free Cash Flow (FCF) 489,657 156,520 291,832 140,395 178,414 Continuing Value (CV) 22,391,224 PV of FCF 471,663 145,228 260,828 120,869 147,956 18,568,669

Value of Operating Assets: 19,715,214 Non-Operating Adjustments: Short Term Investments 648,654 Excess Cash 2,751,304 PV of Operating Leases (198,303) Value of Equity 22,916,870 Shares Outstanding 113,510 Intrinsic Value of Last FYE 201.89 Implied Price as of Today 206.76

EP Model: Beginning IC 392,603 475,615 726,723 1,019,403 1,397,577 1,722,105 ROIC-WACC 142.05% 81.89% 76.62% 47.06% 32.17% 27.78% Economic Profit (EP) 557,692 389,484 556,788 479,681 449,626 478,456 Continuing Value (CV) 20,669,119 PV of EP 537,199 361,386 497,636 412,967 372,868 17,140,557

Total PV of EP 19,322,611 Invested Capital (last FYE) 392,603 Value of Operating Assets: 19,715,214 Non-Operating Adjustments: Short Term Investments 648,654 Excess Cash 2,751,304 PV of Operating Leases (198,303) Value of Equity 22,916,870 Shares Outstanding 113,510 Intrinsic Value of Last FYE 201.89 Implied Price as of Today 206.76

Take Two Interactive Software Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Mar. 31 2020 2021E 2022E 2023E 2024E 2025E 2026E

EPS $ 3.58 $ 3.14 $ 3.64 $ 5.12 $ 4.57 $ 4.41 $ 4.67

Key Assumptions CV growth of EPS 1.50% CV Year ROE 9.97% Cost of Equity 3.83%

Future Cash Flows P/E Multiple (CV Year) 36.40

EPS (CV Year) $ 4.67

Future Stock Price $ 170.02

Dividends Per Share $ - $ - $ - $ - $ - $ - $ -

Discounted Cash Flows $ - $ - $ - $ - $ - $ 140.87 $ 140.87 Intrinsic Value as of Last FYE $ 140.87 Implied Price as of Today $ 144.26

Take Two Interactive Software Relative Valuation Models

EPS EPS 2020E 2020 Ticker Company Price 2020E 2021E P/E 20 P/E 21 Sales/Share Price/Sales ATVI Activision Blizzard $75.12 $2.71 $3.02 27.72 24.87 9.8 7.7 EA Electronic Arts $118.93 $10.30 $3.37 11.55 35.29 18.94 6.3 NTDOY Nintendo $64.41 $2.55 $3.58 25.26 17.99 15.9 4.1 TCEHY Ten Cent Holdings $73.80 $1.85 $2.22 39.89 33.24 6.3 11.7 SNE Sony Corporation $85.91 $4.41 $5.52 19.48 15.56 61.56 1.4

Average 24.78 25.39 22.50 6.22

TTWO Take Two Interactive So $162.39 $ 3.58 $ 3.14 45.9 48.6 29.14 5.57

Implied Relative Value: P/E (EPS20) $ 88.71 P/E (EPS21) $ 79.78 P/Sales(2020) $ 181.28

Take-Two Interactive Software, Inc. Key Management Ratios

Fiscal Years Ending Mar. 31 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Liquidity Ratios: Working Capital Ratio 1.40 1.45 1.71 1.86 1.91 1.90 2.13 2.32 2.47 Quick Ratio 1.39 1.43 1.70 1.83 1.88 1.87 2.11 2.30 2.44 Cash Ratio 0.82 1.09 1.34 1.46 1.62 1.51 1.75 1.95 0.22

Asset-Management Ratios: Asset Turnover Ratio 0.52 0.67 0.67 0.57 0.59 0.64 0.54 0.49 0.47 Inventory (SD&L) Turnover Ratio 23.95 49.02 44.58 32.98 32.64 32.86 28.99 29.08 29.86

Financial Leverage Ratios: Debt Ratio(Liabilities/Assets) 0.60 0.52 0.49 0.47 0.47 0.47 0.44 0.41 0.40 Our company does not have debt on the balance sheet

Profitability Ratios: Gross Profit Margin 49.90% 42.90% 50.07% 50.35% 49.93% 51.72% 50.97% 51.13% 51.63% Return on Assets 4.64% 7.87% 8.17% 6.54% 6.73% 7.99% 6.71% 6.08% 6.01% Return on Equity 11.65% 16.36% 15.93% 12.38% 12.59% 15.13% 11.96% 10.38% 9.97% Take Two Interactive Software Present Value of Operating Lease Obligations

Fiscal Years Ending Mar. 31 2018 2019 Year 1 39113.0 28365.0 Year 2 29620.0 27882.0 Year 3 23092.0 26272.0 Year 4 21665.0 23787.0 Year 5 19571.0 16474.0 Thereafter 62476.0 82570.0 Total Minimum Payments 195537.0 205350.0 Less: Cumulative Interest 17894.5 51066.0 PV of Minimum Payments 177642.5 154284.0

Implied Interest in Year 1 Payment 4339.8 4316.7 % of implied interest over pv of minimum payments Pre-Tax Cost of Debt 2.43% 2.43% Years Implied by Year 6 Payment 3.2 5.0 Expected Obligation in Year 6 & Beyond 19571 16474

Present Value of Lease Payments PV of Year 1 38185.1 27692.1 PV of Year 2 28231.3 4637.6 PV of Year 3 21487.2 1.6 PV of Year 4 19681.1 23787.0 PV of Year 5 17357.1 14610.4 PV of 6 & beyond 52700.7 68170.0 Capitalized PV of Payments 177642.5 138898.7 Take-Two Interactive Software, Inc. Sensitivity Tables

Beta Terminal Year Gross Margin 206.76 0.51 0.56 0.61 0.66 0.71 0.76 0.81 206.76 50.13% 50.63% 51.13% 51.63% 52.13% 52.63% 53.13% 5.05% 306.50 272.25 245.39 223.76 205.98 191.10 178.47 3.25% 209.97 208.65 207.34 206.02 204.70 203.38 202.06 5.15% 297.26 264.40 238.57 217.75 200.61 186.25 174.06 3.30% 210.22 208.90 207.58 206.26 204.94 203.62 202.31 5.25% 288.60 257.03 232.17 212.09 195.55 181.68 169.89 3.35% 210.47 209.15 207.83 206.51 205.19 203.87 202.55 5.35% 280.47 250.09 226.13 206.76 190.77 177.36 165.95 3.40% 210.72 209.40 208.08 206.76 205.44 204.12 202.80

5.45% 272.83 243.56 220.44 201.72 186.25 173.27 162.22 Growth 3.45% 210.96 209.64 208.32 207.00 205.69 204.37 203.05

5.55% 265.63 237.39 215.05 196.94 181.97 169.39 158.67 3.50% 211.21 209.89 208.57 207.25 205.93 204.61 203.29 Terminal Year Sales Year Terminal Equity RiskPremium Equity 5.65% 258.83 231.56 209.95 192.42 177.91 165.71 155.31 3.55% 211.46 210.14 208.82 207.50 206.18 204.86 203.54

Risk-Free Rate Terminal Year Cost of Goods Sold Margin 206.76 0.74% 0.79% 0.84% 0.89% 0.94% 0.99% 1.04% 206.76 46.87% 47.37% 47.87% 48.37% 48.87% 49.37% 49.87% 1.35% 200.99 199.76 198.55 197.35 196.16 195.00 193.85 11.49% 229.22 223.87 218.52 213.16 207.81 202.46 197.10 1.40% 204.14 202.86 201.60 200.35 199.13 197.92 196.72 11.69% 227.09 221.73 216.38 211.03 205.67 200.32 194.97 1.45% 207.42 206.09 204.78 203.49 202.21 200.96 199.72 11.89% 224.95 219.60 214.25 208.89 203.54 198.19 192.83 1.50% 210.85 209.47 208.10 206.76 205.43 204.12 202.84 12.09% 222.82 217.46 212.11 206.76 201.40 196.05 190.70 1.55% 214.44 212.99 211.57 210.17 208.79 207.43 206.09 12.29% 220.68 215.33 209.98 204.62 199.27 193.92 188.56

1.60% 218.19 216.68 215.20 213.74 212.30 210.89 209.49 12.49% 218.55 213.19 207.84 202.49 197.13 191.78 186.43

CV Growth of NOPLAT of Growth CV Terminal Year Selling Year Terminal 1.65% 222.11 220.54 219.00 217.47 215.97 214.50 213.04 % Cost Marketing and 12.69% 216.41 211.06 205.71 200.35 195.00 189.65 184.29

WACC 206.76 3.51% 3.61% 3.71% 3.81% 3.91% 4.01% 4.11% 28.60% 234.07 223.92 214.70 205.88 198.55 191.44 184.88 29.60% 234.44 224.27 215.02 206.20 198.84 191.73 185.15 30.60% 234.78 224.59 215.33 206.49 199.12 191.99 185.41 31.60% 235.10 224.89 215.62 206.76 199.38 192.24 185.65

CV ROIC CV 32.60% 235.40 225.18 215.89 207.02 199.63 192.47 185.87 33.60% 235.68 225.45 216.14 207.26 199.86 192.69 186.08 34.60% 235.94 225.70 216.38 207.48 200.08 192.90 186.28