As billionaire investors go, Chase Coleman has a reputation for making bold bets on stocks that are just getting started in their growth stories. His portfolio, through the Tiger Global Management fund, is heavily focused on artificial intelligence (AI) today and counts several huge AI winners among its top holdings.
There’s a name that stands out in the fund’s list of big holdings, though, and it’s one that many growth investors will be familiar with. Coleman’s portfolio holds Take-Two Interactive (NASDAQ: TTWO) as its fourth-largest investment, accounting for about 6% of the fund’s assets. Let’s look at what might have attracted the billionaire to this stock, and whether investors should consider buying it right now.
Take-Two is a video game developer, positioning it to benefit from the rapidly growing global digital entertainment industry. It is one of just a few large competitors in this space that includes Microsoft and Electronic Arts (NASDAQ: EA).
In contrast with just a few years ago, video games are now much more stable sources of revenue and profits. Take-Two and its peers have transitioned to more of a software-as-a-service model that relies on a steady stream of content releases to keep titles relevant (and monetizable) for years after the initial launch.
It has been several years since the company released a major new Grand Theft Auto edition, for example, and yet the franchise still a leading source of growth for Take-Two.
That said, Take-Two might seem like an unlikely candidate for a billionaire’s growth portfolio. Revenue fell in the most recent quarter, and the game developer reduced its short-term outlook following those sluggish sales. Take-Two is also not profitable at the moment, having generated $840 million of losses over the last nine months compared to a $600 million loss a year earlier. You could get more growth and far better profitability by owning its competitor, Electronic Arts.
A Take-Two investment is all about the future, though. The company is sitting on a flood of new releases slated for the next few quarters, including the first big Grand Theft Auto launch in almost a decade. Take-Two delayed a few titles from fiscal 2024 as well, which is a key reason why management is forecasting that sales might rise by as much as 40% in fiscal 2025.
If that launch calendar goes smoothly, then by this time next year, Take-Two could be rivaling EA in terms of its annual sales footprint, cash flow, and earnings potential.
Investors buying the stock today are taking on some big risks, though, mainly around title delays. It is always possible that the gaming industry will hit a cyclical downturn just when Take-Two is hoping to see faster growth, too. The stock isn’t priced at a discount that reflects those risks, either. You’ll pay about 4.5 times sales for its shares right now, or roughly the same premium that EA has attracted.
As a result, most video game stock investors will want to simply keep an eye on the company, at least until there’s clarity around Take-Two’s release calendar. Luckily that clarity might arrive soon, with management set to issue its detailed fiscal 2025 outlook in mid-May.
That earnings report will also show whether mobile advertising demand is still weak, and whether NBA 2K24 is underperforming expectations as it did in the previous quarter. More data on these points could help you decide whether you want to follow Coleman into this stock, which has declined 13% so far in 2024.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Take-Two Interactive Software. The Motley Fool recommends Electronic Arts and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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