Buy Take-Two on the dip because ‘Fortnite’ risk is ‘overblown,’ analyst says

Key Points
  • Piper Jaffray downplays the effect of "Fortnite's" popularity on Take-Two's games.
  • The firm's analyst, Michael Olson, said Take-Two's core gamer demographic is much older than the average "Fortnite" player.
Epic Games Fortnite
Source: Epic Games

The surging popularity of Epic Games' "Fortnite" is not significantly affecting Take-Two's games, according to one Wall Street firm.

Piper Jaffray reiterated its overweight rating for Take-Two shares, citing the company's older gamer demographic for its titles.

Take-Two shares are down 10 percent this year through Thursday compared to the roughly break-even S&P 500 on "concerns around Fortnite and disappointment with December quarter digital revenue," analyst Michael Olson wrote in a note to clients Friday. "We recommend buying Take-Two at current levels as we think Fortnite risk is overblown."

Epic Games introduced the free-to-play "battle royale" mode for "Fortnite" on computers and gaming consoles in September. This mode allows up to 100 online players to violently battle each other to the death until only one player survives.

Fortnite game wiped out $6 billion in market value from industry leader Activision Blizzard

The game is now the top-viewed game on Twitch and the most widely played game on Microsoft's Xbox console.

Olson reaffirmed his $127 price target for Take-Two shares, representing 29 percent upside to Thursday's close.

The analyst said the average "Fortnite" gamer is 13 to 14 years old, which is much lower than Take-Two's "Grand Theft Auto" user base. Twitch viewership market share for "Grand Theft Auto," which is a good proxy for game engagement, only declined to 2.8 percent in March versus 3.1 percent late last year.

In addition, Take Two is scheduled to release an eagerly awaited game, Red Dead Redemption 2, in October.

"We do expect a measurable impact on Activision's near-term revenue due to overlapping titles (CoD, Destiny, Overwatch, etc.), but we expect very minimal impact on EA and Take-Two," he wrote. "Additionally, there is a significant catalyst in October with Red Dead Redemption 2. Currently, Take-Two shares trade at a material discount to comps."

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