Take-Two Interactive can surge 40% as video game maker clears near-term hurdles, Goldman Sachs says

Published Thu, Oct 6 20227:26 AM EDT

Take-Two Interactive Software could be a big winner going forward as it overcomes some near-term challenges pressuring the video game industry, according to Goldman Sachs. Analyst Eric Sheridan upgraded shares of Take-Two Interactive Software to buy from neutral, saying the stocks recent drop could represent a buying opportunity for investors. "While the gaming industry continues to face a number of short term fundamental headwinds, we see those headwinds increasingly priced into TTWO shares (especially when measured against the potential for upside nodes in the next few years)," Sheridan wrote in a Wednesday note. "In particular, we see the industry facing a continuation of the user engagement/monetization headwinds as we lap and move beyond the outsized trends which took hold during the pandemic (across PC, console and mobile gaming)," Sheridan added. Goldman Sachs also raised its 12-month price target on the stock to $165 from $131. The new price target represents 40.7% upside from Wednesday's closing price of $117.30. Take-Two shares gained 1.7% in Thursday premarket trading. Shares of Take-Two were under pressure this year after an early boost for the video game company during the pandemic faded. The stock is down 34% this year and 40% below its 52-week high. Still, while the near-term outlook remains uncertain, Take-Two is positioning itself for growth in 2023 and beyond, according to the note. Take-Two should improve revenue growth and expand margins as it starts to launch video games in its content pipeline, including the next generation of the Grand Theft Auto franchise, according to the note. Additionally, Take-Two's acquisition of Zynga — which gives the company exposure to mobile gaming — should bolster the company. It should also benefit from the next iteration of video game consoles. "[While] the near term remains fluid ( & this is not a call on Q3 operating results), the building long term industry themes (heavily discounted now) should emerge in 2023/2024," the note read. —CNBC's Michael Bloom contributed to this report.