take-two interactive software

Derek Chait, Trey Coppinger, Lukas Neske, Travis Wolf April 10, 2015

Take-Two Interactive Software, Inc.

Investment Thesis (NASDAQ: TTWO )Take-Two’s potential to capitalize on the “next-gen” console era with unprecedented intellectual property and a cash-rich cushion is overlooked by an unnerved market seeking solid forward guidance.

INVESTMENT EDGES

Underestimated ability to create multiple lasting brands Has nine existing franchises that have sold 5M or more units

Unjustified market concern over changing industry Increase in mobile gaming will not cannibalize console sales Take-Two will leverage its brands across new gaming platforms

Uncharacteristic cash buildup Almost ½ of market cap in cash Sign of recurring, strong cash flows and undervaluation

Disclosure discount Market is nervous about Take-Two’s lack of forward guidance despite proven track record

2

CATALYSTS

E3 Gaming Conference – probable release of Red Dead Redemption 2 or other notable title Continued growth of mobile and recurring digital revenue

Recommendation: BUY 3Y Price Target: $30.90 (+21.41%)Current Price: $25.45

3

Industry OverviewINDUSTRY DYNAMICS

Main Players:

Video game sector is an ever-changing industry

Companies in the space must constantly be evolving to new consoles and trends (old gen next gen)

Cloud is starting to be utilized to make games smoother and more expansive

Increasing popularity of subscription–based models and in-game purchases

Explosion of very low quality mobile games and continued popularity of high quality (AAA rated) games is squeezing middle tier games out

67% of people in the U.S. play video games

47% of gamers are women, up from 42% in 2012

New video games cater to this new demographic market

International market rapidly expanding

Asia is currently the largest market for video games

Currently 7.2B people on Earth with only 2.9B that have internet access

In Asia only 36% of the population are internet users

Video Game Industry grew to $81.5B in 2014

Predicted CAGRs from 2012-2016 for tablet and mobile gaming are 46.6% and 18.8%, respectively

CURRENT TRENDS

27%

4%

22%

2%

45%

North America Latin America Europe Africa Asia-Pacific

Game Revenue by Geographic Location ($B)

Location Sales ($B)

North America 22.2$

Latin America 3.3$

Europe 17.7$

Africa 1.4$

Asia-Pacific 36.8$ 17.76 18.06 15.08 16.4

9.28 13.21 17.15 22.0114.44

17.72 20.9221.6

37.444.29

49.3855.05

0

20

40

60

80

100

120

140

2012 2013 2014 2015

Video Game Revenue by Type ($M)

Handheld Mobile PC Console

4

Company OverviewHISTORY REVENUE STREAM

MANAGEMENT TEAM

Take-Two Interactive Software, Inc. is a leading developer, publisher and marketer of interactive entertainment

Founded in 1993, HQ in New York City

2,530 employees, 1,800 developers in 14 studios around the world

Focus on “AAA” gaming across different genres

Offer games for PlayStation (Sony), Xbox (Microsoft), Smartphones and Tablets

Physical retail, digital download, online platforms and cloud streaming services

Proprietary, cutting-edge “open-world” gaming engine used across game titles

Rockstar Games GTA

Max Payne

Red Dead Redemption

Focus on most innovative and progressive games, R&D heavy

2K Games BioShock

Borderlands

NBA + MLB2K

Focus on yearly revenue generators

CEO: Strauss Zelnick MBA and JD from Harvard

Pays himself $11k annually rest in stock

Owns over 2mm shares, one of the largest holders

COO of 20th Century Fox at 35 years old

President: Karl Slatoff MBA from HBS

Former: Corporate Finance, M&A (Lehman) and strategic planning (Walt Disney Company)

CFO: Lainie Goldstein Former VP of Finance and Business

Development at Nautica Enterprises

Audit and reorganization department at Grant Thornton LLP

Executive VP: Seth Krauss ED in Legal & Compliance Division at

Morgan Stanley

21%

79%

PC and Other Console

0%

5%

10%

15%

20%

25%

30%

0%

10%

20%

30%

40%

50%

2011 2012 2013 2014 2015

Dig

ital

Re

ven

ue

Gro

ss M

argi

n

Gross Margin Percent of Revenue

Category Breakdown Gross Margin and Digital Revenue Increase

5

Underestimated Ability to Create Lasting BrandsTRACK RECORD OF PRODUCING EXCELLENT BRANDS WITH LONG LIVES

BRAND EXTENSIONS AND NEW BRANDS

2001Max Payne

2004Red Dead

2005NHL2K

2009Borderlands

2011LA Noire

2015Evolve

1997:Grand Theft Auto

2004Sid Meier’sCivilization

2007BioShock

2012XCOM: Enemy

Within

2014WWE2K

2016Battleborn

2005NBA2K

Since 2007, launched 7 new successful franchises and released 39 distinct multi-million selling titles Implement proprietary open-world RAGE gaming engine across franchises

02468

10121416

Red Dead Redemption 2E3 2015 (June)

LA Noire 2“An important franchise”

Borderlands 3“The Big One”

NBA2K, WWE2KAnnual installments

Hangar 13 StudiosAdam Blackman- fastest selling

Star Wars video game

Evolve“Incredible Launch”

Releases Per Brand

6

NBA2K GrowthGROWTH OF NBA GLOBALLY

NBA2K INTERNATIONAL GROWTH

PREDOMINANCE OF NBA2K

“Basketball is the sport of the modern world – internationalized,

well-marketed, fast-paced, and urban”

“Soccer Should Fear the NBA”

NBA International revenue grown 18% annually

Plans to open 4 NBA franchises in Europe

NBA has offices in 15 International countries

50% of the NBA’s followers on social media are

international

101 foreign players from 37 countries on rosters

300 million Chinese play basketball regularly

NBA StrategyBasketball Market

NBA2K Non North American Sales Increase

NBA2K top selling and top rated NBA game from 2008 onwards

#3 title overall for next-gen consoles

24 million users of NBA2K online in China

NBA2K15 – Best selling NBA2K yet

#1 sports game for next gen consoles

7 million copies sold (Bigger than EA’s Madden)

NBA2K vs. NBA Live

Beat EA’s NBA Live out of the market from 2010-2014

Google Search “NBA2K vs. NBA Live”

0%

5%

10%

15%

20%

25%

0

0.5

1

1.5

Per

cen

t o

f To

tal S

ales

Gam

es S

old

(m

illio

ns)

Non North America sales Non North American Sales Percent of Total

NBA becomes more valuable

7

Unjustified Market Concern over Changing IndustryMOBILE MARKET CONCERN

TAKE TWO’S RESPONSE

MARKET REALITY

Two separate markets

Mobile growth has been additive to the industry

Mobile gaming attracts those who don’t want to own a dedicated

gaming console

Console and PC game time has not decreased

Gamers still want AAA high quality games

76% of gamers rank graphics as an important feature

Gamers still want realistic story-driven plots

Mobile games limited to simplistic plot and designs

Continue to make top quality AAA games for consoles

Leverage existing brands across screen sizes with new mobile games

0%

20%

40%

60%

80%

Q2 2015Q1 2015Q4 2014Q3 2014Q2 2014Q1 2014Q4 2013

Mobile Releases

“We believe the sub-industry has been adversely affected by a

shift toward mobile games and away from console games”

“Mobile Kills the Console”

Market is worried that mobile gaming will starve console gaming

More optimistic about mobile gaming companies like Zynga and

Rovio (Angry Birds)

“Video Game Industry

Disrupted in 2015”

01234567

Mo

bile

Gam

es

Percent of Releases That Are Mobile

Mobile Releases Per Brand

= projected

= existing

8

Uncharacteristic Cash Buildup – Financial Edge

Market Cap: $2.16 B Free Cash Flow: $976.6 M

Almost half of market cap in cash

Strong willingness to utilize cash

Always contemplating if returning cash to shareholders is accretive

Bought back $277 million at ~$17 a share in past

Potential use to fund organic growth opportunities

Even more bullish means pipeline is innovating

Possible funding of inorganic growth opportunities

Purchasing the license of Evolve, WWE, or other enterprise

INVESTOR-FRIENDLY CULTURE

0

2

4

6

8

10

12

0

200

400

600

800

1000

1200

1400

2012 2013 2014 2015E 2016E 2017E

Cash Buildup

M&A History

INCREDIBLY STRONG BALANCE

R&D Plan

No major shareholder equity dilution

Additional capital raising has taken place through careful, limited private placement

Currently approximately $8.57 in cash per share

Expected to rise in foreseeable future with new revenue inflows

High short interest of 18.2%

Upward pressure as short sellers cover their short positions

Mid-February, 2008: Electronic Arts (EA) made US$25 per share all cash acquisition offer worth ~$2 billion

Declined EA undervalued business & failed to recognize value of efforts to expand intellectual property

2013: TTWO purchases the rights to games of THQ

Often seeks to acquire licensing from highly distressed companies

Possible Activision / Take-Two deal if progress on movie studios

R&D Plan

9

“Disclosure Discount” Edge“LACK OF GAME RELEASE VISIBILITY”

Great reputation with gamers Skittish reputation with Wall Street

Despite recent successes, continued market sell-offs

Little detailed guidance on blockbuster game release schedule

Sporadic releases led to historically fluctuating earnings

No breakout AAA products announced yet for FY15

Unwillingness to establish clear probability targets

Track record of repeatedly delivering on record-breaking games

Management committed to “extensive pipeline” of next-gen development

Platform of proven franchises and new intellectual property

“LESS VOLATILE, SMOOTHER ENTERPRISE”

Zelnick: Recognizes need for more predictable and stable revenue streams between “massive tent pole releases”

New outlets / business model to ensure more consistent profitability

Downloadable Add-On Content (DLC)

High margin method to capitalize on recurrent consumer spending

First company to launch “map packs,” “heists,” & “virtual currency”

Engages consumers with games for longer periods of time

Taking advantage of another high margin industry trend

Represents about 25% of revenue in LTM

In FY2013, digital revenues increased more than 100% over FY2012

-15%

-10%

-5%

0%

5%

10%

15%

20%

0

500

1000

1500

2000

2500

2010 2011 2012 2013 2014

Revenue & Operating Margins

Despite lack of transparency, severe market discount

Digital Distribution

10

RisksSENSITIVITY TO “HIT” TITLES TRANSITION TO NEXT GENERATION PLATFORMS

GAMING AS A TREND-BASED INDUSTRY

Fluctuations in quarterly reports due to seasonal publishing

Sales of GTA generated 68.9% of net revenue for 2014

Intense competition for relatively small number of hit titles

From an investor’s and the company’s perspective, it is difficult to predict new hit titles

HARDWARE LICENSORS ARE ALSO COMPETITORS

Gaming is based on trends

Set by average customer and technological standards

Similarities to fashion industry

Sales of games heavily influenced by reviews and ratings

TTWO submits products to Entertainment Software Rating Board (ESRB)

Risk of failure to obtain a target rating

Risk of unexpected “AO” rating” (age 18 and older), which decreases retail interest and customer base

High product sensitivity to software errors, online problems etc.

Approval for publication on title-by-title basis

Possible limitations include number of titles and timing of publications

Dependence on licensor, who is a competitor for games production, to renew or extend current license agreements

Competition

Licensing

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3,000,000

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7,000,000

8,000,000

9,000,000

10,000,000

Kiosk Facebook Mobile Web MMO PC/MAC Console

# Te

am M

emb

ers

Bu

dge

t ($

)

Average Budget vs Average Developer Team Size

11

ValuationCOMPARABLE ANALYSIS

Allow valuation of Take-Two without “disclosure discount”

Using mean comparable EV/EBITDA of 9.45, valuation is $27.49

Using median comparable EV/EBITDA multiple of 10.27, valuation is $29.88

Using median comparable P/E of 20.1, valuation is $35.24

Using mean comparable P/E of 20.8, valuation is $36.41

DISCOUNTED CASH FLOW ANALYSIS

View cash flow as cyclical, yet increasing function

Cash Flow= sin(αt) + βt; α = constant; β > 0

Lack of regular guidance requires unconventional valuation

Have Blockbuster years and Trough years

Blockbuster years: Release a hit game like Red Dead Redemption 2 or GTA VI

Trough years: Big cash burn developing blockbuster games and rely on recurring revenue

In the next three years, revenue from annual franchises and recurring digital revenue will allow Take-Two to increase revenue even in Trough years

Revenue is still cyclical, but each successive peak and trough increase in value

Trough Year

Blockbuster Year

From this point onwards, cash flow is always

positive

Cas

h F

low

Bull Base Bear

Hit Game Success

Produce 2 hit games on par with GTA V Sales

Produce a hit game below expectations

Fail to produce a hit game close to GTA V

Blockbuster Revenue Growth

100% GTA V Cash Flow 80% GTA V Cash Flow

60% GTA V Cash Flow

Recurring Revenue

Recurring revenue vastly expands

Recurring revenue expandsbut below expectations

Recurring slightly expands

Trough Year Revenue Growth

10% 5% 2.5%

Comparable Price Target:

Bear: $27.49

Base: $29.88

Bull: $35.24

0

5

10

15

20

25

30

35

40

Pri

ce (

$)

Bull: $37.35

Base: $30.90

Bear: $27.53

Final Valuation: $30.90

21% Upside

TTWO Stock Price

12

AppendixSLIDE TITLE SLIDE NUMBER

Comparable Company Analysis 13

Base Case Discounted Cash Flow Analysis 14

Base Case Conclusion 15

Bull Case Discounted Cash Flow Analysis 16

Bull Case Conclusion 17

Bear Case Discounted Cash Flow Analysis 18

Bear Case Conclusion 19

Evolve Release 20

Violence Concerns 21

Virtual Reality 22

Twitch Interactive 23

Sources 24

13

Comparable Company Analysis

P/E Multiple Range (Using Mean P/E)

18.8 19.8 20.8 21.8 22.8

1.55 29.15 30.70 32.25 33.80 35.35

1.75 32.91 34.66 36.41 38.16 39.91

1.95 36.67 38.62 40.57 42.52 44.47

P/E Multiple Range (Using Median P/E)

18.1 19.1 20.1 21.1 22.1

1.55 28.11 29.66 31.21 32.76 34.31

1.75 31.74 33.49 35.24 36.99 38.74

1.95 35.36 37.31 39.26 41.21 43.16

195.5 220.5 245.5 270.5 295.5

8.45 19.57 22.08 24.58 27.08 29.59

9.45 21.89 24.69 27.49 30.29 33.09

10.45 24.21 27.30 30.40 33.49 36.59

195.5 220.5 245.5 270.5 295.5

9.27 21.47 24.22 26.96 29.71 32.46

10.27 23.80 26.84 29.88 32.93 35.97

11.27 26.11 29.44 32.78 36.12 39.46

2014E EV/EBITDA Multiple

Range (Using Mean):

Assumed # shares (mm): 213.3EBITDA Range (US$mm)


Range (Using Median):

Assumed # shares (mm): 213.3

2014E EPS Ranges:


2014E EPS Ranges:



18.8 19.8 20.8 21.8 22.8

1.55 29.15 30.70 32.25 33.80 35.35

1.75 32.91 34.66 36.41 38.16 39.91

1.95 36.67 38.62 40.57 42.52 44.47


18.1 19.1 20.1 21.1 22.1

1.55 28.11 29.66 31.21 32.76 34.31

1.75 31.74 33.49 35.24 36.99 38.74

1.95 35.36 37.31 39.26 41.21 43.16

195.5 220.5 245.5 270.5 295.5

8.45 19.57 22.08 24.58 27.08 29.59

9.45 21.89 24.69 27.49 30.29 33.09

10.45 24.21 27.30 30.40 33.49 36.59

195.5 220.5 245.5 270.5 295.5

9.27 21.47 24.22 26.96 29.71 32.46

10.27 23.80 26.84 29.88 32.93 35.97

11.27 26.11 29.44 32.78 36.12 39.46


Range (Using Mean):





2014E EPS Ranges:


2014E EPS Ranges:



18.8 19.8 20.8 21.8 22.8

1.55 29.15 30.70 32.25 33.80 35.35

1.75 32.91 34.66 36.41 38.16 39.91

1.95 36.67 38.62 40.57 42.52 44.47


18.1 19.1 20.1 21.1 22.1

1.55 28.11 29.66 31.21 32.76 34.31

1.75 31.74 33.49 35.24 36.99 38.74

1.95 35.36 37.31 39.26 41.21 43.16

195.5 220.5 245.5 270.5 295.5

8.45 19.57 22.08 24.58 27.08 29.59

9.45 21.89 24.69 27.49 30.29 33.09

10.45 24.21 27.30 30.40 33.49 36.59

195.5 220.5 245.5 270.5 295.5

9.27 21.47 24.22 26.96 29.71 32.46

10.27 23.80 26.84 29.88 32.93 35.97

11.27 26.11 29.44 32.78 36.12 39.46


Range (Using Mean):





2014E EPS Ranges:


2014E EPS Ranges:



18.8 19.8 20.8 21.8 22.8

1.55 29.15 30.70 32.25 33.80 35.35

1.75 32.91 34.66 36.41 38.16 39.91

1.95 36.67 38.62 40.57 42.52 44.47


18.1 19.1 20.1 21.1 22.1

1.55 28.11 29.66 31.21 32.76 34.31

1.75 31.74 33.49 35.24 36.99 38.74

1.95 35.36 37.31 39.26 41.21 43.16

195.5 220.5 245.5 270.5 295.5

8.45 19.57 22.08 24.58 27.08 29.59

9.45 21.89 24.69 27.49 30.29 33.09

10.45 24.21 27.30 30.40 33.49 36.59

195.5 220.5 245.5 270.5 295.5

9.27 21.47 24.22 26.96 29.71 32.46

10.27 23.80 26.84 29.88 32.93 35.97

11.27 26.11 29.44 32.78 36.12 39.46


Range (Using Mean):





2014E EPS Ranges:


2014E EPS Ranges:


Share Price Market Enterprise

Company Share Price % of Cap Value EBITDA P/E

Ticker (US$) 52 week high (US$mm) (US$mm) (US$mm) LTM CY2015E LTM CY2015E CY2015E

Activison Blizzard, Inc. ATVI 23.02 95.2% 16,453 15,920 1,468 3.4x 3.6x 13.0x 10.8x 19.4

Ubisoft Entertainment UBI 18.30 96.0% 2,067 2,123 554 1.6x 1.3x 4.1x 3.9x 17.9

Electronic Arts, Inc. EA 59.47 98.8% 18,438 16,131 1,205 3.6x 3.8x 14.5x 13.4x 25.0

Capcom Co Ltd. CCOEF 19.35 100.0% 1,323 1,136 188 1.8x 2.0x 8.9x 9.7x 20.8

Mean 30.04 97.5% 9570 8,827 854 2.6x 2.7x 10.1x 9.5x 20.8

Median 21.19 97.4% 9260 9,021 879 2.6x 2.8x 10.9x 10.3x 20.1High 59.47 100.0% 18438 16,131 1,468 3.6x 3.8x 14.5x 13.4x 25.0

Low 18.30 95.2% 1323 1,136 188 1.6x 1.3x 4.1x 3.9x 17.9

Take-Two Interactive Inc. TTWO 25.21 81.9% 2,127 1,621 246 1.7x 1.0x 19.6x 6.6x 14.4

Enterprise Value as a Multiple of

Revenue (x) EBITDA (x)

$(100.0)

$-

$100.0

$200.0

$300.0

$400.0

$500.0

2010 2011 2012 2013 2014 2015E

EBITDA ($MM)

Take-Two EBITDA 2010-2015E

14

Base CaseHistorical Year

2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

Sales *Blockbuster* *Blockbuster* *Blockbuster*

Console 974,303$ 702,775$ 976,444$ 2,148,419$ 988,290$ 1,903,960$ 1,136,534$ 2,115,511$ 1,363,840$ 2,493,100$

PC & Other 110,277$ 87,537$ 216,178$ 192,747$ 109,810$ 211,551$ 126,282$ 235,057$ 151,538$ 277,011$

Handheld 52,296$ 35,510$ 21,861$ 9,402$ -$ -$ -$ -$ -$ -$

Total Sales 1,136,876$ 825,823$ 1,214,483$ 2,350,568$ 1,098,100$ 2,115,511$ 1,262,815$ 2,350,568$ 1,515,378$ 2,770,111$

Cost of goods sold 689,381$ 528,855$ 715,837$ 1,414,327$ 520,000$ 1,121,221$ 675,606$ 1,269,307$ 825,881$ 1,523,561$

Gross Profit 447,495$ 296,968$ 498,646$ 936,241$ 578,100$ 994,290$ 587,209$ 1,081,261$ 689,497$ 1,246,550$

Selling and Marketing 176,294$ 183,749$ 257,329$ 240,996$ 232,900$ 282,738$ 171,617$ 324,731$ 212,759$ 395,156$

General and Administrative 109,484$ 121,200$ 147,260$ 161,374$ 165,200$ 201,058$ 122,038$ 230,920$ 151,295$ 281,000$

Research and Development 69,576$ 64,162$ 78,184$ 105,256$ 108,500$ 131,944$ 80,088$ 151,541$ 99,288$ 184,406$

Total Operating Expenses 355,354$ 369,111$ 482,773$ 507,626$ 506,600$ 628,307$ 381,370$ 721,624$ 472,798$ 878,125$

EBITDA 92,141$ (72,143)$ 15,873$ 428,615$ 71,500$ 365,983$ 205,839$ 359,637$ 216,699$ 368,425$

% Margin 8.1% -8.7% 1.3% 18.2% 6.5% 17.3% 16.3% 15.3% 14.3% 13.3%

Less: Depreciation & Amortization 14,999$ 12,123$ 10,634$ 13,359$ 18,600$ 23,271$ 20,205$ 49,362$ 39,400$ 85,873$

EBIT 77,142$ (84,266)$ 5,239$ 415,256$ 52,900$ 342,713$ 185,634$ 310,275$ 177,299$ 282,551$

% Margin 6.8% -10.2% 0.4% 17.7% 4.8% 16.2% 14.7% 13.2% 11.7% 10.2%

Taxes 4$ 3,900$ 5,000$ 14,500$ 13,000$ 52,778$ 28,588$ 47,782$ 27,304$ 43,513$

EBIAT 77,138$ (88,166)$ 239$ 400,756$ 39,900$ 289,935$ 157,046$ 262,493$ 149,995$ 239,038$

Plus: Investing Activities 150,000.0

Plus: Depreciation & Amortization 14,999$ 12,123$ 10,634$ 13,359$ 18,600$ 23,271$ 20,205$ 49,362$ 39,400$ 85,873$

Less: Capital Expenditures (9,650)$ (10,790)$ (16,820)$ (29,810)$ (42,900)$ (42,310)$ (25,256)$ (47,011)$ (30,308)$ (55,402)$

Change in Net Working Capital (118,982)$ (49,000)$ (22,000)$ 137,000$ (25,000)$ 105,776$ (31,570)$ 117,528$ (37,884)$ (69,253)$

Unlevered Free Cash Flow ($36,494.9) $14,167.0 ($27,947.0) $521,305.0 ($9,400.0) $376,671.0 $120,424.6 $382,371.6 $121,203.0 $200,256.9

Annual Assumptions (Adjust Projections As Needed) Step

-27.4% 47.1% 93.5% -53.3% -10.0% 15.0% 0.0% 20.0% 82.8% 0.0%

64.0% 58.9% 60.2% 47.4% 53.0% 53.5% 54.0% 54.5% 55.0% 0.5%

44.7% 39.8% 21.6% 46.1% 29.7% 30.2% 30.7% 31.2% 31.7% 0.5%

1.5% 0.9% 0.6% 1.7% 1.1% 1.6% 2.1% 2.6% 3.1% 0.5%

0.8% 1.3% 1.4% 1.3% 2.0% 2.0% 2.0% 2.0% 2.0% 0.0%

20.3% NM 15.4% 15.4% 15.4% 15.4% 15.4% 15.4% 15.4% 0.0%

-10.5% -5.9% -1.8% 5.8% 5.0% -2.5% 5.0% -2.5% -2.5% 0.0%

Effective Tax Rate

Change in Working Capital (% of Sales)

Projected Year

Sales Growth (%)

COGS (% of Sales)

SG&A (% of Sales)

Depreciation and Amortization (% of Sales)

Capital Expenditures (% of Sales)

15

Base CaseKEY ASSUMPTIONS EQUITY VALUE CALCULATION

SENSITIVITY ANALYSIS

WACC 10.00%

Net Present Value of FCF $1,239,997.16

Terminal Growth Rate 2.00%

Terminal Value $2,553,275.01

Present Value of TV $984,398.04

Enterprise Value $2,224,395.21

Less Debt 470,420

Less Preferred Securities 0

Less Noncontrolling Interest 0

Plus: Cash and Equivalents 976,600

Equity Value $2,730,575.21

88,370

$30.90

Diluted Shares:

Equity Value Per Share

Perpetuity Growth Method

Terminal Growth Rate

1.0% 1.5% 2.0% 2.5% 3.0%

9.0% $32.26 $33.13 $34.13 $35.27 $36.61

9.5% $30.83 $31.57 $32.40 $33.36 $34.46

10.0% $29.56 $30.19 $30.90 $31.70 $32.62

10.5% $28.44 $28.98 $29.58 $20.26 $31.03

11.0% $27.42 $27.89 $28.41 $28.99 $29.64

WA

CC

Blockbuster Percent of GTA V Sales 80.0%

Annual Increase in Recurring Revenue 5.0%

COGS, SG&A, D&A Annual Increase 0.5%

Blockbuster Year Change in Working Capital as a Percent of Sales 5.0%

Trough Year Change in Working Capital as a Percent of Sales -2.5%

Effective Tax Rate 15.4%

Ending Year FCF $200 MM

16

Bull CaseHistorical Year

2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E


Console 974,303$ 702,775$ 976,444$ 2,148,419$ 988,290$ 2,538,613$ 1,284,777$ 2,961,716$ 1,927,166$ 3,276,181$

PC & Other 110,277$ 87,537$ 216,178$ 192,747$ 109,810$ 282,068$ 142,753$ 329,080$ 214,130$ 364,020$

Handheld 52,296$ 35,510$ 21,861$ 9,402$ -$ -$ -$ -$ -$ -$

Total Sales 1,136,876$ 825,823$ 1,214,483$ 2,350,568$ 1,098,100$ 2,820,682$ 1,427,530$ 3,290,795$ 2,141,295$ 3,640,202$

Cost of goods sold 689,381$ 528,855$ 715,837$ 1,414,327$ 520,000$ 1,494,961$ 763,729$ 1,777,029$ 1,167,006$ 2,002,111$

Gross Profit 447,495$ 296,968$ 498,646$ 936,241$ 578,100$ 1,325,720$ 663,801$ 1,513,766$ 974,289$ 1,638,091$




Total Operating Expenses 355,354$ 369,111$ 482,773$ 507,626$ 506,600$ 837,742$ 431,114$ 1,010,274$ 668,084$ 1,153,944$

EBITDA 92,141$ (72,143)$ 15,873$ 428,615$ 71,500$ 487,978$ 232,687$ 503,492$ 306,205$ 484,147$

% Margin 8.1% -8.7% 1.3% 18.2% 6.5% 17.3% 16.3% 15.3% 14.3% 13.3%


EBIT 77,142$ (84,266)$ 5,239$ 415,256$ 52,900$ 456,950$ 209,847$ 434,385$ 250,532$ 371,301$

% Margin 6.8% -10.2% 0.4% 17.7% 4.8% 16.2% 14.7% 13.2% 11.7% 10.2%

Taxes 4$ 3,900$ 5,000$ 14,500$ 13,000$ 70,370$ 32,316$ 66,895$ 38,582$ 57,180$

EBIAT 77,138$ (88,166)$ 239$ 400,756$ 39,900$ 386,580$ 177,530$ 367,490$ 211,950$ 314,120$







-27.4% 47.1% 93.5% -53.3% 20.0% 30.0% 40.0% 50.0% 70.0% 0.0%

64.0% 58.9% 60.2% 47.4% 53.0% 53.5% 54.0% 54.5% 55.0% 0.5%

44.7% 39.8% 21.6% 46.1% 29.7% 30.2% 30.7% 31.2% 31.7% 0.5%

1.5% 0.9% 0.6% 1.7% 1.1% 1.6% 2.1% 2.6% 3.1% 0.5%

0.8% 1.3% 1.4% 1.3% 2.0% 2.0% 2.0% 2.0% 2.0% 0.0%

20.3% NM 15.4% 15.4% 15.4% 15.4% 15.4% 15.4% 15.4% 0.0%

-10.5% -5.9% -1.8% 5.8% 5.0% -2.5% 5.0% -2.5% -2.5% 0.0%

Effective Tax Rate


Projected Year

Sales Growth (%)

COGS (% of Sales)

SG&A (% of Sales)



17

Bull CaseKEY ASSUMPTIONS EQUITY VALUE CALCULATION


Blockbuster Percent of GTA V Sales 100.0%







18

Bear CaseHistorical Year

2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E


Console 974,303$ 702,775$ 976,444$ 2,148,419$ 988,290$ 1,375,082$ 1,062,412$ 1,480,858$ 1,195,213$ 2,184,850$

PC & Other 110,277$ 87,537$ 216,178$ 192,747$ 109,810$ 152,787$ 118,046$ 164,540$ 132,801$ 242,761$

Handheld 52,296$ 35,510$ 21,861$ 9,402$ -$ -$ -$ -$ -$ -$

Total Sales 1,136,876$ 825,823$ 1,214,483$ 2,350,568$ 1,098,100$ 1,527,869$ 1,180,458$ 1,645,398$ 1,328,015$ 2,427,611$

Cost of goods sold 689,381$ 528,855$ 715,837$ 1,414,327$ 520,000$ 809,771$ 631,545$ 888,515$ 723,768$ 1,335,186$

Gross Profit 447,495$ 296,968$ 498,646$ 936,241$ 578,100$ 718,099$ 548,913$ 756,883$ 604,247$ 1,092,425$




Total Operating Expenses 355,354$ 369,111$ 482,773$ 507,626$ 506,600$ 453,777$ 356,498$ 505,137$ 414,341$ 769,553$

EBITDA 92,141$ (72,143)$ 15,873$ 428,615$ 71,500$ 264,321$ 192,415$ 251,746$ 189,906$ 322,872$

% Margin 8.1% -8.7% 1.3% 18.2% 6.5% 17.3% 16.3% 15.3% 14.3% 13.3%


EBIT 77,142$ (84,266)$ 5,239$ 415,256$ 52,900$ 247,515$ 173,527$ 217,192$ 155,378$ 247,616$

% Margin 6.8% -10.2% 0.4% 17.7% 4.8% 16.2% 14.7% 13.2% 11.7% 10.2%

Taxes 4$ 3,900$ 5,000$ 14,500$ 13,000$ 38,117$ 26,723$ 33,448$ 23,928$ 38,133$

EBIAT 77,138$ (88,166)$ 239$ 400,756$ 39,900$ 209,398$ 146,804$ 183,745$ 131,450$ 209,483$







-27.4% 47.1% 93.5% -53.3% -35.0% 7.5% -30.0% 12.5% 82.8% 0.0%

64.0% 58.9% 60.2% 47.4% 53.0% 53.5% 54.0% 54.5% 55.0% 0.5%

44.7% 39.8% 21.6% 46.1% 29.7% 30.2% 30.7% 31.2% 31.7% 0.5%

1.5% 0.9% 0.6% 1.7% 1.1% 1.6% 2.1% 2.6% 3.1% 0.5%

0.8% 1.3% 1.4% 1.3% 2.0% 2.0% 2.0% 2.0% 2.0% 0.0%

20.3% NM 15.4% 15.4% 15.4% 15.4% 15.4% 15.4% 15.4% 0.0%

-10.5% -5.9% -1.8% 5.8% 5.0% -2.5% 5.0% -2.5% -2.5% 0.0%

Effective Tax Rate


Projected Year

Sales Growth (%)

COGS (% of Sales)

SG&A (% of Sales)



19

Bear CaseKEY ASSUMPTIONS EQUITY VALUE CALCULATION


Terminal Growth Rate

1.0% 1.5% 2.0% 2.5% 3.0%

9.0% $28.69 $29.45 $30.33 $31.33 $32.50

9.5% $27.45 $28.10 $28.83 $29.66 $30.63

10.0% $26.36 $26.91 $27.53 $28.23 $29.03

10.5% $25.38 $25.85 $26.38 $26.98 $27.65

11.0% $24.51 $24.92 $25.37 $25.88 $26.45

WA

CC

WACC 10.00%

Net Present Value of FCF $1,063,630.59

Terminal Growth Rate 2.00%

Terminal Value $2,237,584.75

Present Value of TV $862,685.79

Enterprise Value $1,926,316.38

Less Debt 470,420

Less Preferred Securities 0

Less Noncontrolling Interest 0

Plus: Cash and Equivalents 976,600

Equity Value $2,432,496.38

88,370

$27.53

Diluted Shares:

Equity Value Per Share

Perpetuity Growth MethodBlockbuster Percent of GTA V Sales 60.0%







20

EvolveOVERVIEW RECEPTION

DLC CONCERNS

Has drawn criticism for more than $60 of DLC not covered with purchase

Continual release of new hunters and monsters

4 new hunters released March 31, 2015

Evolve not a huge expense and so it’s disappointing launch not integral to Take-Two’s success.

Developed by Turtle Rock Studios and originally owned by THQ

Take-Two bought rights for $10.8 million during THQ’s bankruptcy

Players can either join a group of four “hunters” or be the monster and kill alone

Released February 10, 2015 and debuted #1 in UK software-sales chart, becoming the first 2K games since 2013

Take Two “satisfied” with an “incredible launch”

Estimated 1.5 million copies sold by the end of the yearBest of Show

E3 2014

Best of ShowGamesCon

“A must-own for next gen gamers”

NY Daily News

21

Violence ConcernsOVERVIEW TAKE TWO’S RESPONSE

MANHUNT CONTROVERSY

Intense realistic violence in a stealth horror video game

Game allegedly linked to the murder of 14-year-old Stefan Pakeerah by 17-year-old friend in Leicestershire, England

Police deny any connection between Manhunt and the game

Banned in Russia and New Zealand

Still released Manhunt 2 to mixed to positive reviews

Belief that violent video games like Grand Theft Auto and Red Dead Redemption will increase violence among children

No evidence as of yet that the two are correlated

Women right’s activists outcry over ability to hire and kill prostitute in GTA V

Target Australia pulled GTA V after three survivors of sexual violence started a petition

GTA V still went on to sell over $1 billion in its opening weekend

On the same level of disturbance as the evening news or Hollywood movies

Supreme Court ruled 7-2 to overturn a California law that would ban the sale of violent video games to children under grounds of free speech

“This is a criminal setting; it’s a gritty underworld;and it’s beautiful art” – Strauss Zelnick

22

Virtual RealityOVERVIEW TAKE TWO’S STRATEGY

Facebook bought Oculus VR for $2 billion

Oculus developing Developer Kit so help gaming companies create VR content

Sony developing Project Morpheus VR expected to release in 2016

Samsung developed Samsung Gear VR in collaboration with Oculus

Still no games developed for VR

Concerns over nausea

“If that’s what consumers want, we’ll be first in line to give it to them’” – Strauss Zelnick

23

Twitch InteractiveOVERVIEW KEY GROWTH

IMPORTANCE

Shows Take Two’s integral understanding of the industry

Clear sign that Take Two can strategically its cash stockpile

Confirms the video game industry’s growth and solid user base

Originally launched in 2007 by Justin Kan and Emmet Shear

A live streaming video platform focusing on video gaming

Attracts 35 million unique visitors a month

Primetime Twitch is bigger CNN, MSNBC, and MTV

Includes playthroughs of video games and broadcasts of e-sports

Bought for $970 million by Amazon on August 25, 2014

Take Two received $22 million in cash - > $.27/share

0%

5%

10%

15%

20%

25%

30%

35%

Netflix Google Apple Twitch Hulu Facebook Valve Amazon Pandora

Percent of Peak Internet Traffic

24

SourcesGRAPHS INFORMATION

NPD Group

Mintel Video Game Industry Research

Credit Suisse Equity Research, Report February 2015

Wedbush Equity Research, Report February 2015

ValuEngine Forecast and Research Report

Macquarie Research USA, Report March 2015

BMO Capital Markets, Digital Entertainment and Internet eCommerceReport February 2015

Take-Two Investor Relations

S&P Capital IQ Stock Report March 2015

Bloomberg, Financial Analysis TTWO

Thompson One, Financial Statements TTWO

Cowen and Company Equity Research

Piper Jaffray Research and Hot Comment

Hilliard Lions, Company Update/Estimate Change February 2015

Brean Capital, LLC Target Price Change TTWO March 2015

Jefferies TTWO Company Note and Estimate Change, March 2015

Buysellsignals Equity Research Report TTWO February 2015

MKM Partners Research and Company Update

Take-Two Investor Relations

NY Times 2014: “N.B.A. Looks to Asia for Next Growth Spurt”

BBC 2015: “NBA boss Adam Silver hopes for global basketball bounce”

take-two interactive software

Documents