Take-Two Interactive (TTWO, Financial) is one of the largest and most successful video game publishers in the U.S. Each year, people spend more of their leisure time playing video games, and with the increasing shifts to digital platforms, online multiplayer modes and in-game purchases, the video game publishing business has improved dramatically. These favorable trends, combined with strong execution under CEO Strauss Zelnick, have allowed the company to grow EPS by over 20% per year for the past decade. Recently, Take-Two embarked on an ambitious growth plan that has doubled the number of new games under development. Considering its successful track record of producing blockbuster games, we believe these investments are likely to pay off. But, in the near-term, these investments have the effect of reducing reported earnings. Adjusting for its promising investments and the cash on its balance sheet, we were able to purchase Take-Two at less than 14x our estimate of normalized earnings. Many other leading media companies trade at premiums to this multiple. We view this discount as an attractive opportunity to invest in an advantaged company, led by a management team that operates with an owner’s mindset.
From Bill Nygren (Trades, Portfolio)'s Oakmark Fund fourth-quarter 2021 commentary.
