Video game producer and designer Take Two Interactive (TTWO-NASDAQ), is reviewing how it does business in the current volatile market. You are a junior analyst for the company, tasked with contributing a portion of the competitive analysis. You have been asked to draft a comparative financial analysis that creates a basic benchmark your companys performance. This task is an opportunity for you to showcase your competency in research, analysis, writing, and public speaking.You need to determine TTWOs position in the market by conducting a basic comparative analysis of TTWO versus a competing company within the industry. You must submit a memo to the company CEO and make an oral presentation You need to compare five key indices of financial strength:To begin, you will need to research TTWOs financial statements. You can find this information on the company website, company 10K Report or on a number of Cook library databases, e.g. Standard &PoorsNetAdvantage, LexisNexis Academic (Business > Company Dossier) or Yahoo Finance.Next, you will need to research one of TTWOs competitors across the same five indices and compare its performance with the competitor.You will need to draft a report memorandum that succinctly compares the financial strength of both companies.
This will require you to use some of the basic principles of business writing:CriteriaWhen you present your information, I will be evaluating your ability to write clearly and succinctly. In other words, get to the point. What is the most important information? I should be able to scan your document and pick out key information quickly and efficiently. If I cannot skim the document in under two minutes, then you did not do your job. Additionally, this document must contain clean and well-proofread content (error-free prose). Careless and errant errors in your LOCs (grammar, spelling, punctuation, and word choice) will result in a deduction in your grade.This memo is intended to compare the financial performance of Take Two Interactive to that of Activision Blizzard. Both companies are sizeable presences in the U.S. software industry, and as such serve as valid comparisons.(Google Finance, 2016)(NASDAQ, 2016)TakeTwos PE ratio is 673.33 as of August 29, 2016 (Google Finance, 2016). The main reason for this astronomical ratio is the companys particularly low earnings per share, at a mere 0.07 (Google Finance, 2016). Meanwhile ATVIs P/E is a more nominal 43.85, which is fairly average for the industry (Damodaran, 2016). Given the PE ratio in light of the miniscule EPS, it is clear that ATVI represents better value per dollar.(NASDAQ, 2016)TTWOs significant losses are points of concern; according to sources, the company blamed 2015 losses on deferred revenues and costs of goods sold (Caplinger, 2015). While this sounds reasonable, it is not clear that the company is doing anything to improve the situation, apart from having sustained significantly less losses so far this year, which could be problematic with the shift from physical to digital software distribution. ATVI meanwhile lost a little year over year, but benefitted from its recent acquisition of King Digital Entertainment, the owners of the famous Candy Crush series, also effectively positioning ATVI for future growth on mobile platforms (Zacks, 2016).TTWOs EPS as of August 29, 2016 was as mentioned a mere 0.07, with the best explanation apparently being that the company depends on particularly powerful series to carry its revenues, and in periods without releasing new entries into these series, the companys earnings suffer (Caplinger, 2016). While the company does own some big name series in videogames, it is not clear what the company is doing to improve earnings apart from cashing in on these. ATVIs EPS was a solid 1 (Google Finance, 2016), which is more in line with the average of other companies in the same industry.Despite the worrisome performance by TTWO, the stock price has paradoxically managed to continue to rise at a steady pace, possibly in part because its release of major franchises constitutes a predictable pattern of earnings for instance, TTWO has rights to at least two major sports franchises (NBA and WWE), with new versions of the game being put out every year (and so serving as a comparison for growth).However looking forward, ATVI has a lot more growth potential for emerging platforms like virtual reality and mobile gaming. ATVI also owns some major franchises, making it a more attractive option from an operational standpoint, though investors should be prepared for greater volatility that will follow ATVIs establishing its position in emerging trends for the industry.TTWO does not appear to be doing much beyond riding existing franchises, and with more recent performance data, it is questionable whether the company will be able to maintain such a consistent stock price if it does not diversify its operations somehow. Even so, analysts have projected better numbers (particularly EPS) for the next two years, however there does not appear to be any immediately apparent evidence supporting such expectations. The latest conference call with the CEO suggested that the company is seeing increasing profitability from its participation in microtransactions, in which consumers can purchase additional features within the game using actual currency. But it is not clear that this in itself will carry the companys profitability, especially if it does not make any attempts to reduce its dependence on physical inventory and thus deferred payments.At the current point in time, while TTWO has historically remained stable, the stock seems more like a gamble than a safe bet, and for the relatively similar risk, ATVI appears to have a much greater potential to increase profits, especially if it reaches into the mobile and virtual reality gaming platforms with the franchises it does have rights to.