Take-Two Is Likely Building The Only Real Metaverse Despite Meta’s Efforts (NASDAQ:TTWO)

The term “metaverse” has exploded in popularity ever since Meta’s (META) dramatic shift towards virtual reality and all things metaverse-related. Despite Meta’s vast resources, I have long maintained that Take-Two Interactive (NASDAQ:TTWO) is the only company that is building a truly compelling metaverse with its upcoming GTA 6 title.

While the unprecedented GTA 6 leaks will likely delay and negatively impact the overall development of the game, this leak will likely have minimal impact on the company in the long term. The truth is, Take-Two, or Rockstar more specifically, simply has no competition when it comes to the triple A open-world gaming genre. Although Take-Two CEO Straus Zelnick stated that he is allergic to buzzwords like metaverse, there is no company closer to achieving it than Take-Two.

Take-Two is poised to dominate the metaverse conversion, especially with the success of the GTA RP mod and the upcoming GTA 6 title.

Seizing on the Metaverse Trend

Technology is rapidly advancing to a point where virtual environments are becoming just as, if not more, compelling than the real world. In fact, many would argue that we are already at this point with the growing popularity of VR and games like Cyberpunk 2077. Even with CD Projekt’s (OTCPK:OTGLY) incredibly botched launch of Cyberpunk 2077, the game still enjoys massive popularity. This just showcases the growing appetite for increasingly photo-realistic open-world gaming.

As much hype as Cyberpunk 2077 has received, it will likely pale in comparison to the hype that GTA 6 will receive. In fact, there has been a growing trend to ask about GTA 6’s release date even in the most unexpected situations. The GTA franchise has firmly implanted itself in the gaming zeitgeist of the 2010’s, and appears to be increasingly penetrating the cultural zeitgeist in the 2020’s. This is especially impressive given that GTA 5 is approximately a decade-old now.

The massive and growing popularity of GTA puts Take-Two at the helm of the growing metaverse movement. In fact, GTA 5 has sold a whopping ~170 million units as of August 2022, with sales only slightly slowing down in recent quarters. With GTA 6 likely set to be released sometime in 2024 or 2025, Take-Two is in a prime position to capitalize on the metaverse trend. Trends like RP(role play), which thrive on and are dominated by platforms like GTA and RDR(both Take-Two properties), already signal the demand for metaverse-like experiences.

Meta’s Uncompelling Metaverse Vision

It is not surprising that Meta is receiving the bulk of the attention when it comes to discussions surrounding the metaverse. Unfortunately for Meta, its vision is simply not compelling despite its billions of dollars and vast social network. Meta CEO Mark Zuckerberg’s vision of virtual reality office meeting and shopping experiences seem incredibly mundane and misses the point of a metaverse entirely.

The primary pull of a metaverse is its ability to immerse users in an alternate life filled with its own unique adventures. The attractiveness of a metaverse comes from its ability to distract users from their everyday lives, not remind them of it constantly like Meta plans to do with their virtual office meetings and shopping experiences.

Whereas Take-Two offers compelling escapes from reality in franchises like Grand Theft Auto and Red Dead Redemption, Meta’s metaverse appears to be constantly reminding its users how virtual its metaverse actually is. In fact, after $10 billion dollars spent on the Metaverse, the company decided to showcase a widely ridiculed virtual reality selfie of a virtual Mark Zuckerberg at a virtual Eiffel Tower. The graphics of this metaverse demonstration appear so outdated that it has even been called “a worse version of Second Life.”

A truly compelling metaverse will likely only appear in the form of a triple A video game, where the virtual environment boasts industry-leading graphics and in which the environment is incredibly entertaining to be immersed in. So far, no company even comes close to Take-Two when it comes to creating such games.

Risks

Despite Take-Two’s increasingly large and dedicated customer base, the company is still a relatively risky play given how much of its revenue is dependent upon a few flagship franchises, most notably Grand Theft Auto and Red Dead Redemption to a lesser extent. Although the company is diversifying its lineup, there is no doubt that Grand Theft Auto 6 will make or break the company in the coming years.

Take-Two reported a Q1 net revenue of $1.1 billion, much of which still came from Grand Theft Auto in the form of recurring sales revenue. If GTA 6 underwhelms, it is not an exaggeration to say that Take-Two’s valuation could crash given that much of the hype surrounding GTA 6 has already been priced into the company’s $20 billion valuation.

The full extent of the damage done by the recent leaks has also not been entirely revealed, which adds an additional layer of risk to Take-Two. However, the leaks do show that GTA 6 will be a massive improvement over GTA 5 as there have already been noticeable improvements in the leaked pre-alpha gameplay footage.

Conclusion

Despite the risks associated with Take-Two, the company is poised to capitalize on a technology trend that is poised to dominate the gaming industry for years to come. The metaverse is increasingly becoming less of a fantasy and more of a reality as video game graphics and AI continue to improve at a breakneck pace. Fortunately for Take-Two, there is no other company that is in its league when it comes to building out compelling triple A open world universes.

Although Take-Two may appear expensive at its current valuation of $20 billion and PE Ratio (TTM) of 83, a successful GTA 6 release will make its current market capitalization look cheap. In fact, GTA 5 still generates nearly $1 billion a year. According to research analyst Doug Creutz, GTA 5 has generated more money than any other media title, and that was back in 2018. GTA 6 will almost certainly generate tens of billions of dollar over its lifetime given that there is far more hype for GTA 6 than there ever was for GAT 5. This fact alone more than justifies Take-Two’s valuation, especially when factoring in Take-Two’s growing list of impressive titles outside of GTA.