Roblox vs. Take-Two Interactive Software: Which Video Game Stock is a Better Buy?

Roblox Corporation (RBLX) and Take-Two Interactive Software, Inc. (TTWO) are two established players in the video gaming industry. San Mateo, Calif.-based RBLX develops and operates an online entertainment platform that offers applications and solutions, allowing developers and creators worldwide to build, publish, and operate 3D experiences and other content. TTWO in New York City develops, publishes, and distributes interactive entertainment software games and consoles worldwide. It provides its products through physical retail, digital download, online platforms, and cloud streaming services.

Consumers’ limited outdoor entertainment options during the pandemic enabled the video gaming industry to expand its monthly active user base and generate substantial returns over the past year. The launch of Microsoft Corporation’s (MSFT) Xbox Series X/S and Sony Corporation’s (SONY) PlayStation 5 last year, and Netflix, Inc.'s recent announcement of its expansion plans into video games, were major breakthroughs in the industry. These moves have incentivized other companies to develop captivating video games and improved consoles to maintain their customer bases as people return to seeking entertainment outdoors. 

The global video games market is expected to grow at 9.3% CAGR to reach $293.20 billion by 2027. So, RBLX and TTWO should both benefit from this highly competitive and  growing industry.

In terms of their past three months’ performance, RBLX is a winner with 2.3% gains versus TTWO’s negative returns. But, which of these stocks is a better pick now? Let’s find out.

Click here to check out our Video Game Industry Report for 2021

Latest Movements

On July 6, 2021, RBLX partnered with Sony Corporation’s (SONY) Sony Music Entertainment to develop innovative music experiences for the RBLX community that enables Sony Music recording artists to reach new audiences and generate new revenue streams around virtual entertainment. With this agreement, both companies are looking forward to further unlocking commercial opportunities at the intersection of music and gaming.

On June 17, RBLX and BMG, the world’s fourth-biggest music company, announced a strategic agreement to offer BMG artists and songwriter clients new opportunities in the RBLX metaverse. RBLX’s platform will enable artists, labels, and publishers to reach fans and drive new revenue streams through virtual launch parties and concerts, integrated in-experience music, and virtual merchandise.

On July 1, TTWO acquired privately held Dynamixyz, a French-based company that develops high-quality 3D facial analysis/synthesis for computer games and animation studios. Dynamixyz will operate as one of TTWO’s divisions and work exclusively with its publishing labels and studios. The acquisition is TTWO’s latest strategic initiative to invest further in its internal development capabilities and continue its goal to be the most creative, innovative, and efficient entertainment company.

TTWO acquired Nordeus, a Serbian mobile game developer, for up to $378 million on June 2. Over the last decade, Nordeus’ Top Eleven has grown its audience, revenue, and profitability by introducing live-ops and ongoing gameplay innovations that continue to drive consumer engagement. This acquisition further strengthens TTWO’s mobile game business and broadens its sports portfolio with its first-ever soccer offerings.

Recent Financial Results

RBLX’s revenue for its fiscal first quarter, ended March 31, 2021, increased 139.5% year-over-year to $386.98 million. However, its loss from operations came in at $135.06 million, which represented an 85.1% rise year-over-year. Its net loss has increased 80.5% year-over-year to $134.22 million. And its loss per share increased 4.5% from the prior-year period to $0.46. As of March 31, 2021, the company had $1.60 billion in cash and cash equivalents.

For its fiscal fourth quarter, ended March 31, 2021, TTWO’s net revenue increased 10.4% year-over-year to $839.43 million. The company’s gross profit came in at $559.78 million, up 53.4% from the prior-year period. TTWO’s income from operations has been reported at $255.82 million, representing a 109.9% year-over-year rise. While its net income increased 78.3% year-over-year to $218.81 million, its EPS increased 75.7% year-over-year to $1.88. The company had $1.42 billion in cash and cash equivalents as of March 31, 2021.

Past and Expected Financial Performance

RBLX’s revenue and EBITDA have grown 105.8% and 165.9%, respectively, over the past year. In addition, the company’s EPS has increased 84% over the past year.

Analysts expect RBLX’s revenue to increase 43.2% year-over-year in the current year and 20.4% next year. Its EPS is expected to decline 7% next year. The stock’s EPS is expected to grow at a 1.1% rate per annum over the next five years.

In comparison, TTWO’s revenue and EBITDA have increased 9.2% and 53.7%, respectively, over the past year. The company’s EPS grew 43.8% over the past year.

Analysts expect TTWO’s revenue to decline 3.7% in the current year and 20.6% next year. However, its EPS is expected to increase 45.2% next year. Analysts expect the stock’s EPS to grow at a 13.7% rate  per annum over the next five years.

Profitability

TTWO’s trailing-12-month revenue is 3.2 times  RBLX’s. TTWO is also more profitable, with a 19.9% EBIT margin versus RBLX’s negative value.

Also, TTWO’s ROE and ROTC values of 20.1% and 13.4%, respectively, compare favorably with RBLX’s negative values.

Valuation

In terms of non-GAAP forward P/E, RBLX is currently trading at 86.42x, which is 138.3% higher than TTWO’s 36.26x. RBLX’s 15.90x forward EV/Sales is 236.9% higher than TTWO’s 4.72x.

Also, in terms of forward EV/EBITDA, RBLX’s 67.97x is 193.9% higher than TTWO’s 23.13x.

POWR Ratings

While RBLX has an overall D grade, which translates to Sell in our proprietary POWR Ratings system, TTWO has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

Both RBLX and TTWO have a C grade for Momentum, which is in sync with their mixed price performance. RBLX has declined  6.1% over the past month. TTWO has declined  marginally over the past month.

However, in terms of Sentiment, TTWO has been graded an A because analysts expect the company’s EPS to grow 45.2% next year. In comparison, RBLX’s D grade for Sentiment reflects analysts’ expectation that its EPS will decline 7% next year.

Of the 24 stocks in the Entertainment - Toys & Video Games industry, RBLX is ranked #22, while TTWO is ranked #4.

Beyond what we’ve stated above, our POWR Ratings system has also rated TTWO and RBLX for Growth, Quality, Stability, and Value. Get all RBLX ratings here. Also, click here to see the additional POWR Ratings for TTWO.

The Winner

The growing interest in video games among adults and children, combined with consistent game and console developments, should fuel the industry’s growth. As a result, RBLX and TTWO are both well-positioned to benefit in the coming months. However, we believe market dominance, better financials, higher profitability, and lower valuation make TTWO a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Entertainment - Toys & Video Games industry. 

Click here to check out our Video Game Industry Report for 2021

RBLX shares were trading at $76.66 per share on Monday morning, down $0.90 (-1.16%). Year-to-date, RBLX has gained 10.30%, versus a 14.12% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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