Hunter Hayes of Intrepid Capital Management presented his in-depth investment thesis on Take-Two Interactive Software (US: TTWO) at Wide-Moat Investing Summit 2020.

Thesis summary:

Take-Two Interactive is a popular video game publisher with a wide moat, substantial growth opportunities, and excellent management. The company owns or licenses the intellectual property behind some of the best-selling entertainment series of all time, including Grand Theft Auto, Red Dead Redemption, and NBA 2K.

During the COVID pandemic, engagement across the company’s franchises has shattered previous records. TTWO is one of the “Big Three” video game publishers in the US, with the lowest operating margins (despite competitive gross margins) as the company has not yet scaled to the same extent as Electronic Arts (US: EA) and Activision Blizzard (US: ATVI).

The equity recently traded at ~$138 per share, which Hunter views as an attractive discount for a company with premium intellectual property, ROIC in excess of 20%, and the potential to generate annual FCF of $10 per share in the next few years.

Management owns a substantial amount of stock and the company’s developers receive stock-based compensation, creating an aligned, shareholder-friendly incentive structure across the organization.

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About the instructor:

Hunter Hayes is a Portfolio Manager at Intrepid Capital Management. Prior to joining Intrepid Capital, he was an Associate on the High Yield team at Eaton Vance and a Consultant at Deloitte Advisory. Mr. Hayes graduated from Auburn University with a BS BA degree in Finance and a BM degree in Piano Performance. Besides his passion for value investing, Hunter is also an avid runner and recently finished his first Boston Marathon.

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