Media

Jefferies Sees Massive Upside in 3 Entertainment Stocks

Take-Two

Jefferies maintained both its Hold rating and its $185 price target on Take-Two Interactive Software Inc. (NASDAQ: TTWO). The analysts note that Take-Two is working on more than 90 projects, of which about half are sequels or new versions of popular games. They also think that the half of those projects that are new “further shows the long-term health” of the company. The risk is that COVID-19 has had a ” bigger impact on production, leading to smaller near-term catalog as well as providing outsized benefit to FY21 results, thus putting FY22 in a rare down year.” A better entry point for buying the stock may become available.

Based on the number of projects the company has in the works, the analysts think Take-Two has the “biggest opportunity to grow earnings over the next five years.” Jefferies even sees per-share earnings rising to $9 by 2024 and calls that level the “new normal.”

Take-Two’s shares traded Friday at around $175.50, implying potential upside of 5.4% to the $185 Jefferies price target. The consensus price target on the stock is $219.88.

At last look, the stock was down about 1.9% for the day to $175.00, in a 52-week range of $118.01 to $214.91. Take-Two does not pay a dividend.

Zynga

The last remaining exclusively mobile game developer, Zynga Inc. (NASDAQ: ZNGA), scored a Buy rating and a $13 price target as Jefferies resumed coverage on the stock. The company is the last pure-play mobile game developer, and Jefferies’ analysts believe that Zynga is “best-positioned to win” in a world that no longer includes the Identifier for Advertisers (IDFA) (at least by default on iPhones) that companies like Zynga used to track users. The lack of IDFA tracking means that spending on advertising likely will go up and demand more investment in advertising analytics and ad networks.

Those are near-term concerns, however, and Jefferies “advise[s] investors to be buyers in the event of any weakness, as the stock is trading only slightly higher vs. the 2020 peak of $10.41.” Zynga is “well positioned to leverage its scale in traditional mobile to achieve both faster-than industry growth, and margin expansion as more franchises become forever. Moreover, we like the optionality that Zynga is building social to mid-core titles for PC/Console/ browser.”

With Zynga stock trading up slightly Friday morning at around $10.70, the upside potential to Jefferies’ target of $13 was around $21.5%. The consensus price target on the stock is $13.12. The stock’s 52-week trading range is $7.18 to $12.32. Zynga does not pay a dividend.

Skillz

Jefferies initiated coverage on e-sports platform developer Skillz Inc. (NYSE: SKLZ) with a Hold rating and a price target of $17. That’s lower than the IPO price of $17.89 on December 20, when the company completed a reverse merger with a special-acquisition company (SPAC).

The company’s rather so-so performance reflects both upside and downside risks. According to Jefferies, investors should look for these positives:

1) new revenue streams from sponsorships of price pools; 2) new game mechanics/competitive modes; 3) name-brand games coming to the platform; 4) ease of mobile OS rules and regulations for a better customer on-boarding experience.

On the downside are the costs of building out the teams that could put pressure on margins, slower-than-expected growth and more regulation of competitive mobile gaming.