Take-Two Interactive revises outlook to stable, plans to lower debt with equity issuance

Published 05/06/2025, 20:24
© Reuters.

Investing.com -- Take-Two Interactive (NASDAQ:TTWO) Software (ETR:SOWGn) Inc., a New York-based video game company, has had its outlook revised to stable from negative by S&P Global Ratings. This decision comes after the company issued $1.19 billion in equity, which it plans to use for paying off upcoming debt and for general corporate purposes.

The equity issuance is expected to accelerate the reduction of the company’s leverage, demonstrating its commitment to reducing debt. Since Take-Two’s acquisition of Zynga (NASDAQ:ZNGA) in 2022, its leverage has been above the downgrade threshold of S&P Global Ratings, at approximately 2.5x. However, the company’s recent actions are expected to bring the leverage down to below 2x by the end of fiscal 2026.

As of March 31, 2025, Take-Two had a debt of $3.7 billion. The equity issuance will cover the $1.15 billion of debt maturing in the following 12 months. Post the equity issuance, the leverage is calculated to be 2.5x, and is forecasted to decline to 1.9x by the end of fiscal 2026. This decline also reflects modest EBITDA growth. A further decrease below 1x is expected early in fiscal 2027, after the release of the much-anticipated Grand Theft Auto VI (GTA 6) game.

The company announced the release of GTA 6 on May 26, 2026. The announcement is expected to support growth and leverage reduction. The second trailer for GTA 6 received 475 million views in the first 24 hours, setting a record for the most viewed clip across platforms in that period. This strong anticipation suggests robust sales and significant growth in fiscal 2027.

GTA games are estimated to contribute about 10%-15% of revenues, with the online version of GTA 5, released in 2013, still being played by many. GTA 6 is expected to represent 25%-30% of revenue and fuel most of the 25%-30% revenue growth in fiscal 2027. Revenue is forecasted to increase to $7.2 billion, S&P Global Ratings-adjusted EBITDA is expected to rise to close to $1.5 billion, and free operating cash flow (FOCF) is expected to be over $1 billion. This is expected to further reduce leverage below 1x, well below the 2x threshold for the ’BBB’ rating.

The stable outlook reflects the expectation that S&P Global Ratings-adjusted leverage will decline below 2x in fiscal 2026 and further below 1x early in fiscal 2027 after the release of GTA 6.

S&P Global Ratings could lower the ratings on Take-Two if leverage remains above 2x on a sustained basis, likely due to another large debt-financed acquisition or the company adopting a more aggressive financial policy, or if sales of core franchises reduce organic revenue and earnings growth. On the other hand, the rating could be raised if the company reduces earnings volatility, generates sustained revenue growth, improves S&P Global Ratings-adjusted EBITDA margins to approach 25%, and maintains adjusted leverage at or below 1.5x.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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