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Take-Two Interactive Software March earnings missed on earnings and guidance targets sending the video game publisher and distributor shares lower iniitally. However the changed guidance was from the new Gand Theft Auto Online release moving out and $TTWO rallied.

Grand Theft Auto

Earnings

$TTWO earned an adjusted 70 cents a share, up 3% year over year, under the consensus 64 cents. Net bookings were $411 million, up 1% year over year at lower end of guidance of $410 million to $460 million and under analysts expectations of $450 million.For the year GAAP net revenue rose to $1.793 billion and its GAAP net income more than doubled to $1.54 per diluted share. The OI Margin and EPS beat and F4Q was much better than the whisper going into the release. The result was seen as a 'delay of earnings' when the dust settled.

TAKE-TWO INTERACTIVE SOFTWARE, INC NASDAQ: $TTWO

Market Reaction > 115.75 USD +2.68 (+2.37%) May 17, 11:41 AM EDT

Highlights

A gaming stock's guidance is affected by the games they produce and when. As mentioned earlier the intial reaction from news algorithms and day traders didnt account for this. The “weak guidance” was due to the money tree, “Grand Theft Auto Online” being launched later. #TTWO's guidance for net bookings in a range of $215 million to $265 million was over $100 million under expectations, because of the GTA Online release date in a later quarter.

  • Net cash provided by operating activities rose 19% to $393.9 million
  • Net bookings grew 5% to $1.991 billion for the year
  • Net revenue was down over 21% to $450.3 million, from the $571.6 million in last year’s fiscal fourth quarter.
  • Digitally delivered net revenue rose by 8% to $301.4 million from the $278.7 million in the year-ago quarter.
  • Take-Two’s net income was $90.9 million (or $0.77 per share), compared with $99.3 million (or $0.89 per diluted share) last year. 
  • The trend for NBA 2K was dissappointing, NBA 2K fell Q/Q with the NBA 2K below plan and down Y/Y.
  • Higher FY19 Bookings and OCF guide 
  • Net Bookings from Add-on Content grew 40% Y/Y vs. 20% in F3Q.
  • GTA 5 sold 15mn units for the second year in a row, up from 13mn in FY16.
  • NBA 2K Online 2 is in beta in China with Tencent and NBA 2K on consoles is expected to grow Units and RCS in FY19.
  • I RCS slowed to up 15% Y/Y from up 44% Y/Y in F3Q as GTA Online and NBA 2K fell Q/Q
  • Social Point is trailing overall mobile growth

Outlook

With the delay in earnings with GTA FY20  should now benefit from 2 or 3 new non-Rockstar titles, re-orders (or PC version) of Red Dead 2, and growth in high-margin RCS.

Barclays in a note said "Overall, we continue to see upside from Red Dead 2 in FY19 and the two year EPS stack looks good with close to $5.00/yr and OI margins likely flat-to-up. We also still expect further multiple expansion as the Digital biz scales and margins improve. Our PT moves to $126 and we reiterate our OW rating."

  • TTWO guided Rockstar to ~$1.5bn in FY19, which Barclays and others consider conservative on Red Dead 2 units and leaves upside risk if the title outperforms.
  • TTWO guided FY19 OI Margin down ~300bp Y/Y to 22% vs. up ~800bp Y/Y in FY18 due to higher costs for upcoming titles. 

Wedbush in a note said "Despite its lowered guidance, we think that Take-Two has a clear path for earnings growth ahead. The delay of the unannounced 2K title bolsters our confidence that the company can grow earnings again in FY:20, as catalog sales of Red Dead Redemption 2, the launch of Borderlands 3, and growth from the core portfolio (including contribution from at least one Private Division title) should allow Take-Two to grow its top line by 5% or more and its EPS by 10% or more. Going forward, we expect a new BioShock title, new games from Rockstar, new titles from Private division, and continued growth of recurring revenue. We expect Rockstar to launch titles annually beginning in 2020 after a 5 year hiatus.

What is impressive with $TTWO is both Grand Theft Auto V and Grand Theft Auto Online remain among the company biggest contributors nearly four years after they were first launched for Playstation 3 and Xbox 360. NBA 2K18, WWE 2K18, WWE SuperCard and Mafia III all were top contributors. Red Dead Redemption 2 is an exciting addition for fiscal year 2018.

TTWO does great at keeping the customer happy, Net sales from recurrent consumer spending continue to make well over 50% of sales. 

 Take-Two Interactive fourth quarter 2018 earnings

 

Grand Theft Auto V includes access to Grand Theft Auto Online, which initially launched in 2013. Rockstar Games is also known for developing brands in other genres, including the LA Noire, Bully and Manhunt franchises. Rockstar Games continues to expand on the company’s established franchises by developing sequels, offering downloadable add-on episodes, content and virtual currency, and releasing titles for smartphones and tablets.

Software titles published by the company’s Rockstar Games label are primarily internally developed. It expects Rockstar Games, its wholly-owned publisher of the Grand Theft Auto, Max Payne, Midnight Club, Red Dead, and other franchises, to continue to operate in the action/adventure product category and create groundbreaking entertainment by utilizing its existing titles, as well as developing new brands.

TTWO’s 2K label has published various entertainment properties across all key platforms and across a range of genres, including shooter, action, role-playing, strategy, sports and family/casual entertainment.

2K's internally owned and developed franchises include the critically acclaimed, multi-million unit selling BioShock, Mafia, Sid Meier's Civilization and XCOM Enemy Unknown series. 2K also publishes highly externally developed franchises, such as Borderlands and Evolve. 2K's realistic sports simulation titles, including the company’s primary NBA 2K series.

Guidance

Take-Two guided to adjusted sales for the current quarter of $240 million, vs. the consensus view of $367 million for the quarter ending June 30.

Source: TTWO, Alphastreet, Wedbush, Barclays

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