Video game publisher Take-Two Interactive Software reported announced first-quarter 2023 results Monday after the closing bell, reporting a 36% revenue growth. TTWO missed by $1.61, missed on revenues. The gaming giant guided Q2 EPS and revenues below consensus; guided FY23 EPS and revenue below consensus. The Zynga acquisition impacted earnings and guidance, with nearly $117 million in business acquisition costs driving the bottom line into the red.
TAKE-TWO INTERACTIVE SOFTWARE, INC – NASDAQ: TTWO
Earnings
Take Two First-quarter revenues rose 36% annually to $1.1 billion from $813.3 million in the corresponding period of 2022 and came in slightly above analysts’ estimates. Net bookings moved up 41% annually to around $1 billion. However, TTWO incurred a loss of $104.0 million or $0.76 per share for the June quarter, compared to a profit of $152.3 million or $1.30 per share in the prior-year quarter.
Take-Two has been impacted by waning gaming demand, particularly in mobile. Even with recurring kingpins Grand Theft Auto and NBA 2K franchises TTWO guided net bookings well below consensus for Q2 (Sep) and FY23 (Mar).
Highlights
- Revenue: $1.1 billion (up 36% year-over-year)
- Bookings: $1 billion (up 41% year-over-year)
- Net loss: $104 million (compared to net profit of $152 million in the year-ago quarter)
- EPS misses by $1.61, misses on revs;
- Guides Q2 EPS below consensus, revs below consensus.
- Guides FY23 EPS below consensus, revs below consensus
TTWO are in synch with industry peers over the past month.
- NVIDIA (NVDA) slashed its JulQ forecast considerably due to weakness in gaming.
- Microsoft (MSFT) issued a bearish SepQ forecast for its gaming business, predicting revs to fall in the low-to-mid single-digits.
- Sony (SONY) stated that weakness in gaming would adversely impact its SepQ results after its gaming software sales had already tumbled 25% in JunQ.
- Memory chip maker Micron (MU) warned Q4 revenue may come in at or below the low end of the revenue guidance range.
- Advanced Micro Devices (AMD) guided lower for the current quarter.
- Electronic Arts (EA) however delivered upbeat JunQ numbers last week.
Zynga in the house
The softness in mobile gaming comes at a bad time for TTWO, given its recent $12.7 bln purchase of Zynga.
That said TTWO’s net bookings of $1.0 bln in Q1 were still strong. The acquisition of mobile game publisher Zynga closed during the quarter helping bookings. Even when excluding Zynga’s positive impact, TTWO’s net bookings of $731 mln were within its projections of $700-750 mln.
The revenue and bookings numbers are less impressive when considering the combined Zynga and Take-Two is being compared against just Take-Two’s results from last year, when Take-Two reported $813 million in revenue and Zynga reported $720 million on its own.
Comparing this quarter’s sales to the individual companies’ sales a year ago, revenues would have been down about 28%.
Speaking with GamesIndustry.biz, Take-Two chairman and CEO Strauss Zelnick said he was happy with how the companies have come together, but acknowledged the downturn of sales.
“We feel like this is a great start,” Zelnick said. “The integration is going along well… The cultures align nicely. We are certainly seeing the effects of the overall economy, which is soft. And I think we see it more on recurrent consumer spending than we do on games.”
Core Franchises Deliver
TTWO boasts excellent intellectual property, such as GTA, where the online community is 49% higher than pre-pandemic levels. Game franchises “Grand Theft Auto,” “NBA 2K” and “Red Dead” fuel net bookings and earnings.
Take-Two said revenue contribution was led by NBA 2K22, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Empires & Puzzles, Tiny Tina’s Wonderlands, WWE 2K22, Rollic’s hyper-casual portfolio, Toon Blast, The Quarry, and Top Eleven.
Engagement with NBA 2K22 remains resilient, with average games played per user climbing 16% yr/yr. TTWO’s success with its major sports title mirrors EA, which is seeing robust demand for its FIFA and Madden NFL franchises. EA also expects its sports titles to offset an anticipated impact of a softer mobile market.
Sales for June Quarter
- NBA 2K22 has now sold-in 12 million units to date, putting it ahead of NBA 2K21’s performance over the same span of time.
- GTA 5 roughly matched its recent 5-million-per-quarter pace and has now sold-in nearly 170 million copies, and the company said GTA Online’s audience is now 49% higher than it was before the pandemic.
- Red Dead Redemption 2 has added another million since the last quarterly report, reaching 45 million copies shipped.
NBA 2K franchise has been getting good traction with gamers. Jointly owned with NBA, the game was launched in May 2018 on the lines of a sports league format. Take-Two said with more teams participating augurs well to bump up its revenues. This also would help the firm to grow its esports business in the near future.
TTWO attributes part of the slowdown to the free-to-play model associated with mobile gaming. With users not having to purchase the game, TTWO believes they are less engaged. This reduction in user engagement, combined with inflationary pressures, leads to weakness in in-app purchases as well as advertising revenue.
“In the case of mobile games, you can obviously play for free and spend only if you want to,” Zelnick said. “So it shouldn’t surprise anyone that we would see the softer economy reflected in softer mobile sales versus softer console sales.”
Outlook
For the full fiscal year, Take-Two now expects to post net bookings between $5.8 billion and $5.9 billion, up from $3.4 billion in net bookings it reported the previous fiscal year. (In its last full fiscal year, Zynga posted net bookings of $2.83 billion.)
Zelnick acknowledged the forecast was below consensus expectations and said it takes into account unspecified movement in the release schedule as well as macroeconomic concerns.
The weakness in mobile play for free is seen with social media giants Meta Platforms (META) and Snap (SNAP) where advertising spending is already falling, creating an unhappy combination for TTWO.
These headwinds culminated in underwhelming FY23 guidance. TTWO expects net bookings of $5.8-5.9 billion, falling short of analyst projections. Recurrent consumer spending drives earnings. TTWO plans to launch new games including both sequels as well as completely new properties. A gaming stock’s guidance is affected by the games they produce and when and with Take Two the money tree, “Grand Theft Auto Online”.
Additionally, Take-Two delayed Firaxis’ upcoming title Midnight Suns “to ensure the teams at Firaxis Games and 2K deliver the best possible experience for our fans.”
Previously set for October 7, the game is now expected to launch by the end of Take-Two’s fiscal year (March 31, 2023). This is the second time it has been delayed.
“I’ve never felt that entertainment businesses were recession-resistant or the like, and I’ve said so when asked over and over again,” Zelnick said. “Ultimately though, we aren’t a particularly expensive item for consumers, and if we give consumers what they want, we believe they’ll show up.
“But it wouldn’t surprise me that our results would be a bit softer than I’d like for as long as we’re in a slower period, and my own view is we’re in a slower period now. I don’t the question is if we’ll be in a recession; I think we’re in a recessionary environment right now.”
About Take Two Games
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.
Source: TTWO, Alphastreet,
From The TradersCommunity Research Desk