Zelnick is certainly not perfect but let's be fair. Under his watch, they have developed a lot more solid franchises than they had in the past, he's avoided sinking tons of money into social and mobile gaming (cough, cough, EA), he's refrained from running our franchises into the ground, he bought WWE and Evolve for pennies, he bought a stake in Twitch which looks like it's about to blow up. What else do you want?
In terms of Rockstar and whatever deal he cut, I think an analog is a hit TV show. You make tons of money at the beginning but, over time, the talent demands a bigger and bigger share. They don't make as much off of GTA as they used to but I'm pretty sure they are still making a killing.
I find Cohodes timing and defense of Kotick quite interesting. TTWO is having its best year ever while ATVI is just treading water. Hmmm....
Some of you old timers might want to check out a Twitter exchange between a TTWO bull named First Adopter (whose comments are spot on IMHO) and our old friend Mark Cohodes. Cohodes basically pumps ATVI and trashes TTWO based on his views from ten years ago.
Daniel Ernst tweeted that Battlefield 3 did 4 million $50 premium bundles on less than half the base of GTA V. I assumed the attach rate would be higher with GTA V hence the assumption 10 million people would buy the full package. I did make a mistake in that the console makers would take a cut so 100 percent of the revenue wouldn't go to TTWO. I do think it is pretty reasonable to assume that TTWO can hit 1.3 to 1.5 billion in revenue without a major new franchise like Red Dead. Hopefully Evolve can surprise to the upside in addition to a reworked WWE.
This lineup would equate to the following revenue for next fiscal year:
Catalog/Digital $500 million
GTA Reorders $120 million (4 million x lower ASP of 30)
NBA $200 million (5 x 40)
WWE $80 million (2 x 40)
Evolve $80 million (2 x 40)
Total: $980 million
Bottom line: TTWO can now do close to $1 billion in revenue without breaking a sweat.
I think it's also pretty clear that they will release substantial DLC for GTA and GTA online:
$50 Season Pass x 10 million (33 percent attach rate which may be conservative)
That's another $500 million in revenue assuming all the DLC is released next fiscal year.
Let's also assume they release a GTA complete for Next Gen around the holidays:
4 million x 40=$160 million
I guess I can see the company getting to $1.5 billion in revs pretty easily which would make it quite profitable.
I think Zelnick is correct to wait as long as possible to release significant new IP when the next gen install base is not that great. His decision to wait on GTA V has been a home run and the game will probably become the highest selling, non-bundled game of all time.
Assuming the next fiscal year is in the bag, I don't see significant new releases until FY 15-16. I agree it would be nice if they were at least announced.
I think people are starting to realize this coming quarterly report will probably be one of the biggest in TTWO's history.
a) All of the "non-GAAP" earnings which I think confused people will become actual GAAP earnings. In many respects, TTWO will now be reporting GTA V revenues twice.
b) We will see how much cash TTWO has on its books after buying out Icahn's stake. This will give us a better idea of the enterprise value of the company.
c) I think as a standalone quarter, the results will be very, very good with GTA and NBA 2K sales being extremely strong. The recently completed quarter should generate even more cash for the company.
d) Hopefully, we get more guidance on upcoming releases and whether the microtransactions in GTA Online have been a success. Also, when we can expect DLC for the game etc. I think TTWO has already made the year so they may be delaying things until the start of the next fiscal year. Regardless, I think once can reasonably assume that a $30 or $40 season pass for DLC will have a significant attach rate. 10 million x thirty or forty bucks is a lot of high margin digital revenue.
e) It would I think help to acknowledge they are working on RDR etc. just to give the street comfort.
Overall, I believe this stock is undervalued compared to its peers.