There's never been more competition in the video game industry, as companies from across the globe put their games to the test and vie for a rich audience of gamers. Take-Two Interactive Software (NASDAQ: TTWO) has been a giant in the industry for years, and key franchises like its Grand Theft Auto and Red Dead Redemption series have been blockbusters for the company. Increasingly, incorporating sports into video games has become big business, and Take-Two is in a solid position to benefit from that trend.
Coming into Monday's fiscal first-quarter financial report, Take-Two investors had hoped that the video game company would see revenue soar even if earnings took a hit. Take-Two's results were encouraging, and the company sees a good future ahead.
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NBA2K boosts Take-Two
Take-Two's fiscal first-quarter results continued a string of impressive quarters. Revenue jumped 39% to $540.5 million, which was considerably higher than what most of those following the stock had expected to see. Net income was down 35% to $46.3 million, but the associated earnings of $0.41 per share was well above the consensus forecast for just over breakeven for the video game company.
As we've seen recently, Take-Two kept bringing in business. Bookings were up 46% to $422.2 million. More than 90% of that amount was delivered digitally, and the NBA 2K19 game was the biggest contributor to digitally delivered titles during the fiscal first quarter. Various Grand Theft Auto titles also were major players, as were titles from the Borderlands and Red Dead Redemption series.
The physical retail business also saw reasonable growth, but the drop-off in growth rates was evident. In terms of GAAP revenue, retail-generated sales were up 54% from year-ago levels. Yet when you look at bookings, the rise in physical retail numbers was limited to just 12%, and that signaled a shift in the way that gamers are getting access to the games they want to play. Console games remained Take-Two's bread and butter, outpacing revenue from PC and other platforms by a four-to-one margin.
CEO Strauss Zelnick was enthusiastic about the quarter. "Fiscal 2020 is off to a terrific start," Zelnick said, "with first quarter operating results that beat out expectations." The CEO was quick to praise the ongoing evolution of hit franchises as contributing to the company's overall success.
What's ahead for Take-Two?
Yet there's plenty of potential for Take-Two to grow further. As Zelnick described it, "Take-Two has the strongest development pipeline in its history, including sequels from our biggest franchises as well as exciting new [intellectual property]." The company thinks that new games like Ancestors: The Humankind Odyssey can combine with established series players like NBA 2K20 and Borderlands 3 to deliver strong gains throughout the rest of the fiscal year.
Because of that, Take-Two increased its guidance for fiscal 2020. Revenue guidance jumped $130 million to a new range of $2.83 billion to $2.93 billion. Earnings under generally accepted accounting principles are expected to come in between $3.71 and $3.96 per share, which is $0.31 to $0.32 per share higher than what the company expected to see for the new fiscal year three months ago. In the fiscal second quarter, Take-Two's projections are for sales between $855 million and $905 million, and earnings of $1.04 to $1.14 per share. Those figures were generally favorable compared to what investors were looking to see.
As a result, Take-Two shareholders celebrated the news, and the stock jumped 7% on Tuesday morning following the Monday night announcement. With demand for new and interesting video games continuing to build, Take-Two has an opportunity to score big wins not just in the immediate future but for years to come.
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