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Take-Two Interactive Q1 Preview: 10th Consecutive EPS Beat Inbound?

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·4 min read
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The Zacks Consumer Discretionary Sector has struggled in 2022 amid soaring inflation, losing nearly 30% in value. However, buyers have stepped up over the last month, with the sector penciling in an 8.4% gain.

The table below compares the sector’s performance to the S&P 500 in several timeframes.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

One company residing in the sector, Take-Two Interactive Software TTWO, is on deck to reveal its Q1 2023 results on Monday, August 8th.

Take-Two Interactive is a leading developer and publisher of many hit video games, including Borderlands and Grand Theft Auto. The company generates revenues from selling disk-based video game products (known as packaged goods), downloadable content (DLCs), subscriptions, micro-transactions, and advertising.

In addition, the company sports the highly-coveted Zacks Rank #1 (Strong Buy). How does TTWO shape up heading into its quarterly print? Let’s find out.

Share Performance & Valuation

Year-to-date, it’s been a rough stretch for Take-Two shares, down nearly 30% and underperforming the S&P 500 by a wide margin.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

However, over the last three months, Take-Two shares have been strong, increasing nearly 6% in value and crushing the S&P 500’s marginal gain of 0.7%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The recent price action of the company’s shares is undoubtedly a positive, signaling that buyers have slowly been pouring in, driving shares upward.

However, valuation levels appear a bit stretched. TTWO’s 32.5X forward earnings multiple represents a steep 52% premium relative to its Zacks Sector.

In addition, the company carries a Style Score of an F for Value.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Quarterly Estimates

Analysts have been overwhelmingly bullish over the last 60 days, with eight positive estimate revisions coming in and pushing the Zacks Consensus Estimate Trend up a double-digit 11.5%.

The quarterly EPS estimate of $0.87 reflects an 18% decline in earnings year-over-year.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

However, the company’s top-line is in excellent shape – the $1.1 billion quarterly sales estimate reflects a massive 48% uptick from year-ago quarterly sales of $711 million. Take-Two’s top line is benefitting from substantial digital revenues, driven by solid demand for well-known game franchises.

Quarterly Performance & Market Reactions

TTWO has been on an impressive earnings streak, chaining together nine consecutive bottom-line beats. Just in its latest quarter, the digital entertainment titan exceeded the Zacks Consensus EPS Estimate of $1.01 by 15% and reported quarterly earnings of $1.16 per share.

Quarterly revenue has primarily been reported above expectations, with the company recording seven top-line beats over its last ten quarters. However, the company has posted back-to-back revenue misses in its previous two quarters.

Take-Two Interactive Software - Quarterly Revenue

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

In addition, the market has had mixed reactions as of late following the company’s previous two quarterly prints - shares moved up substantially following the most recent earnings report but tumbled following the prior.

The chart below illustrates this with the green arrows representing the company’s earnings date.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Putting Everything Together

Over the last three months, buyers have started to nibble at Take-Two shares, driving them upwards. However, shares are still deep in the red year-to-date.

In addition, the company’s shares appear a bit stretched regarding valuation, with its forward P/E ratio well above its Zacks Sector.

Earnings are forecasted to decline by double-digits, but the company’s top-line looks to register serious growth.

Furthermore, the company has repeatedly exceeded earnings estimates, but top-line results have come in under expectations as of late.

Heading into the print, Take-Two Interactive Software TTWO sports a Zacks Rank #1 (Strong Buy) with an Earnings ESP Score of 1.1%.


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