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Take-Two Shares Drop After Annual Profit Forecast Misses Estimates

(Bloomberg) -- Take-Two Interactive Software Inc. missed analysts’ estimates for annual profit after incorporating results from its purchase of mobile-game maker Zynga earlier this year. The shares fell about 4% in extended trading.

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Adjusted earnings per share in fiscal 2023 will be $4.60 to $4.85, the company said, lower than analysts’ average projection for $5.37.

In May, Take-Two completed its $11 billion acquisition of Zynga, allowing the company to break into the fast-growing market for smartphone games. The deal merges the creator of best-selling PC and console games such as Bioshock and Red Dead Redemption with the maker of FarmVille, which flourished years ago on Facebook.

Incorporating results from Zynga for the first time, Take-Two revised its outlook for fiscal year 2023, and said it expects net bookings of $5.8 billion to $5.9 billion. That beat analysts’ average estimate for $5.42 billion.

“We are seeing some softness in the mobile market,” Chief Executive Officer Strauss Zelnick said Monday in a conference call after the results. Yet, he added, the company is “doing better than most, if not all” in the mobile games market.

Many mobile games are free-to-play and rely on in-game purchases, called microtransactions, to generate revenue, as opposed to console games, which often require an upfront cost. Amid concerns about a recession, some gamers may be opting to spend less, Strauss said.

“If you are feeling the pinch of inflation, specifically with regard to non-discretionary expenditures like fuel and food, you can imagine that if you’re playing a game, you might choose to spend a bit less or spend a bit less frequently,” he said.

The shares fell to a low of $113.04 in extended trading after closing at $125.51 in New York. The stock has dropped 29% this year.

After a surge in consumer spending and hours played on video games over the pandemic, the industry is struggling to keep players’ interest, especially with rising prices, supply chain issues that are making new consoles hard to come by and a dearth of major new titles on the market. Nvidia Corp., which makes graphics chips for the gaming industry, earlier Monday reported revenue far below its earlier projections, citing “macroeconomic conditions” that it expects to continue. Most of the major gaming companies have reported falling sales or weaker outlooks this year, from PlayStation maker Sony Group Corp. to Microsoft Corp., which sells the Xbox console. Last week, Electronic Arts Inc. gave a forecast for revenue in the current quarter that fell short of analysts’ estimates.

New York-based Take-Two is the parent company of several video-game labels, including Rockstar Games and 2K. Its biggest hits include the NBA 2K series and Grand Theft Auto V, which has sold nearly 170 million copies and is one of the most lucrative properties in entertainment history. The next installment in the series has been in development in some form since 2014 and people familiar with the project have said they expect the game to be at least two years away.

Read more about Take-Two’s efforts to remake its Rockstar Studio and Grand Theft Auto VI

Changes in Take-Two’s game production pipeline were “the most meaningful to changes in the guidance,” Chief Financial Officer Lainie Goldstein said during the call. Marvel’s Midnight Suns has been delayed for a second time into 2023, the company announced today. Six announced titles will release next year, as well as an unannounced title, which Goldstein says also impacted the forecast.

In the spring, Take-Two subsidiary Hanger 13, known for the Mafia series, cut jobs, Bloomberg reported.

In its earnings report, Take-Two said new titles WWE 2K22 and NBA 2K22 performed well. NBA 2K22 sold 12 million units since its September 2021 release, outselling the prior version of the popular basketball game.

Adjusted revenue, also known as bookings, which exclude deferred revenue and other adjustments, rose 41% to $1 billion in the period that ended June 30, the company said in a statement on Monday. Analysts had projected $984.1 million on average, according to data compiled by Bloomberg. In the current period, Take-Two said it expects adjusted revenue of $1.5 to $1.55 billion, above analysts’ estimates of $1.51 billion. Recurrent consumer spending rose 48% in the period and accounted for 73% of Take-Two’s net bookings--in part because of in-app purchases from Zynga’s game portfolio.

(Updates with CEO comments beginning in the fifth paragraph.)

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