A month has gone by since the last earnings report for Take-Two Interactive (TTWO). Shares have added about 6.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Take-Two due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Take Two’s Q4 Results Benefit from Solid Game Portfolio
Take Two Interactive reported fourth-quarter fiscal 2019 GAAP earnings of 50 cents per that declined 35% from the year-ago quarter.
However, net revenues increased 19.7% from the year-ago quarter to $539 million. The growth was driven by robust performance of “NBA 2K19, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Sid Meier’s Civilization VI, Dragon City and Monster Legends, and WWE SuperCard and WWE 2K19.”
Recurrent consumer spending (virtual currency, add-on content and in-game purchases) increased and accounted for 54% of total net revenues.
Digital revenues (77% of revenues) increased 37.2% year over year to $413.5 million. However, revenues from Physical retailer and other segments (23% of revenues) declined 15.7% to $125.5 million.
Region wise, revenues from the United States (51% of revenues) increased 7.4% year over year to $274.6 million. Moreover, revenues from International markets (49% of revenues) increased 35.9% to $264.4 million.
On the basis of platforms, revenues from console (78% of revenues) increased 16.2% to $422.4 million. Revenues from PC and other (22%) increased 34.3% to $116.6 million.
Net bookings of $488.4 million increased 19% on a year-over-year basis. The growth was driven by robust performance of “NBA 2K19, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Sid Meier’s Civilization VI, Dragon City and Monster Legends, and WWE SuperCard and WWE 2K19.”
Net bookings from recurrent consumer spending accounted for 62% of net bookings and grew 27% year over year. Notably, Catalog accounted for $254.5 million of net bookings. Strong demand for Grand Theft Auto, Dragon City, Sid Meier’s Civilization VI and Monster Legends was observed in the quarter.
Notably, net bookings from NBA 2K19 exceeded management expectations due to solid growth in recurrent consumer spending (up 79%). Additionally, more than 9 million units of the game have been sold to date. Management expects NBA 2K19 net bookings to continue its growth momentum owing to strong growth in recurrent consumer spending.
Digitally-delivered net bookings (86% of net bookings) grew 26% to $419 million. However, bookings from Physical retail (14% of net bookings) and other segments declined 11.3% to $69.4 million.
Take Two’s gross profit increased 7.3% year over year to $280.1 million. However, gross margin contracted 600 basis points (bps) from the year-ago quarter to 52%.
Reported operating expenses increased 28.2% year over year to $222 million primarily due to higher selling & marketing (S&M) and moderately higher general & administrative (G&A) expenses in the quarter. S&M, G&A and R&D expenses grew 63.6%, 25%, 4.5%, respectively.
Income from operations came in at $58.1 million compared with $87.8 million in the year-ago quarter. Operating margin in the reported quarter was 10.8% compared with 19.5% in the year-ago quarter.
Balance Sheet and Cash Flow
Take Two exited the quarter with cash and cash equivalents of $826.5 million compared with $1.05 billion in the previous quarter.
Non-GAAP cash from operating activities was $715.5 million in fiscal 2019 compared with $393.9 million in the year-ago period.
The company repurchased 1.12 million shares worth $100 million in the reported quarter and repurchased 3.72 million shares worth $362.4 million in fiscal 2019.
Take Two continuously updated the content and gameplay in Red Dead Online Beta, while bringing down errors in the game. Additionally, the company boosted Grand Theft Auto Online’s content and features.
Moreover, Take Two benefited from recurring revenues of Red Dead Redemption 2. Notably, the game sold more than 24 million units globally as of May 14, 2019. Further, WWE SuperCard was downloaded more than 19 million times and the game continues to remain “2K’s highest grossing mobile title.”
This apart, NBA 2K Online, was the most played PC game in China and the franchise has about 45 million registered users.
First-Quarter Fiscal 2020
Take Two expects GAAP net revenues to be in a band of $485 to $535 million. Net bookings are projected between $310 million and $360 million. The company projects GAAP earnings between 65 cents and 75 cents per share.
Notably, NBA 2K Mobile, Word Life, Borderlands: Game of the Year Edition and Kerbal Space Program: Breaking Ground (DLC) are some of the games that will be released in the quarter.
GAAP net revenues are likely to be in a band of $2.7 and $2.8 billion. Net bookings are expected between $2.5 billion and $2.6 billion.
Take Two now projects GAAP earnings in the range $3.39 to $3.65 per share.
The company’s capital expenditure is expected to be around $90 million. Operating cash flow is expected to be more than $430 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -327.72% due to these changes.
Currently, Take-Two has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Take-Two has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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