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Take Two's (TTWO) Q3 Earnings and Revenues Decrease Y/Y

Zacks Equity Research

Take Two Interactive Software TTWO reported third-quarter fiscal 2020 GAAP earnings of $1.43 per share, down 8.9% year over year.

Net revenues declined 25.5% from the year-ago quarter to $930.1 million.

Recurrent consumer spending (virtual currency, add-on content and in-game purchases, including the allocated value of virtual currency and add-on content incorporated in special editions of certain games) increased 15% and accounted for 37% of total GAAP net revenues.

Recurrent consumer spending on Grand Theft Auto Online grew 54% driven by Rockstar Games’ continued release of new content.

The Zacks Consensus Estimate for earnings and revenues was pegged at $1.73 and $911 million, respectively.

Take-Two Interactive Software, Inc. Price, Consensus and EPS Surprise

Take-Two Interactive Software, Inc. Price, Consensus and EPS Surprise

Take-Two Interactive Software, Inc. price-consensus-eps-surprise-chart | Take-Two Interactive Software, Inc. Quote

 

Top-Line Details

Digital revenues (74.2% of revenues) increased 17.8% year over year to $700.3 million. Notably, growth was driven by NBA 2K20 and NBA 2K19, Grand Theft Auto Online and Grand Theft Auto V, The Outer Worlds, Red Dead Redemption 2 and Red Dead Online, Borderlands 3, Sid Meier’s Civilization VI, Social Point’s mobile offerings, and WWE SuperCard and WWE 2K20.

However, revenues from Physical retailer and other segments (21.2% of revenues) decreased 64.9% to $242.1 million.

Region-wise, revenues from the United States (57.7% of revenues) decreased 17.6% year over year to $536.8 million. Moreover, revenues from International markets (42.3% of revenues) decreased 34.1% to $393.2 million.

On the basis of platforms, revenues from console (73.1% of revenues) decreased 40.6% to $679.8 million while revenues from PC and other (26.9% of revenues) surged 140.1% to $250.3 million.

Booking Details

Net bookings of $888.2 million declined 43.2% on a year-over-year basis.

Net bookings from recurrent consumer spending grew 6% year over year and accounted for 41% of total net bookings.

Notably, Catalog accounted for $359.7 million of net bookings. Strong demand for Grand Theft Auto, Red Dead Redemption, and Social Point’s mobile offerings was observed in the reported quarter.

Digitally-delivered net bookings (77.7% of net bookings) declined 1.9% to $690.6 million. Moreover, bookings from Physical retail (22.3% of net bookings) and other segments declined 77.1% to $97.6 million.

Operating Details

Take Two’s gross profit increased 40.8% year over year to $493 million. Reported gross margin of 53% expanded significantly from 28% in the year-ago quarter.

Reported operating expenses increased 5.9% year over year to $316.2 million, primarily due to higher research & development (R&D) and general & administrative (G&A) expenses in the quarter. R&D and G&A expenses increased 32.4% and 19.7%, respectively, on a year-over-year basis.

Meanwhile, selling & marketing (S&M) expenses decreased 15% year over year to $137.1 million in the reported quarter.

Income from operations came in at $176.8 million, up 241.5% year over year. Operating margin of 19% expanded significantly from 4.1% in the year-ago quarter.

Guidance

For the fourth quarter of fiscal 2020, Take Two expects GAAP net revenues between $635 million and $685 million. The company projects GAAP earnings between 92 cents and $1.12 per share.

Net bookings are projected between $540 million and $580 million. Significant contribution to net bookings is expected to be made by Grand Theft Auto Online and Grand Theft Auto V, NBA 2K20, Red Dead Redemption 2 and Red Dead Online, Sid Meier’s Civilization VI and Borderlands 3.

The company projects recurrent consumer spending to grow approximately 10% year over year, driven primarily by growth in Grand Theft Auto Online and Red Dead Online.

Moreover, digitally delivered net bookings are expected to increase over 20%. The company assumes that 66% of current generation console games will be delivered digitally, up from 57% in the same period last year.

For fiscal 2020, net bookings are expected between $2.8 billion and $2.85 billion. GAAP net revenues are likely to be in the range of $2.96-$3.01 billion.

Take Two projects GAAP earnings of $3.38-$3.58 per share. The company projects operating cash flow to be more than $500 million.

Take Two expects recurrent consumer spending for the NBA 2K20 franchise to grow in strong double digits in fiscal 2020.

Zacks Rank and Stocks to Consider

Take Two currently has a Zacks Rank #4 (Sell).

TEGNA TGNA, Liberty Global LBTYA and ViacomCBS VIAC are some better-ranked stocks in the broader Consumer & Discretionary sector. TEGNA carries a Zacks Rank #1 (Strong Buy) while Liberty Global and ViacomCBS carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank  stocks here.

TEGNA, Liberty Global and ViacomCBS are scheduled to report quarterly results on Feb 11, 13 and 20, respectively.

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