It has been about a month since the last earnings report for Take-Two Interactive (TTWO). Shares have added about 5.7% 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 the most recent earnings report in order to get a better handle on the important drivers.
Take Two's Q1 Earnings Down Y/Y on Higher Expenses
Take Two Interactive Software reported first-quarter fiscal 2020 GAAP earnings of 41 cents per share, down almost 34% year over year.
Net revenues surged 39.3% from the year-ago quarter to $540.5 million. The growth was driven by robust performance of Red Dead Redemption 2 and Red Dead Online, NBA 2K19, Grand Theft Auto Online and Grand Theft Auto V, WWE 2K19 and WWE SuperCard, Social Point’s mobile games, the Borderlands franchise, and Sid Meier’s Civilization VI.
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 31% year over year and accounted for 58% of total revenues.
The Zacks Consensus Estimate for earnings and revenues was pegged at 3 cents and $358 million, respectively.
Digital revenues (79.2% of revenues) surged 35.8% year over year to $427.8 million. Revenues from Physical retailer and other segments (20.8% of revenues) soared 54.5% to $112.7 million.
Region-wise, revenues from the United States (61.1% of revenues) surged 49.3% year over year to $330.5 million. Moreover, revenues from International markets (38.9% of revenues) increased 26.1% to $210 million.
On the basis of platforms, revenues from console (80.5% of revenues) surged 47.5% to $434.8 million. Revenues from PC and other (19.5% of revenues) increased 13.3% to $105.6 million.
Net bookings of $422.2 million surged 46% on a year-over-year basis.
Net bookings from recurrent consumer spending accounted for 67% of net bookings and grew 55% year over year.
Notably, Catalog accounted for $394.7 million of net bookings. Strong demand for Grand Theft Auto, NBA 2K, Borderlands and Social Point’s mobile games was observed in the reported quarter.
Digitally-delivered net bookings (91% of net bookings) soared 51% to $382.5 million. Bookings from Physical retail (9.4% of net bookings) and other segments increased 11.8% to $39.8 million.
Take Two’s reported gross profit increased 16.5% year over year to $299 million. However, reported gross margin of 55.3% contracted significantly from 66.1% in the year-ago quarter.
Reported operating expenses jumped 33.1% year over year to $247.3 million primarily due to higher selling & marketing (S&M), research & development (R&D) and general & administrative (G&A) expenses in the quarter. S&M, R&D and G&A expenses grew 57.5%, 10.5%, 36%, respectively, on a year-over-year basis.
Income from operations came in at $51.7 million, down 28% year over year. Operating margin contracted 890 basis points (bps) to 9.6% in the reported quarter.
For the second quarter of fiscal 2020, Take Two expects GAAP net revenues between $855 million and $905 million. Net bookings are projected between $860 million and $910 million. The company projects GAAP earnings between $1.04 and $1.14 per share.
For fiscal 2020, net bookings are expected between $2.6 billion and $2.7 billion. GAAP net revenues are likely to be $2.83-$2.93 billion.
Take Two now projects GAAP earnings of $3.71-$3.96 per share.
The company projects operating cash flow to be more than $450 million.
Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
Currently, Take-Two has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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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