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Why Is Take-Two (TTWO) Down 4.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Take-Two Interactive (TTWO). Shares have lost about 4.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Take-Two due for a breakout? 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 Earnings Rise Y/Y, Net Bookings Improve

Take Two Interactive Software reported fourth-quarter fiscal 2021 earnings of $1.88 per share, up 75.7% year over year.

Net revenues increased 10.4% year over year to $839.4 million driven by increase in net bookings, partially offset by higher operating expenses.

Grand Theft Auto (GTA) Online and GTA V, NBA 2K20 and NBA 2K21, Red Dead Redemption 2 and Red Dead Online, Borderlands 3, Sid Meier’s Civilization VI, Social Point’s mobile offerings, and NBA Online were the biggest contributors to the company’s fourth-quarter fiscal 2021 top line.

Markedly, digital revenues (89.7% of revenues) increased 18.7% year over year to $753.3 million. Meanwhile, Physical retail and other segment revenues (10.3% of revenues) declined 31.5% year over year to $86.2 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 38% year over year and accounted for 67% of total revenues.

Top-Line Details

Region-wise, revenues from the United States (61.2% of revenues) increased 24.1% year over year to $513.5 million. International revenues (38.8% of revenues) decreased 6% year over year to $325.9 million.

On the basis of platforms, revenues from console (72.4% of revenues) increased 12.1% year over year to $608 million. Revenues from PC and other (27.6% of revenues) improved 6% year over year to $231.5 million.

Booking Details

Net bookings of $784.5 million increased 7.6% on a year-over-year basis. Net bookings from recurrent consumer spending grew 17% year over year and accounted for 67% of net bookings.

Notably, Catalog accounted for $514.7 million of net bookings. Strong demand for GTA, NBA 2K21, Red Dead Redemption, Borderlands, Social Point’s mobile offerings, Sid Meier’s Civilization VI, Two Dots, NBA Online, and WWE SuperCard were witnessed in the reported quarter.

Digitally delivered net bookings (92.2% of net bookings) increased 7.7% to $723.7 million. Bookings from Physical retail and other segments (7.8% of net bookings) increased 6.1% to $60.9 million.

New Game Releases & Updates

During the reported quarter, Take Two’s division Rockstar Games released new free content updates for GTA Online, including casino story missions and new stunt races among others.

Moreover, the division released new free content updates for Red Dead Online including the Outlaw Pass No. 5 and its new rewards.

Take-Two’s 2K division launched NBA 2K21 Arcade Edition on Apple Arcade, delivering an all-new basketball simulation game experience to Apple’s video game subscription service.

Additionally, PGA TOUR 2K21 released the Clubhouse Pass Season 2 and launched its newest game mode, Divot Derby, which features a battle golf style competition where players can compete with up to 20 other players.

WWE 2K Battlegrounds released its fifth and final roster update. Moreover, 2K introduced new content for Season 7 of WWE SuperCard, including the debut of the WrestleMania 37 card tier.

Besides, 2K released the Borderlands 3: Director’s Cut add-on, which is available for purchase separately and available to download for owners of Borderlands 3 Ultimate Edition or Season Pass 2.

Moreover, it launched the Vietnam & Kublai Khan Pack and the Portugal Pack for Sid Meier's Civilization VI, completing the full season of content from Firaxis Games’ New Frontier Pass.

Further, Take Two’s Private Division released The Outer Worlds: Peril on Gorgon, the first narrative-led expansion for the darkly humorous sci-fi RPG for Switch.

Moreover, Social Points and Playdots launched new features, scavenger hunts, and marketing activations to drive player engagement

Operating Details

Take Two’s gross profit increased 53.4% year over year to $559.7 million. Reported gross margin of 66.7% expanded from 48% in the year-ago quarter.

Operating expenses increased 25.1% year over year to $304 million primarily due to higher selling & marketing (S&M) and research & development (R&D) expenses in the reported quarter. S&M and R&D expenses increased 33.3% and 21.6%, respectively, on a year-over-year basis. Meanwhile, general & administrative expenses (G&A) increased 19.8% year over year.

Operating income came in at $255.8 million, which surged 109.9% year over year. Operating margin expanded from 16% in the year-ago quarter to 20.5%.

Balance Sheet

As of Mar 31, 2021, Take Two had $2.73 billion in cash, cash equivalents and short-term investments compared with $2.42 billion as of Dec 31, 2020.

Acquisition Details

During the reported quarter, Take Two’s 2K division announced the acquisition of HookBang, LLC’s Austin-based video game division, which will become part of Visual Concepts, the developer of the iconic NBA 2K video game franchise.

Guidance

For the first quarter of fiscal 2022, Take Two expects GAAP net revenues between $730 million and $780 million. The company projects GAAP earnings between $1 and $1.10 per share.

Net bookings are projected between $625 million and $675 million.

For fiscal 2022, net bookings are expected between $3.2 billion and $3.3 billion. GAAP net revenues are likely to be in the range of $3.14-$3.24 billion. Take Two projects GAAP earnings of $1.95-$2.20 per share.


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 an upward trend in estimates revision. The consensus estimate has shifted -39.12% due to these changes.

VGM Scores

Currently, Take-Two has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Take-Two has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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