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Take-Two forecast miss causes skepticism over gaming growth

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Dan Howley joins Myles Udland and Brian Sozzi to break down Take-Two beating estimates and how analysts' uncertainty on post-pandemic gaming is contributing to a slump in the company’s stock.

Video Transcript

- Ttwo Interactive shares. See the stock down. Some 8% after the game maker said it would delay.

Two key games and hinted at a slowdown in consumer spending on its content shares of some 7.9% in early trading. Yahoo Finance tech editor, Dan Howley, an avid gamer, and of course, recovering the financials for these businesses. Now, let's just talk through a little bit about what take-two said in its release last night?

DAN HOWLEY: Yeah. They're getting absolutely smoked. As you pointed out, Miles, they're down more than 8% now. And yeah, I think the big thing is obviously that they missed the forecast for Q3.

They said that their revenues are going to be coming in between 815 and 865 million. Wall Street was looking for $868 million. And the fact that they're calling for those delays, for those titles is really an issue for them.

Now, they do have some 62 titles or so in the offering in the next few fiscal years. So this is their 2022 fiscal year starting from now till the fiscal year for 2024. They will release those gains.

But you know, what they're really going to be releasing in the near term is more like remasters of existing games. So think Grand Theft Auto 5 for the PlayStation 5 and Xbox Series X. Redemption two for the same consoles. Grand Theft Auto online.

And really what they've been doing is subsisting on those titles and the digital purchases that people make through them. That in the NBA 2K series. So they're really not releasing anything that's going to blow the doors off of the gaming industry any time soon.

And really I think what people are looking for is any indication of when their next blockbuster title will be coming. Specifically from Roster. I think really the big thing that people are looking for is when they'll announce Grand Theft Auto 6. Grand Theft Auto 5 has been out for years now.

And it's one of the biggest selling pieces of media in history. Yes, continues to be they're releasing an online update for Grand Theft Auto online soon.

But really I think what investors want to know is, when is the next grand Theft Auto going to be coming out? Because that's going to be a massive catalyst for them. And we still don't know frankly.

So I think that's going to be an issue for them. Obviously, the headwinds of the pandemic spending versus the sort of post ish pandemic spending, where we are we're not obviously quite out of it. And with more mask mandates going into effect or suggestions going into effect for masking up.

Maybe people will go back to buying games as much. I don't think the gaming industry is going to be hurt in the long term. As a result of the slowdown, I think they just saw a lot of pull forward. As a result of the pandemic. But really I think the comparisons here are going to be a big issue for these companies going forward.

- And break this down. Being a you are a gamer, break this down for the layperson out there. So Grand Theft Auto first title was released on Playstation in 1997. Take-two said last night. It's an earnings call.

They saw a 72% increase in audience size. A 77% increase in the number of players. Why does this game remain so popular when there are a gazillions of other choices out there?

DAN HOWLEY: It's the original kind of open world sandbox style game that people really love. And the fact is they took this title that was originally offline only with the prior series or entries into the series. And then turned it into an online world.

So now, you can do whatever you want in Grand Theft Auto. And then do it with friends. So people have started their own gangs into the game, and started running around in weird alien costumes at one point and having alien fighting wars.

They just continuously update the game. They added a scene recently. And there's obviously going to be a tuners kind of like think Tokyo Drift style update to the game itself.

And I think that's really what gets people coming back again and again. It's established to community. And they keep adding content.

But that being said, they did see a reduction in the amount that returning players spend on titles. So that could be that they purchased a lot during the pandemic, or that they had gotten the most out of what there was available at that time.

And so they didn't have as much to purchase in the prior quarter compared to the prior year. I do think that they're going to continue to milk this for everything it's worth. And rightfully so, it's doing incredibly well for the fans and for the company itself.

But I think the next thing that investors are going to be looking for is, what can you do beyond this? Because we know that you've established this is a title that people come back for. But gamers are fickle.

And if you don't keep giving them something, or if you continue to update something that's old, and don't bring out a brand new game. They're just going to leave that for something else. And that hurt takes you in the long run.

- All right, Yahoo Finance's Dan Howley with some surprising results there in the gaming space. Howley, thanks for the--