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Take-Two stock rebounds on Q1 revenue beat – what’s next?

Known for hit games such as Grand Theft Auto and Red Dead Redemption, Take-Two Interactive [TTWO] is a titan in the most rapidly growing industry in entertainment. 

As a result of the industry’s burgeoning growth, the New York City-based company posted blockbuster revenue of $540m and earnings of $0.41 per share for the three months ending 30 June, driven by the performance of its NBA 2K19, Grand Theft Auto V, Red Dead Redemption 2 and Borderlands franchises; the strong performance has incited a 12% climb in TTWO stock post announcement.

Digitally delivered net bookings grew 51% from last year’s fiscal quarter of $252.8m to $382.5m and accounted for 91% of total net bookings, as sales of Grand Theft Auto V exceeded expectations due to its fast approaching sixth anniversary. 

The company is one of the last game developers to announce results this earnings season, with Activision Blizzard [ATVI] expected to report on 8 August.

 

Strong gaming portfolio 

Despite being released nearly six years ago, Grand Theft Auto V and Grand Theft Auto Online continued to be significant contributors to the company’s results and were noted as one of the primary drivers for raising consumer spending by 55%, which accounted for 67% of its total net bookings. 

Published by Take-Two Interactive’s Rockstar Games, the franchise sold more than 110 million units for the business, while Red Dead Redemption 2 has sold 25 million units since its release in October 2018. 

110million

Number of unit sales generated by the Rockstar Games franchise

Elsewhere in the company’s catalogue, its NBA 2K series was singled out for its outstanding performance with more than 12 million units sold to date, as well as a 140% increase in consumer spending. 

The series was praised for being on track to generate the highest net bookings for a 2K sports title, and was one of the primary reasons the company’s total net bookings rose to record highs.

 

An unflinching rally 

The 5.1% decline in Take-Two stock on 5 August was due to Trump blaming the videogame industry for its “glorification of violence” in response to the two mass shootings in the US, over the weekend.

However, once earnings were announced after the bell on the same day, the stock rebounded by more than 7.9% to $124.56 on 6 August.

 

Market cap $15.23bn
PE ratio (TTM) 47.35
EPS (TTM) 2.69
Return on Equity (TTM) 15.66%

Take-Two stock vitals, Yahoo finance, 07 August 2019

 

Since hitting a low of $89.74 on 17 April the stock has been on a roll, rising more than 38% past its 50-day moving average to a high of $124 for the year so far. 

While that’s 10% off its all-time high of $137.99, hit on 24 September 2018, the shares could have a way to go, especially considering TTWO had been one of the best stocks to own on the S&P 500 in August last year. The stock currently has a consensus “outperform” rating among analysts.

 

Is a new high score on the cards? 

“As a result of our better-than-expected first quarter operating results and increased forecast for the balance of the year, we are raising our outlook for fiscal 2020, which is anticipated to be another great year for our organisation,” CEO Strauss Zelnick said. The company expects net bookings will reach between $2.6bn and $2.7bn, up from the previous guidance of $2.5bn and $2.6bn. 

“We are raising our outlook for fiscal 2020, which is anticipated to be another great year for our organisation” - CEO Strauss Zelnick

As it stands, Take-Two Interactive currently has the strongest development pipeline in its history, with it due to release an array of titles throughout the rest of the year, including Ancestors: The Humankind Odyssey, NBA 2K20, Borderlands 3, WWE 2K20 and The Outer Worlds.  

“Looking ahead, Take-Two has the strongest development pipeline in its history, including sequels from our biggest franchises as well as exciting new IP. We are exceedingly well positioned to capitalise on the positive trends in our industry, and to generate significant growth and margin expansion over the long-term,” Zelnick added.

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