The surging video game business hasn't been as profitable to developer Take-Two Interactive (TTWO 0.72%) as its rivals lately. The blockbuster Grand Theft Auto franchise remains a hit, but isn't quite big enough to produce steadily higher earnings, as Activision Blizzard (ATVI) shareholders have enjoyed in the last year.
On Thursday, Take-Two posted improving trends in both sales and profits, along with healthy digital revenue metrics, yet the company still booked a net loss for the quarter.
Here's how the big-picture results stacked up against the prior year:
|
Metric |
Q2 2016 Actuals |
Q2 2015 Actuals |
Growth (YOY) |
|---|---|---|---|
|
Revenue |
$275 million |
$312 million |
13% |
|
Net loss |
($39 million) |
($67 million) |
N/A |
|
Earnings per share |
($0.46) |
($0.81) |
N/A |
YOY = year over year. Data source: Take-Two financial filings.
What happened this quarter?
Sales rose by 13% as Take-Two's core Grand Theft Auto and NBA 2K franchises got an assist from brand-new property Battleborn, which launched to strong reviews but hasn't sold as well as expected. Still, overall growth came in ahead of management's May forecast. The developer's net loss, meanwhile, fit right into the range that executives projected last quarter.
Cunning Stunts was a free upgrade to GTA Online that launched this quarter. Image source: Take-Two.
Highlights of the just-closed quarter included:
- Digital sales rose 18% and now account for 58% of non-GAAP revenue. While strong, this result lags Activision Blizzard, which this week announced that its digital sales more than doubled and now make up 90% of all revenue. Take-Two said its GTA and NBA 2K franchises led the way in online spending on virtual currency, downloadable content, and full-game downloads.
- Take-Two released two major content updates to the GTA Online title and expanded availability for its Red Dead Redemption franchise.
- Bookings, which are comprised of sales to retailers plus digital revenue, fell 29% as the company faced a difficult comparison against a prior-year period that included the launch of GTA Online for the PC.
- Net loss narrowed to $39 million on a GAAP basis and on a non-GAAP basis was cut in half to $17 million.
What management had to say
"Fiscal 2017 is off to a solid start," CEO Strauss Zelnick said in a press release. "Our results were driven by the continued strong performance of Grand Theft Auto V and NBA 2K, coupled with growth in revenue and bookings from recurrent consumer spending, including record bookings from Grand Theft Auto Online.
The developer is laying the groundwork for what executives hope will be a solid peak shopping season that's fueled by new releases. "We anticipate a robust holiday season for Take-Two, anchored by the upcoming launches of Mafia III, Sid Meier's Civilization VI, NBA 2K17 and WWE 2K17," Zelnick said.
We plan to continue to support our titles with an array of innovative offerings designed to promote ongoing engagement and drive recurrent consumer spending, including additional free content for Grand Theft Auto Online. Looking ahead, our exciting development pipeline extends well beyond the current fiscal year, and we expect to grow bookings and cash flow from operations in fiscal 2018.
-- Zelnick
Looking forward
Take-Two's upcoming release calendar includes the launch of NBA 2K17 and the third installment in its Mafia franchise in September. Then late October brings a new chapter in Civilization, which has already sold over 35 million copies so far in franchise history. Take-Two noted it is also working on a few "exciting future projects" that will be announced soon.
This strong product pipeline should bring the company into the black for the year, with executives projecting $226 million of net income at the midpoint of guidance. Beyond that, Take-Two needs to continue producing a steady stream of hits so that key operating metrics like bookings and cash flow improve even absent a massive Grand Theft Auto launch.
