The video-game industry has been booming, and Take-Two Interactive Software, Inc. (TTWO -0.23%) reported its financial results before the market opened on Tuesday. At first, those results were overshadowed by the announcement that the release of the company's highly anticipated Red Dead Redemption 2 had been delayed until at least April of next year from its previously expected release this fall. The stock market initially sent shares down by more than 10% in late trading on Monday, but the share price recovered on the company's better-than-expected financial results and positive outlook.
The company reported revenue growth of 52% to $571.6 million compared to $377.2 million in the prior-year quarter. This was better than the $355 million investors had expected. This was driven by an increase in the higher-margin digital sales, as more gamers opted to download content in lieu of purchasing physical discs.
Digital sales continue to grow
Revenue from digitally delivered content increased to $278.7 million, up 43% year over year, and accounted for nearly 49% of total revenue. Recurrent consumer spending on things like virtual currency, downloadable add-ons, and in-game content hit an all-time high of $137 million, a full 24% of sales.
Net income from the quarter grew to $99.3 million, or $0.89 per diluted share, up 85% over the prior-year quarter. This far exceeded the $0.57 per share investors expected to see. Take-Two was better able to control expenses this quarter, which only increased 18% year over year. The combination of higher revenue and disciplined spending dropped more earnings to the bottom line.
Grand Theft Auto V continued to exceed the company's expectations, and sales of the game surpassed 80 million units. Grand Theft Auto Online was the single largest contributor to recurrent consumer spending and hit record levels for 2017. NBA 2K17 is poised to become the company's highest selling sports title ever, with sales of nearly 8 million units, while recurrent spending for the title jumped 71% for the year.
Penalty for delay of game?
Still, the big news was the delay in releasing Red Dead Redemption 2 until spring of 2018. In the earnings press release, chairman and CEO Strauss Zelnick stated:
As announced yesterday, Rockstar Games has decided to move the release of Red Dead Redemption 2 to Spring 2018. As Rockstar stated, Red Dead Redemption 2 will be their first game created from the ground up for the latest generation of console hardware, and some extra time is necessary to ensure that they deliver the best experience possible. Such decisions are not made lightly, and are driven by our team's unwavering commitment to unparalleled quality.
Rockstar Games has a long history of pushing out game releases if it doesn't believe the product will meet its high expectations by the tentative release date. Its history is littered with many examples of product delays, but the company believes it is prudent to deliver a quality product even if it takes a little longer.
Investing in the future
During the quarter, Take-Two acquired privately held Social Point S.L. for $250 million, a free-to-play social network mobile game developer best known for Dragon City. It expects the acquisition will begin adding to its earnings over the next year.
Several months ago, the company announced a partnership with the National Basketball Association (NBA) to launch an eSports league -- NBA 2K eLeague -- which will be based on Take-Two's NBA 2K franchise. Each of the NBA's 30 teams will participate, and the league will follow a format similar to what fans already see in the NBA. The games will consist of a regular season, playoffs, and a championship. These games are expected to be broadcast on linear TV as well as online. eSports is still a nascent field, and the NBA is the first professional league to invest in the area. Take-Two declined to place a timetable on when the venture would go live, but it expressed a high level of excitement about the potential.
Over the last several years, Take-Two seems to have deciphered the code regarding how best to engage with fans and optimize the use of its catalog of titles. As it continues to expand on its existing library and venture further in mobile games, eSports, and online distribution, the company's future prospects will be less dependent on a major title or a specific game launch. This quarter was a great example of that mindset. The stock was initially down more than 10% in late trading after the report, but it rebounded to gains of 6% by market close. Game on!