In this segment of the Motley Fool Money radio show, host Chris Hill and Supernova and Rule Breakers' David Kretzmann consider the story at video game giant Take-Two Interactive (NASDAQ:TTWO), which turned in a strong quarterly report. True, Red Dead Redemption 2 has been pushed off until spring 2018, but even so, the company is forecasting a year that should lure in more investors, based on the current share price.
A full transcript follows the video.
This video was recorded on May 26, 2017.
Chris Hill: Take-Two Interactive is pushing back the release date of one of its popular video games, and investors apparently could not care less. Fourth-quarter profits came in much higher than expected, David. Stock up 15% this week. Boy, winning cures everything, doesn't it?
David Kretzmann: Yeah. It really helps. I think the big driver here for Take-Two Interactive and a lot of these video game companies like Electronic Arts and Activision Blizzard is digital. In this case, recurrent consumer spending, that's what Take-Two calls their virtual currency --
Hill: What do they call it?
Kretzmann: Recurrent consumer spending. I feel like they could come up with a less complicated way to explain that. It's basically, anything you buy with in the game, it's virtual currency, downloadable extra content, microtransactions within the game. All of that together now makes up about 25% of total revenue. That's very high-margin revenue. So, you're seeing that profitability bump up. And even though Red Dead Redemption 2 is delayed until next spring when it launches, they're still guiding for record profitability this year. They're only trading for about 18 times forward earnings based on the guidance that they laid out. So, all in all, a lot of things to look forward to here.
Hill: They should get whoever named that game to name that little revenue stream they have.
Kretzmann: Yeah, clearly, they have creative people there. They design some incredible video games. But they still have some work to do there.
Chris Hill has no position in any stocks mentioned. David Kretzmann owns shares of ATVI, EA, and Take-Two Interactive. The Motley Fool owns shares of and recommends ATVI and Take-Two Interactive. The Motley Fool recommends EA. The Motley Fool has a disclosure policy.