Take-Two Interactive (NASDAQ:TTWO) recently announced it was delaying the highly anticipated Red Dead Redemption 2 from a fall 2017 release to spring 2018, causing management's guidance for fiscal 2018 financial results to be lower than originally expected. In fiscal 2018, revenue is now expected to be $1.42 billion to $1.52 billion, short of last year's $1.78 billion.
The stock didn't budge much at all over the news, which is the way it should be, since virtually all of a business' value is determined by how much profit it generates over several years, not one.
Here's the official announcement of the delay along with an explanation from Take-Two's earnings press release:
[Take-Two subsidiary] 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.
Essentially, what the delay of Red Dead Redemption 2 boils down to is that the game's initial financial results will be filed under fiscal 2019 instead of fiscal 2018 -- no big deal.
Take-Two has a history of delaying new games
Any gamer who has been a loyal enthusiast of Take-Two's games over the years probably isn't surprised given the long history of the company rescheduling release dates for its new games. Grand Theft Auto V was originally scheduled for spring 2013, but eventually released in the fall of that year. That hasn't prevented the stock from soaring over 300% the past few years on top of the company racking up piles of cash from recurring in-game spending. Management obviously wants to deliver a quality game instead of hitting near-term financial targets, which makes a better game experience for players -- and a better business for investors.
Take-Two's Rockstar Games subsidiary -- the studio behind Grand Theft Auto and Red Dead Redemption -- consistently puts out highly praised games that generate solid financial results and become big hits with gamers. Red Dead Redemption 2 is expected to be one of those games once it's released, especially since it's the Western action game's debut on more powerful current-generation consoles.
As a consolation for disappointing fans, the company released some new screenshots of settings in the game (one is featured above). The images show off how good the game looks, which will only stoke the enthusiasm of the gaming community. CEO Strauss Zelnick talked about this on the recent quarterly conference call, saying: "There is no doubt that the engagement with the materials that we released was extraordinary, the screenshots are beautiful, the buzz is palpable and growing."
What does this mean financially for Take-Two?
As a result of the delay, fiscal 2018 will be a lighter year for new game releases than originally planned, and will cause lower revenue and cash flow as a result. In addition to lower expected revenue, management guided for cash flow to be approximately $150 million compared to over $300 million generated in fiscal 2017.
Ten years ago, pushing a new game release from one year to the next would have been a more devastating blow to near-term financial results, but not so much today. With recurrent in-game spending making up 26% of total revenue, growing 52% to about $460 million last year, Take-Two is generating more consistent year-to-year cash flow since in-game content generates higher margins than sales of game discs. Digital revenue, which includes full-game download purchases along with in-game content, has doubled since fiscal 2014, and is a more important contributor to Take-Two's results today than four years ago.
Grand Theft Auto Online has been the key contributor to Take-Two's growth in digital revenue, and it's grown every year since the game launched in 2013. Red Dead Redemption 2 will be out sometime in the next year or so, but until it's available, gamers are still finding plenty of reason to stay engaged with Grand Theft Auto, NBA 2K17, and WWE 2K17, among other games.