It isn't the biggest video game developer in the industry, but Take-Two Interactive (NASDAQ:TTWO) benefits from the same trends that have lifted rivals Activision Blizzard (NASDAQ: ATVI) and Electronic Arts (NASDAQ: EA) to new heights lately.
In fact, the company's stock trounced both these peers in 2017 as investors bet that its growing portfolio of gaming brands will deliver record sales, profits, and cash flow in the years to come.
Take-Two's holiday quarter results, due out after the market closes on Wednesday, Feb. 7, should mark an important step toward those predicted long-term gains. Let's take a closer look at what investors are looking for in that report.
A great holiday season
Take-Two's games didn't dominate the sales charts last year. That honor went to Activision Blizzard, whose Call of Duty franchise topped the console gaming list for the eighth straight year. Activision also notched second place with its Destiny 2 release.
But Take-Two likely had a banner holiday season, too. Its Grand Theft Auto Online game continues to set audience and engagement records four years after the release of Grand Theft Auto V. NBA 2K18 benefited from a 20% sales increase when compared to the prior year's release, and that bigger base probably drove record in-game spending for the franchise last quarter. Other positive contributors to the results should include WWE 2K18 and the crime drama L.A. Noire.
Overall, this batch of titles is expected to drive bookings up to between $610 million and $660 million, which is expected to translate into GAAP revenue of about $470 million.
The profit outlook
A big portion of that revenue will come from the ultra-profitable digital sales channel. Take-Two announced a 52% spike in that category last quarter to push digital delivery up to 62% of total bookings.
There have been concerns about game publishers pushing the envelope too far when it comes to promoting in-game spending. EA had to suspend digital transactions in its latest Star Wars: Battlefront game, for example, following user complaints. Assuming Take-Two avoided a similar stumble in any of its high-profile releases, though, the company should post another strong quarter of digital sales, leading to increased operating margin and healthy cash flow.
In early November, CEO Strauss Zelnick and his team raised their 2018 growth outlook by a wide margin and currently expect bookings to jump to as much as $2.03 billion. The prior target had called for $1.75 billion at the top of the range, which would have marked a decrease from last year's $1.9 billion. FY 2018 ends on March 31.
Curiously, Take-Two left its fiscal 2019 outlook unchanged despite the surprisingly strong demand trends it has managed through the first half of fiscal 2018. Executives affirmed long-term guidance for $2.5 billion of bookings next year and $700 million of operating cash flow.
Sure, these figures would represent healthy growth and new records for the publisher. Yet the company might have room to edge that forecast higher, if not this week then maybe when it closes out the fiscal year in March.
Fiscal 2019 will include the highly anticipated launch of Take-Two's NBA 2K sports league, along with a sequel in the hugely popular Red Dead Redemption franchise. These releases will likely drive growth in the coming year. More importantly, they'll add to a portfolio of gaming brands that's not quite as large as EA's or Activision's -- but is closing the gap with these rivals with each passing year.