Please ensure Javascript is enabled for purposes of website accessibility

Take-Two Hit By Weak Demand

By Danny Vena - May 19, 2018 at 2:18PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ongoing trend towards free-to-play games in the battle royale genre may have stolen this company's momentum.

Going into its fiscal fourth-quarter financial release (which ended March 31, 2018), Take-Two Interactive Software, Inc. (TTWO 1.90%) faced many of the same questions seen in the rest of the video-game industry. A recent trend toward free-to-play battle royale games, led by Epic Games' Fortnite, has captured the public's imagination, leaving fewer players opting for other games.

Take-Two wasn't immune to the trend, with revenue that fell 21% year over year. Net bookings, which takes deferred revenue into account, didn't do much better, increasing a paltry 1%. 

A man on horseback holding a pistol, with a woman rider in the background.

Can Red Dead Redemption reignite Take-Two's sales? Image source: Rock Star Games.

Take-Two results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Net revenue

$450.3 million

$571.6 million

(21%)

Net bookings

$411.4 million

$407.1 million

1%

Operating income

$87.83 million

$111.5 million

(21%)

Net income

$90.9 million

$99.3 million

(8.5%)

Earnings per share

$0.77

$0.89

(13%)

Data source: Take-Two Fourth Quarter Financial Results. Chart by author.

What happened at Take-Two this quarter?

For the just completed quarter, Take-Two produced revenue of $450 million, below the company's forecast for a number in the range of $460 million to $510 million provided at the end of last quarter

Net bookings grew to $411.4 million, up 1% year over year, but far below analysts' consensus estimates of $444.63 million. The company's earnings per share of $0.77 fell 13% compared to the prior-year quarter, in line with analysts' expectations for $0.77 earnings per share. 

Sales from recurrent consumer spending -- which includes virtual currency, add-on content, and in-game purchases -- was a highlight, growing to $238.6 million, up 15% year over year, and accounted for 58% of total net bookings. The largest contributors were Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18, Dragon City and Monster Legends, WWE 2K18 and WWE SuperCard, and Sid Meier's Civilization VI.

Digital sales also shined, increasing to $301.4 million, up 12% compared to the prior-year quarter, driven by Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18, Sid Meier's Civilization VI, Monster Legends and Dragon City, and WWE SuperCard and WWE 2K18.

"During the fourth quarter, Take-Two delivered net bookings growth driven by increased recurrent consumer spending -- including better-than-expected results from Grand Theft Auto Online," said Strauss Zelnick, chairman and CEO of Take-Two. "Our solid performance marked the completion of another outstanding year for our company."

The company announced yet another delay in the release of an upcoming game: "The highly anticipated title from one of 2K's biggest franchises, which had been planned for release during the current fiscal year, is now planned for launch during fiscal 2020 to allow for additional development time." This has become a familiar refrain to Take-Two shareholders, as the company has a long documented history of delaying game releases.

Looking ahead

For the upcoming first quarter, Take-Two expects GAAP net revenue in a range of $345 million to $395 million, which would represent a decline of 11.5% at the midpoint of guidance. This would produce earnings per share in a range of $0.53 to $0.63, which would represent 3.5% growth at the midpoint. 

For the full year, the company is guiding for GAAP net revenue in a range of $2.5 billion to $2.6 billion, which would represent impressive 42% year-over-year growth at the midpoint of its guidance. Take-Two expects diluted earnings per share in a range of $1.53 to $1.80, which would be more than double the $0.77 per diluted share the company generated in the just-completed fiscal year.

So, what's causing all of that full-year optimism? Take-Two is pinning its hopes on the long-awaited release of Red Dead Redemption 2, which is now due to launch on October 26, after several well-publicized delays. If the company plans on reaching its lofty goals, it can't afford another postponement.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Take-Two Interactive Software, Inc. Stock Quote
Take-Two Interactive Software, Inc.
TTWO
$124.86 (1.90%) $2.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.