Please ensure Javascript is enabled for purposes of website accessibility

Why Take-Two Interactive Software, Inc's Shares Popped Today

By Travis Hoium - Aug 3, 2018 at 3:08PM

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

Recurring revenue growth is driving Take-Two Interactive Software, Inc higher today.

What happened 

Shares of Take-Two Interactive Software, Inc (TTWO -2.67%) jumped as much as 15.2% in trading Friday after the company reported fiscal first-quarter earnings. Shares fell back slightly late in the day but were still up 8.3% at 1:30 p.m. EDT.  

So what

Revenue fell 7.2% to $388.0 million, and net income was up 18.9% to $71.7 million, or $0.62 per share. Analysts estimated revenue would be $258 million and earnings would be $0.07 per share, so this was a big earnings beat. 

Two people sitting and playing video games.

Image source: Getty Images.

The incredible number for the year was that 62% of revenue was recurring, up from 41% a year ago, driven by Grand Theft Auto Online. Recurring revenue takes pressure off each new release and should smooth earnings long-term. 

Now what

The earnings beat is good to see for investors, despite the fact that revenue was down year over year. But the real change is transforming the business to more recurring revenue that brings it some stability. 

My biggest concern is that shares are very expensive, trading at 72 times the high end of fiscal 2019 earnings guidance of $1.45 to $1.70 per share. That's a steep price for a company that isn't growing quickly and will keep me out of shares today. 

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.
$119.76 (-2.67%) $-3.29

*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 service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

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.