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Why Take-Two Interactive Stock Dropped 15% in November

By John Ballard – Dec 8, 2018 at 5:10PM

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Investors were looking for more in the game maker's second-quarter earnings report.

What happened

Shares of Take-Two Interactive (TTWO 1.48%) plunged 14.9% last month, according to data from S&P Global Market Intelligence, following the company's second-quarter earnings report in early November.

So what

Overall, Take Two's quarter was a positive one, with revenue up 11% year over year. Earnings per share improved to $0.22, compared with a loss of $0.03 per share in the year-ago quarter. The quarter was driven by good performance in Grand Theft Auto V and its multiplayer component, Grand Theft Auto Online. Take-Two also launched NBA 2K19 in September, which was the company's biggest launch in the series' history. 

Game art for Red Dead Redemption 2 video game depicting a red and orange sunset with silhouettes of characters holding guns walking in the foreground.


On a non-GAAP basis, the company beat analysts' expectations on both the top and bottom line. Adjusted revenue (i.e., net bookings) grew 1% to $583.4 million, which was higher than the $549.9 million analysts expected. Adjusted earnings per share came in at $1.05 per share, beating analysts' estimates by $0.12. 

However, management's third-quarter outlook was slightly below what analysts had expected, which didn't sit well with market participants. Investors were looking for a stronger outlook to justify the high valuation on the stock, and the company didn't quite match those high expectations. That's probably why the stock fell.

Now what

Fiscal 2019, ending in March, is expected to be a record year for Take-Two, following the blockbuster release of Red Dead Redemption 2. The game sold 17 million units in just over a week following its Oct. 26 release date. 

Based on a stronger-than-expected second quarter, management raised its full-year outlook for the year. The company now expects net bookings to be in the range of $2.8 billion to $2.9 billion, representing a 43% increase over fiscal 2018. This growth is based on strong expected sales of Red Dead 2, as well as growth in the NBA 2K franchise. Analysts currently expect the company to grow adjusted earnings per share by 49% year over year, to $4.99 for fiscal 2019. 

One thing to watch moving into the new year is whether players remain engaged with Grand Theft Auto V now that Red Dead 2 is available. Despite Take-Two's lower-than-expected outlook, one analyst maintained his bullish stance on the shares based on the fact that Grand Theft Auto appears to be keeping players engaged. If both games continue performing well in 2019, Take-Two's growth story is certainly not over.

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Take-Two Interactive. The Motley Fool has a disclosure policy.

Stocks Mentioned

Take-Two Interactive Software Stock Quote
Take-Two Interactive Software
$107.97 (1.48%) $1.57

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