What happened
Take-Two Interactive (TTWO +1.48%) reported lower bookings than expected for the fiscal second quarter ending Sept. 30. The company also missed the bottom line, reporting an adjusted loss per share of $1.54 compared to expectations of a profit of $1.38 per share.
The stock was down more than 16% in pre-market trading before rallying Tuesday morning. However, as of 12:55 p.m. ET, the stock was still down 11.4%. Year to date, Take-Two stock is down 46%.
NASDAQ: TTWO
Key Data Points
So what
It seems an overdone sell-off since nothing has changed Take-Two's long-term opportunities. There are still several titles in the pipeline planned for release over the next few years. Plus, management said its integration of Zynga is making "excellent progress," and they are optimistic about the long-term growth potential in the video game industry.
Take-Two reported strong top-line growth in the quarter, with bookings up 53% year over year. However, this mostly reflected the addition of Zynga after the company completed the acquisition in May. The largest contributors to Take-Two's $1.5 billion in bookings during the quarter were the NBA 2K franchise, Grand Theft Auto, and Red Dead Redemption 2, followed by Zynga's top mobile titles.
Now what
The sell-off was centered around management's lower guidance for the holiday quarter. Management now expects full-year bookings to come in about $400 million lower than expected, landing between $5.4 billion and $5.5 billion. This is due to delays in upcoming releases, the rising U.S. dollar against foreign currencies, and a weakening economic backdrop that is pressuring mobile revenue.
The downward revision to guidance isn't surprising. Weakness in the mobile market was known heading into the quarter, and Zynga is expected to contribute nearly half of Take-Two's bookings for the current fiscal year.
But there are good reasons to like Take-Two as a long-term holding, especially with the cost savings opportunities following the acquisition of Zynga that is expected to boost margins over the long term.
