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Why Is Take-Two (TTWO) Down 2.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Take-Two Interactive (TTWO - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Take-Two due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Take Two’s Q1 Earnings and Revenues Increase Y/Y

Take Two Interactive Software reported first-quarter fiscal 2021 GAAP earnings of 77 cents per share, up 87.8% year over year.

Net revenues increased 53.8% from the year-ago quarter to $831.3 million. The top line was driven by heightened user engagement levels and net bookings growth attributed to coronavirus-led lockdown.

Grand Theft Auto (GTA) Online and GTA V, NBA 2K20, Red Dead Redemption 2 and Red Dead Online, Borderlands 3, Sid Meier’s Civilization VI, Social Point’s mobile offerings, the WWE series and The Outer Worlds were the biggest contributors to the company’s first-quarter fiscal 2021 top-line growth.

Recurrent consumer spending (virtual currency, add-on content and in-game purchases, including the allocated value of virtual currency and add-on content incorporated in special editions of certain games) increased 52% and accounted for 58% of total GAAP net revenues.

The Zacks Consensus Estimate for earnings and revenues was pegged at $1.58 per share and $823 million, respectively.

Top-Line Details

Digital revenues (87.4% of revenues) increased 69.8% year over year to $726.2 million. Revenues from Physical retailer and other segments (12.6% of revenues) declined 6.7% year over year at $105.1 million.

Region-wise, revenues from the United States (56.6% of revenues) increased 42.4% year over year to $470.5 million. Moreover, revenues from International markets (43.4% of revenues) increased 71.8% to $360.8 million.

On the basis of platforms, revenues from console (73.6% of revenues) increased 40.7% to $611.7 million while revenues from PC and other (26.7% of revenues) surged 107.9% to $219.6 million.

Booking Details

Net bookings of $996.2 million increased 136% on a year-over-year basis.

Net bookings from recurrent consumer spending grew 127% year over year and accounted for 65% of total net bookings. Notably, growth was driven by GTA Online and GTA V, NBA 2K20, Red Dead Redemption 2 and Red Dead Online, Borderlands 3, Social Point’s mobile offerings, Sid Meier’s Civilization VI, the WWE series and The Outer Worlds.

Notably, Catalog accounted for $915.5 million of net bookings. Strong demand for Grand Theft Auto, Borderlands 3, Red Dead Redemption, Sid Meier’s Civilization VI and Social Point’s mobile offerings was observed in the reported quarter.

Digitally-delivered net bookings (91.9% of net bookings) grew 139% to $915.2 million. Moreover, bookings from Physical retail (8.1% of net bookings) and other segments increased 103.9% to $81.1 million.

Operating Details

Take Two’s gross profit increased 18.6% year over year to $354.6 million. Reported gross margin of 42.7% contracted from 55.3% in the year-ago quarter.

Reported operating expenses increased 10.2% year over year to $272.5 million, primarily due to higher selling & marketing (S&M) and general & administrative (G&A) expenses in the quarter. S&M and G&A expenses increased 13.3% and 11.3%, respectively, on a year-over-year basis.

Meanwhile, research & development (R&D) expenses increased 6% year over year to $73.1 million in the reported quarter.

Income from operations came in at $82.1 million, up 58.8% year over year. Operating margin expanded 30 basis points (bps) from the year-ago quarter.

Balance Sheet

As of Jun 30, 2020, Take-Two had $2.75 billion in cash, cash equivalents and short-term investments compared with $2.54 billion as of Mar 31, 2020.

Guidance

For the second quarter of fiscal 2021, Take Two expects GAAP net revenues between $750 million and $800 million. The company projects GAAP earnings between 85 cents and 96 cents per share.

Net bookings are projected between $775 million and $825 million. Significant contribution to net bookings is expected to be made by Grand Theft Auto Online and Grand Theft Auto V and NBA 2K20, Red Dead Redemption 2 and Red Dead Online and Borderlands 3.

The company expects digitally delivered net bookings to be flat year over year, driven by growth in recurrent consumer spending, offset by lower digitally delivered sales of Borderlands 3. The company assumes that 63% of current generation console games will be delivered digitally, up from 51% in the same period last year.

For fiscal 2021, net bookings are expected between $2.8 billion and $2.9 billion. The largest contributors to net bookings are expected to be NBA 2K, GTA Online and GTA V, Red Dead Redemption 2 and Red Dead Online, Borderlands 3, Social Point's mobile games, Sid Meier's Civilization VI and The Outer Worlds.

Take-Two expects geographic net bookings split to be about 60% United States and 40% International.

The company expects digitally delivered net bookings to increase about 3% from the last year against its prior expectation of an 8% decline. As a percentage of business, digital is projected to represent 87%, up from 82% last year.

GAAP net revenues are likely to be in the range of $2.8-$2.9 billion. Take Two projects GAAP earnings of $3.04-$3.3 per share.

Total operating expenses are expected to range between $1.15 billion and $1.17 billion.

Take Two expects recurrent consumer spending to grow 15% against its prior expectation of flat and represent 61% of net bookings compared with 51% last year, driven primarily by growth in NBA 2K, GTA Online and Social Point.

Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 41.22% due to these changes.

VGM Scores

Currently, Take-Two has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Take-Two has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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