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Take-Two (TTWO) Up 7.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Take-Two Interactive (TTWO - Free Report) . Shares have added about 7.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Take-Two due for a pullback? 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 catalysts.

Take Two’s Q2 Earnings and Revenues Increase Y/Y

Take Two Interactive Software reported second-quarter fiscal 2021 earnings of 86 cents per share, up 36.5% year over year.

Net revenues decreased 1.9% year over year to $841.1 million. However, bookings climbed 0.5% year over year to $957.5 million.

Digital revenues (84.6% of revenues) increased 15.5% year over year to $711.3 million. Physical retail and other segment revenues (15.4% of revenues) declined 46.4% year over year to $129.8 million.

Grand Theft Auto (GTA) Online and GTA V, NBA 2K20 and NBA 2K21, Red Dead Redemption 2 and Red Dead Online, Borderlands 3, PGA TOUR 2K21, Sid Meier’s Civilization VI, Social Point’s mobile offerings, the WWE series, and the Mafia: Definitive Editions and Mafia: Trilogy were the biggest contributors to the company’s second-quarter fiscal 2021 top line.

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 56% year over year and accounted for 59% of total revenues.

The Zacks Consensus Estimate for earnings and revenues was pegged at $1.45 per share and $843 million, respectively.

Top-Line Details

Region-wise, revenues from the United States (59.9% of revenues) increased 1.8% year over year to $503.6 million. However, international revenues (40.1% of revenues) decreased 7.1% to $337.6 million.

On the basis of platforms, revenues from console (76.2% of revenues) decreased 1.6% to $641.3 million. Revenues from PC and other (23.8% of revenues) fell 3% to $199.9 million.

Booking Details

Net bookings from recurrent consumer spending grew 43% year over year and accounted for 64% of net bookings. Notably, growth was driven by GTA Online and GTA V, NBA 2K21 and 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 Mafia: Definitive Edition and Mafia: Trilogy.

Notably, Catalog accounted for $587.3 million of net bookings. Strong demand for GTA, NBA 2K ,Red Dead Redemption, Borderlands, Social Point’s mobile offerings, the Mafia: Definitive Edition and Mafia: Trilogy, and the WWE series were witnessed in the reported quarter.

Digitally delivered net bookings (84.6% of net bookings) grew 13.9% to $791.7 million. However, bookings from Physical retail and other segments (17.3% of net bookings) decreased 35% to $165.8 million.

New Game Releases

During the reported quarter, Take Two division 2K launched NBA 2K21, Mafia: Definitive Edition, WWE 2K Battlegrounds and PGA TOUR 2K21.

Mafia: Definitive Edition was launched for PlayStation 4, Xbox One, and PC. WWE 2K Battlegrounds was also launched for Nintendo’s Switch and Alphabet division Google’s Stadia apart from PlayStation 4, Xbox One and PC.

Moreover, PGA TOUR 2K21 was launched for PlayStation 4, Xbox One, Switch (digital), PC and Stadia.

2K also announced the launch of Borderlands 3 for PlayStation 5 and Xbox Series X when the next console systems launch in November 2020.

Additionally, Season 7 of WWE SuperCard, is scheduled to launch in November 2020 as a free, downloadable update for iOS, Android and Facebook Gaming.

Further, Take Two’s Private Division along with Obsidian Entertainment launched The Outer Worlds: Peril on Gorgon.

Operating Details

Take Two’s gross profit increased 4.9% year over year to $408.6 million. Reported gross margin of 48.6% expanded 320 basis points (bps) year over year.

Operating expenses decreased 6.8% year over year to $293.3 million primarily due to lower selling & marketing (S&M) and research & development (R&D) expenses in the reported quarter. S&M and G&A expenses decreased 24% and 2.6%, respectively, on a year-over-year basis. However, general & administrative expenses increased 19.4% year over year.

Operating income came in at $115.4 million, up 54.2% year over year. Operating margin expanded 500 bps year over year to 13.7%.

Balance Sheet

As of Sep 30, 2020, TakeTwo had $2.84 billion in cash, cash equivalents and short-term investments compared with $2.75 billion as of Jun 30, 2020.

Acquisition Details

During the reported quarter, the company bought Two Dots developer Playdots for final consideration of $196 million, comprised of $98 million in cash and the balance in newly issued shares of TakeTwo common stock.

Moreover, Take Two division Rockstar Games acquired Dundee, Scotland-based Ruffian Games, and renamed it Rockstar Dundee.

Guidance

For the third quarter of fiscal 2021, Take Two expects GAAP net revenues between $760 million and $810 million. The company projects GAAP earnings between $1.10 and $1.21 per share.

Net bookings are projected between $675 million and $725 million.

For fiscal 2021, net bookings are expected between $3.15 billion and $3.25 billion. GAAP net revenues are likely to be in the range of $3.05-$3.15 billion. Take Two projects GAAP earnings of $3.22-$3.49 per share.

The company currently expects net cash flow to be more than $690 million for the fiscal year.


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 93.16% due to these changes.

VGM Scores

At this time, Take-Two has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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 C. 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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