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Take-Two Interactive Software Inc. (TTWO - Free Report) reported fiscal third quarter 2014 adjusted earnings of $1.41 per share compared with 60 cents in the year-ago quarter.


Take-Two reported revenues of $767.0 million up 89.5% from $405.0 million reported in the year-ago quarter. This exceeded management’s guidance range of $650.0 million to $700.0 million and convincingly beat the Zacks Consensus Estimate of $711.0 million.

The year-over-year growth was driven by the worldwide success of Grand Theft Auto V, the record breaking launch of NBA 2K14, the successful release of WWE 2K14, and strong growth in revenues from digitally delivered content.

Quarterly revenues were positively impacted by solid Catalog sales, which accounted for $113.0 million of net revenues, led by Grand Theft Auto IV and offerings for Borderlands 2 and Civilization V.

This apart, revenues from digitally delivered content grew 42.0% year-over-year to $132.8 million, with significant contributions from the Grand Theft Auto series, particularly digital sales of Grand Theft Auto V and offerings for Borderlands 2, Civilization V and BioShock Infinite.

From the geographic perspective, United States accounted for 44.0% of revenues in the reported quarter compared with 65.0% in the year-ago quarter. The remaining 56.0% of revenues came from International markets, which increased from 35.0% in the year-ago quarter.


Although adjusted gross profit increased a staggering 63.7% to $316.0 million on a year- over-year basis, gross margin declined to 41.2% from 47.7% reported in the year-ago quarter. The decline in gross margin happened primarily due to higher internal royalties. Adjusted operating margin for the quarter was 23.4%, up from 18.5% reported in the year-ago quarter.
The company’s GAAP net income for the quarter increased to $578.4 million, up from a net income of $70.4 million in the year-ago quarter. Adjusted net income for the quarter was $1.39 per share compared with 58 cents per share in the year-ago quarter. Earnings of $1.41 per share beat the Zacks Consensus Estimate of $1.32.

Balance Sheet

Take Two exited the quarter with cash and cash equivalent of $972.2 million, up from $661.9 million reported in the previous quarter.


For the fourth quarter of fiscal 2014, Take Two expects non-GAAP net revenues to be in the range of $170 to $200 million.  Non-GAAP earnings are expected to be in the range of 0 to 10 cents per share.

For fiscal 2014, the company expects non-GAAP net revenue to be in the range of $2.35 to $2.38 billion, while earnings are expected to be in the range of $4.15 to $4.25 per share.

Our Take

Take Two reported strong third quarter fiscal 2014 numbers with earnings exceeding the Zacks Consensus Estimate and revenues increasing substantially from the year-ago quarter. The company received positive reviews for its new launches, as Grand Theft Auto V took center stage.

We believe that the robust pipeline of new intellectual properties and offerings from the proven franchises will help drive growth and profitability going forward.

Although the company is doing well in terms of its business, stiff competition from companies such as Electronic Arts (EA - Free Report) , Activision Blizzard Inc. (ATVI - Free Report) and social gaming companies such as Zynga (ZNGA - Free Report) and the recent downturn in the gaming industry may temper growth prospects to a certain extent.

Take Two has a Zacks Rank #3 (Hold).

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