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Take Two's (TTWO) Q3 Earnings Rise Y/Y, Net Bookings Decline

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Take Two Interactive Software (TTWO - Free Report) reported third-quarter fiscal 2021 earnings of $1.57 per share, up 9.8% year over year.

Net revenues decreased 7.4% year over year to $860.9 million due to decline in net bookings and higher operating expenses. Moreover, bookings declined 8.3% year over year to $814.2 million.

Markedly, digital revenues (84.6% of revenues) increased 4% year over year to $728.5 million. Meanwhile, Physical retail and other segment revenues (15.4% of revenues) declined 42.4% year over year to $132.4 million.

Grand Theft Auto (GTA) Online and GTA V, NBA 2K20 and NBA 2K21, 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 Mafia: Definitive Editions and Mafia: Trilogy were the biggest contributors to the company’s third-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 57% year over year and accounted for 62% of total revenues.

The Zacks Consensus Estimate for earnings and revenues was pegged at 95 cents per share and $750 million, respectively.

Top-Line Details

Region-wise, revenues from the United States (61.4% of revenues) decreased 1.6% year over year to $528.3 million. Moreover, international revenues (38.6% of revenues) decreased 15.4% to $332.6 million.

On the basis of platforms, revenues from console (76.2% of revenues) decreased 3.5% to $656.1 million. Revenues from PC and other (23.8% of revenues) fell 18.2% to $204.8 million.

Booking Details

Net bookings of $814.2 million declined 8.3% on a year-over-year basis. Net bookings from recurrent consumer spending grew 30% year over year and accounted for 58% of net bookings.

Notably, Catalog accounted for $500 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 (81.6% of net bookings) declined 3.8% to $664.4 million. Bookings from Physical retail and other segments (18.4% of net bookings) decreased 24.2% to $149.9 million.

New Game Releases & Updates

During the reported quarter, Take Two division Rockstar Games released GTA Online's biggest update to date — The Cayo Perico Heist — featuring a new tropical island Heist location for up to four players, including, for the first time, the option to play the entire Heist solo.

A standalone version of Red Dead Online was released on PS 4, Xbox One and PC for the first time to allow new players who do not already own Red Redemption 2 to experience everything that Red Dead Online has to offer.

Take-Two’s 2K division launched NBA 2K21 and Borderlands 3 for PS 5 and Xbox Series X. Moreover, 2K launched the Babylon and Vietnam & Kublai Khan packs for Sid Meier's Civilization VI as part of Firaxis Games' New Frontier Pass for PS 4, Xbox One, Nintendo Switch and PC.

Additionally, the company expanded the breadth of NBA 2K offerings with the releases of NBA SuperCard and NBA 2K Mobile season 3 for iOS and Android devices.

Moreover, a series of free and paid content for PGA TOUR 2K21 was launched for PS4, Xbox One, Nintendo (NTDOY - Free Report) Switch (digital), PC and Alphabet (GOOGL - Free Report) owned Google Stadia.

Season 7 of WWE SuperCard was launched as a free, downloadable update for iOS, Android and Facebook Gaming.

Further, Take Two’s Private Division released the Some Assembly Required update for Kerbal Space Program for PC.

Operating Details

Take Two’s gross profit increased 4.4% year over year to $514.6 million. Reported gross margin of 59.8% expanded 680 basis points (bps) year over year.

Operating expenses increased 7.1% year over year to $338.6 million primarily due to higher selling & marketing (S&M) and research & development (R&D) expenses in the reported quarter. S&M and R&D expenses increased 2.1% and 4.7%, respectively, on a year-over-year basis. Meanwhile, general & administrative expenses (G&A) increased 16.7% year over year.

Operating income came in at $176.1 million, down 0.4% year over year. Operating margin expanded 140 bps year over year to 20.5%.

Balance Sheet

As of Dec 31, 2020, Take Two had $2.42 billion in cash, cash equivalents and short-term investments compared with $2.84 billion as of Sep 30, 2020.

Acquisition Details

During the reported quarter, Take Two’s wholly owned subsidiary Rockstar Games announced the acquisition of Ruffian Games. Based in Dundee, Scotland, the studio will operate under the new name of Rockstar Dundee. The terms of the acquisition were not disclosed.

Guidance

For the fourth quarter of fiscal 2021, Take Two expects GAAP net revenues between $702 million and $752 million. The company projects GAAP earnings between 88 cents and 98 cents per share.

Net bookings are projected between $602 million and $652 million.

For fiscal 2021, net bookings are expected between $3.37 billion and $3.42 billion. GAAP net revenues are likely to be in the range of $3.235-$3.285 billion. Take Two projects GAAP earnings of $4.08-$4.18 per share.

This Zacks Rank #2 (Buy) company currently expects net cash flow to be more than $810 million for the fiscal year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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