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Take-Two Interactive (TTWO) Q1 Earnings: Will it Surprise?

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Take-Two Interactive Software Inc. (TTWO - Free Report) is set to report first-quarter fiscal 2018 results on Aug 2.

Last quarter, the company delivered a positive earnings surprise of 38.30%. It reported positive earnings surprises in the trailing four quarters, translating to an average surprise of 101.65%.

In the last one year, Take-Two has returned 98.8% compared with the industry’s gain of 39.1%.

For the fiscal first quarter, the company expects GAAP net revenues to be in the band of $390–$440 million. The company projects earnings per share in the range of 65–75 cents. Net sales (operational metric) are projected in the band of $240–$290 million.

Let’s see how things are shaping up for this announcement.

Factors to Consider

The company expects to benefit from its popular offerings like GrandTheft Auto V and Grand Theft Auto online (80 million copies sold but sales are now slowing down), along with its other releases like NBA 2K17 and WWE 2K17. In fact, increased sales of the digital version of the games are adding to the company’s margins. Take-Two continues to expect growth in digital revenues driven by higher sales of full-game downloads and increase in recurrent consumer spending.

The company forayed into free-to-play games space with the acquisition of game developer, Social Point. The buyout is likely to boost its performance. Management expects Social Point to contribute 6% of the total revenue in the current fiscal.

However, increasing competition from the likes of Electronic Arts (EA - Free Report) , Activision Blizzard (ATVI - Free Report) and Zynga remains a headwind.

Earnings Whispers

Our proven model does not conclusively show that Take-Two is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Take-Two’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at breakeven. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Take-Two’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings beat.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Here is a stock that, as per our model, has the right combination of elements to post an earnings beat this quarter.

Fiserv Inc. (FISV - Free Report) has an Earnings ESP of +1.63% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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