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Higher Recurrent Spending to Aid Take Two (TTWO) Q2 Earnings

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Take Two Interactive Software (TTWO - Free Report) is scheduled to report second-quarter fiscal 2019 results on Nov 7.

The company beat the Zack Consensus Estimate in the trailing four quarters, delivering average positive surprise of 26.95%.

In the last reported quarter, Take Two’s earnings of 62 cents per share increased 11.3% from the year-ago quarter. The company's net revenues declined 7.2% from the year-ago quarter to almost $388 million.

For second-quarter fiscal 2019, Take Two expects net bookings to be in the band of $500-$550 million. GAAP net revenues are expected in the range of $480-$530 million. NBA 2K, Grand Theft Auto Online and Grand Theft Auto V are expected to be major contributors.

The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $548.6 million, while that for earnings stands at 91 cents per share.

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

Higher Recurrent Spending a Key Catalyst

Take Two is increasingly benefiting from higher contribution of recurrent consumer spending to its total revenues. The company witnessed higher spending on its popular game offerings like Grand Theft Auto Online and NBA 2K18

Notably, in first-quarter fiscal 2019, recurrent consumer spending accounted for 62% of revenues compared with 41% in the year-ago quarter.

Additionally, Take Two’s net bookings from recurrent consumer spending also increased from 63% of total net bookings in the first-quarter fiscal 2019 as compared to 59% in first quarter fiscal 2018. Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18, Dragon City and Monster Legends, and WWE 2K18 were the major contributors.

Take-Two Interactive Software, Inc. Price and EPS Surprise

Take-Two Interactive Software, Inc. Price and EPS Surprise | Take-Two Interactive Software, Inc. Quote

NBA Franchise to Boost Top Line

Release of NBA 2K19 in second-quarter fiscal 2019 is expected to drive recurrent consumer spending and net bookings on the back of NBA 2K franchise success.

Notably, NBA 2K18, the previous title of the franchise, was the highest-selling sports title in Take Two’s history. The game sold more than 10 million units in the last reported quarter.

Additionally, NBA 2K Online remains the leading PC online sports game in China with more than 37 million registered users. Banking on this success, Take Two launched the beta version of NBA 2K Online 2 in China in fiscal second-quarter 2019 in collaboration with Visual Concepts and Tencent (TCEHY - Free Report) .

Moreover, the inaugural season of Take Two’s first e-sports league, NBA 2K League, held from Aug17-25, garnered strong viewership on Amazon’s Twitch – its streaming partner for the league.

However, Take Two is expected to face significant competition from Activision (ATVI - Free Report) and Electronic Arts’ (EA - Free Report) .

EA recently released NBA LIVE 19, which will be a direct competitor to Take Two’s NBA franchise games. Moreover, EA’s award-winning portfolio of games is expected to pose significant threat.

Nevertheless, we believe Take Two’s NBA franchise success and other popular game offerings will drive sales and engagement levels. Further, the company’s unique agreement with HB Studios to become the sole provider of the PGA TOUR golf simulation game bodes well.

Take Two currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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