It has been about a month since the last earnings report for Take-Two Interactive (TTWO - Free Report) . Shares have added about 2.2% in that time frame, underperforming 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 drivers.
Take Two’s Q4 Earnings and Revenues Decrease Y/Y
Take Two Interactive Software reported fourth-quarter fiscal 2020 GAAP earnings of $1.07 per share, up 114% year over year.
Net revenues increased 41.1% from the year-ago quarter to $760.5 million. The top line was driven by heightened user engagement levels and net bookings growth attributed to coronavirus-led lockdown.
NBA 2K20 and NBA 2K19, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Borderlands 3, Sid Meier’s Civilization VI, Social Point’s mobile games, WWE SuperCard and WWE 2K20 were the biggest contributors to the company’s fourth-quarter fiscal 2020 top-line growth.
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 40% and accounted for 54% of total GAAP net revenues.
The Zacks Consensus Estimate for earnings and revenues was pegged at 88 cents per share and $578 million, respectively.
Digital revenues (88.4% of revenues) increased 53.5% year over year to $634.7 million. Notably, growth was driven by NBA 2K20 and NBA 2K19, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Borderlands 3, Sid Meier’s Civilization VI, Social Point’s mobile games, WWE SuperCard and WWE 2K20.
Meanwhile, revenues from Physical retailer and other segments (7.5% of revenues) remained flat year over year at $125.9 million.
Region-wise, revenues from the United States (54.4% of revenues) increased 50.6% year over year to $413.7 million. Moreover, revenues from International markets (45.6% of revenues) increased 31.2% to $346.8 million.
On the basis of platforms, revenues from console (71.3% of revenues) increased 28.3% to $542.2 million while revenues from PC and other (28.7% of revenues) surged 87.3% to $218.4 million.
Net bookings of $729.4 million increased 49.3% on a year-over-year basis.
Net bookings from recurrent consumer spending grew 47% year over year and accounted for 61% of total net bookings. Notably, growth was driven by NBA 2K20, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Borderlands 3, Sid Meier’s Civilization VI, Social Point’s mobile games, WWE SuperCard and WWE 2K20.
Notably, Catalog accounted for $432.1 million of net bookings. Strong demand for Grand Theft Auto, Red Dead Redemption, Sid Meier’s Civilization VI and Social Point’s mobile offerings was observed in the reported quarter.
Digitally-delivered net bookings (92.1% of net bookings) grew 60.4% to $672.1 million. However, bookings from Physical retail (7.9% of net bookings) and other segments declined 17.4% to $57.4 million.
Take Two’s gross profit increased 30.3% year over year to $364.86 million. Reported gross margin of 48% contracted 400 basis points (bps) from the year-ago quarter.
Reported operating expenses increased 9.5% year over year to $243 million, primarily due to higher research & development (R&D) and general & administrative (G&A) expenses in the quarter. R&D and G&A expenses increased 21.4% and 8.8%, respectively, on a year-over-year basis.
Meanwhile, selling & marketing (S&M) expenses increased 3% year over year to $80 million in the reported quarter.
Income from operations came in at $121.9 million, up 109.9% year over year. Operating margin expanded 530 bps from the year-ago quarter.
For the first quarter of fiscal 2021, Take Two expects GAAP net revenues between $775 million and $825 million. The company projects GAAP earnings between 90 cents and $1 per share.
Net bookings are projected between $800 million and $850 million. Significant contribution to net bookings is expected to be made by Grand Theft Auto Online and Grand Theft Auto V and NBA 2K20, Red Dead Redemption 2 and Red Dead Online and Borderlands 3.
The company projects recurrent consumer spending to grow approximately 75% year over year, driven primarily by growth in Grand Theft Auto Online and NBA 2K20.
Moreover, digitally delivered net bookings are expected to double year over year. The company assumes that 81% of current generation console games will be delivered digitally, up from 75% in the same period last year.
For fiscal 2020, net bookings are expected between $2.55 billion and $2.65 billion. The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Social Point's mobile game, Borderlands 3, Civilization VI and the Outer Worlds.
Take-Two expects geographic net bookings split to be about 60% United States and 40% International.
The company expects digitally delivered net bookings to decline about 8% from the last year. As a percentage of business, digital is projected to represent 86%, up from 82% last year.
GAAP net revenues are likely to be in the range of $2.63-$2.73 billion. Take Two projects GAAP earnings of $2.60-$2.85 per share.
Total operating expenses are expected to range between $1.1 billion and $1.12 billion.
Take Two expects recurrent consumer spending to be roughly flat compared with fiscal 2020, driven primarily by growth in NBA 2K and offset by lower allocated recurrent consumer spending from the Borderlands 3 and Red Dead Redemption 2 Premium Edition.
Current consumer spending as a percentage of business is expected to grow to approximately 60% compared to 51% last 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 fresh estimates. The consensus estimate has shifted 432.35% due to these changes.
Currently, Take-Two has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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.
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.