It's no secret that digital entertainment is where the action is right now, and the COVID-19 pandemic is accelerating that trend. Top video game maker Take-Two Interactive (NASDAQ: TTWO) finished its fiscal year on a high note by reporting exceptionally strong numbers for the quarter ended in March.
It was a strong quarter across the board for Take-Two's game lineup. Recurrent consumer spending increased by 40% year over year during the fiscal fourth quarter and comprised 54% of total revenue. This was driven by in-game spending in top titles, such as NBA 2K, Grand Theft Auto Online, Red Dead Online, and several other titles. Total revenue increased 16% for fiscal 2020, crossing the $3 billion mark for the first time in Take-Two's history, while earnings climbed 21% for the year.
But this is just the beginning of what should be another decade of strong growth, as management announced a new release slate of 93 new games at various stages of development and planned for release over the next five years through fiscal 2025.
Reaching for scale
Take-Two management has been stating repeatedly in recent conference calls that it has the deepest pipeline in its history. This is the first time the video game publisher's management has gone into detail about the magnitude of its development pipeline.
To be sure, 93 is a lot. This slate includes all full-game releases, not add-on content. As impressive as that sounds, management admitted that many of these titles will never see the light of day, which is just the nature of the business. Some ideas sound great on paper but don't work out in the end.
However, the figure provided doesn't include new titles that will be added in the future. President Karl Slatoff noted "that these figures reflect a snapshot of our current pipeline as it stands today ... It is likely that some of these titles will not be developed through completion, and we will undoubtedly be adding new titles to our slate."
About half of the 93 new releases planned are based on existing franchises, and a high percentage of those will be completed, as Slatoff explained during the call. Without a doubt, investors should expect to see Take-Two release new games at a frequent rate over the next several years.
Take-Two just announced a handful of new releases coming out in the near term. One of the notable ones, which could sell well, is the Mafia Trilogy, which is an older franchise from the company's catalog that is being remastered for the current generation of consoles. Mafia 2 and Mafia 3 are available now on PlayStation 4, Xbox One, and PC, while the original Mafia is scheduled to release in August.
Take-Two reported during the call that Mafia 3 has already sold-in about 7 million units. That's peanuts compared to the 130 million units that Grand Theft Auto V has sold. But selling millions of copies of smaller titles adds up and pads the bottom line, especially when it's a rerelease of a title that already has a following.
Investors should keep their eye on PGA Tour 2K21, a golf simulation game releasing later this year that features officially licensed pro players and golf courses to create a realistic golf experience. It may not sell as many copies as the annual release of NBA 2K, in which the 2K20 version has sold over 12 million copies, but annual sports releases tend to gain a loyal following of players that provides a consistent stream of revenue each year.
Building toward consistent growth
One analyst during the call asked what every investor was thinking while listening to the call: Will this deep pipeline of new releases send revenue and profits higher? Here is how Zelnick answered:
I think what you're asking ... is should we expect a gentle constant upward sloping curve of our releases, net bookings, and cash flow. And the answer is, we really are aiming to have a handful or greater of new significant releases every year from existing franchises and new intellectual property ... We have plenty of great content coming that reflects that desire.
He added, "Definitely our goal is to be smoother and to grow."
However, Zelnick emphasized that this year will be a light one for new releases, which is why Take-Two is guiding for lower revenue in fiscal 2021. For the year ahead, Take-Two is calling for revenue to be in the range of $2.63 billion to $2.73 billion, compared to $3.089 billion in fiscal 2020.
Management guided that while fiscal 2021 will be a softer year, investors should expect sequential growth to resume starting in fiscal 2022. A catalyst for that will be the new casual-gaming experiences releasing next year as part of Take-Two's new partnership with the NFL.
The new games releasing over the next year should be just the beginning of a prosperous decade ahead for Take-Two Interactive.
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