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Take-Two Interactive (TTWO) Down 5.3% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Take-Two Interactive Software, Inc.TTWO . Shares have lost about 5.3% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is TTWO due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

Take Two Interactive Software reported earnings of $1.26 per share for the third quarter of fiscal 2018, which increased 46.5% from the year-ago quarter.

The company's net revenues came in at $480.8 million, marginally higher than $476.5 million reported in the year-ago period.

Continued increase in digital revenues and strength in games like Grand Theft Auto V, Grand Theft Auto Online, NBA 2K18, WWE 2K18 , WWE SuperCard and L.A. Noire boosted results.

Given the continuous growth in digital revenues, driven by increase in recurrent consumer spending, Take Two increased its outlook for fiscal 2018.

Quarter Details

Net bookings of $653.9 million declined 12.2% on a year-over-year basis due to a 29% fall in bookings from Physical retail and other segments. However, digitally delivered net bookings (58% of total net bookings) grew 6% to $380 million. Recurrent consumer spending net bookings increased 44% and represented 40% of total net bookings.

In the free-to-play games space, Social Point's mobile games Dragon City and Monster Legends contributed meaningfully to net bookings. Social Point is also expected to provide a long-term growth opportunity to the company.

Per the company, digital revenues (54% of total revenue) increased 7.6% to $258.4 million while revenues from Physical retailer and other segments (46% of total revenue) were down 5.9% to $222.4 million.

Region-wise, revenues from the United States (55% of total revenue) were up 1.9% to $262.3 million. International markets revenues declined 0.2% to $218.5 million.

Margins

Take Two's gross margin of 44.3% expanded 960 basis points (bps) year over year, backed by fall in software development costs. Management expects shift to digital distribution to drive margins moving forward.

Income from operations was $8.9 million against loss from operations of $28.4 million reported in the prior-year quarter.

Balance Sheet

As of Dec 31, 2017, Take Two had $1.32 billion in cash and short-term investments, compared with $1.26 billion as of Sep 30, 2017.

Outlook

Take Two provided guidance for the fourth quarter and fiscal 2018. Strength in franchises like Grand Theft Auto, NBA 2K and WWE 2K will boost the top line in the fiscal year.

Take Two formed a new publishing label Private Division this quarter, which is the publisher of the popular simulation game, Kerbal Space Program , acquired by the company in May 2017. The company expects Private Division to be a key growth driver going ahead. Kerbal Space Program is also viewed "as a long term franchise" that complements Take Two's "portfolios of own intellectual property."

For the fourth quarter, the company expects net bookings to be in the band of $410-$460 million. GAAP net revenues are projected in the band of $460-$510 million.

The company projects operating expenses to be in the range of $190 million to $200 million, up 34% at mid-point due to higher acquisition costs as well as higher marketing and R&D expenses. The company projects GAAP income per share in the range of 73-83 cents.

For fiscal 2018, net bookings are projected in the band of $1.99-$2.04 billion, compared with $1.93-$2.03 billion. Net bookings from current consumer spending are expected to increase 50% while digitally-delivered net bookings are projected to increase 25%.

GAAP net revenues are likely to be in the band of $1.80-$1.85 billion compared with $1.74-$1.84 billion projected earlier. The company now projects earnings per share in the range $1.40-$1.60 compared with 55-80 cents projected earlier.

The company projects operating expenses to be in the range of $776-$876 million, down from $805-$825 million projected earlier, due to the timing of marketing campaign and delayed launch of Red Dead Redemption 2 from spring of 2018 to Oct 26.

Operating cash flow is reiterated to be around $300 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter compared to one lower.

Take-Two Interactive Software, Inc. Price and Consensus

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

VGM Scores

At this time, TTWO has a great Growth Score of A, a grade with the same score on the momentum front. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, TTWO has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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