Personal Finance

Why Take-Two Interactive Software, Inc's Shares Popped Today

Two people sitting and playing video games.

What happened

Shares of Take-Two Interactive Software, Inc (NASDAQ: TTWO) jumped as much as 15.2% in trading Friday after the company reported fiscal first-quarter earnings. Shares fell back slightly late in the day but were still up 8.3% at 1:30 p.m. EDT.

So what

Revenue fell 7.2% to $388.0 million, and net income was up 18.9% to $71.7 million, or $0.62 per share. Analysts estimated revenue would be $258 million and earnings would be $0.07 per share, so this was a big earnings beat.

Two people sitting and playing video games.

Image source: Getty Images.

The incredible number for the year was that 62% of revenue was recurring, up from 41% a year ago, driven by Grand Theft AutoOnline . Recurring revenue takes pressure off each new release and should smooth earnings long-term.

Now what

The earnings beat is good to see for investors, despite the fact that revenue was down year over year. But the real change is transforming the business to more recurring revenue that brings it some stability.

My biggest concern is that shares are very expensive, trading at 72 times the high end of fiscal 2019 earnings guidance of $1.45 to $1.70 per share. That's a steep price for a company that isn't growing quickly and will keep me out of shares today.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Take-Two Interactive. The Motley Fool has a disclosure policy .

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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