Take-Two (TTWO) Racks Up A Solid Score Today Following Earnings Report Last Night

2:44 pm Tuesday, May 17th, 2022

As Take-Two (TTWO) experiences a moderation of trends that benefited the video game publisher during the height of the pandemic, its current and future net bookings growth continues to disappoint. However, even though the company missed net bookings estimates in Q4 (Mar) and guided FY23 bookings sizably under analyst expectations, shares of TTWO are racking up a solid score today.

We think there are a few reasons for this.

TTWO topped consensus on its bottom line for the second-straight quarter, delivering GAAP EPS of $0.95. Meanwhile, TTWO may have missed net bookings estimates with growth of just 7.8% yr/yr to $845.78 mln, but close rival Electronic Arts (EA) also did not live up to analysts’ net bookings predictions for MarQ when it posted earnings last week; EA’s letdown performance possibly baked downside growth into TTWO’s share price ahead of its earnings report.

TTWO attributed its mild Q4 growth to a flood of games that hit the market simultaneously, which pulled some sales away from TTWO. At the same time, this also pulled sales from EA and other rival publishers. As a result, TTWO’s recurrent consumer spending fell 6% yr/yr and accounted for 60% of total net bookings.

FY23 (ending March 2023) guidance fell short of consensus; TTWO guided to net bookings growth of 11% yr/yr at the midpoint of its outlook of $3.75-3.85 bln. However, that would still represent a record year of net bookings for TTWO, offering further evidence that the pandemic cemented increased gaming trends. Furthermore, TTWO noted that even when excluding the impact of its pending acquisition of mobile game publisher Zynga (ZNGA), it still expects FY24 and FY25 to set higher net bookings records than in FY23 alongside a significant ramp-up in profitability.

There are also long-term reasons to be optimistic about TTWO’s future. The company boasts a roster of titles with dedicated fan bases, including NBA 2K and Grand Theft Auto, which is slated for a new release next year. It is also not out of bounds to expect a larger firm on par with Microsoft (MSFT) to throw a bid out for TTWO, as MSFT did for Activision Blizzard (ATVI) earlier this year, potentially building in something of a floor for the stock.