Take-Two (TTWO) Sells Off On Slashed FY23 Guidance As Delays And Inflation Packed A Punch In SepQ
2:33 pm Tuesday, November 08th, 2022
Video game publisher Take-Two (TTWO), known for its heavy-weight titles like Grand Theft Auto V and NBA 2K, is amid a sizeable sell-off today on slashed FY23 (Mar) earnings and net bookings guidance. TTWO expects FY23 net bookings of $5.4-5.5 bln, down considerably from $5.8-5.9 bln. TTWO also missed analysts’ net bookings expectations in Q2 (Sep).
Plenty of firms have warned of softness taking place in the video game industry, including chip makers like Advanced Micro (AMD) and console manufacturers such as Microsoft (MSFT) and Sony (SONY). However, TTWO’s rivals Electronic Arts (EA) and Roblox (RBLX) scoffed at a slowdown, posting solid numbers recently. For example, even though EA trimmed its FY23 net bookings guidance, it was by a less severe percentage than TTWO. EA also raised its FY23 EPS guidance. Meanwhile, RBLX saw daily active users and hours engaged accelerate month/month in September, underscoring a resiliency to the current macroeconomic pressures, such as inflation.
Without TTWO experiencing similar encouraging trends as its competition, investors are displaying significant concern, driving today’s intense selling pressure.
Pronounced softness in mobile gaming is another sticky issue. Last quarter, TTWO warned that its mobile gaming business Zynga, which comprises nearly half of its net bookings, was experiencing reduced user engagement, weakening in-app purchases, and lower advertising revenue. These deflating themes carried into Q2. Even worse, CEO Strauss Zelnick noted that it could be staring at another three to six additional months of downward pressure.
Macroeconomic challenges are creating elevated woes for TTWO. With inflation at decade highs in the U.S. and even worse in some other countries, free-to-play mobile games, which typically only see 5-10% of users paying for in-app purchases, begin seeing even fewer users engage in in-app purchases.
Bottom line, a sour combination of delays and inflationary pressures is taking a pronounced toll on TTWO relative to its competition. Still, TTWO has an enormous pipeline between FY23 and FY25, expecting 87 titles, including another sequal to its phenomenonal Grand Theft Auto franchise. With shares currently trading below March 2020 lows, we think current prices offer an attractive entry point for long-term investors.
