Take-Two (TTWO) Shares Take A Spill On Disappointing JunQ Results And Bearish FY23 Guidance

1:49 pm Tuesday, August 09th, 2022

Take-Two (TTWO) could use a second take after missing the mark on earnings and net bookings in Q1 (Jun) as gaming demand, particularly in mobile, continued to wane. The video game publisher, best known for its Grand Theft Auto and NBA 2K franchises, also guided net bookings well below consensus for Q2 (Sep) and FY23 (Mar).

TTWO’s results back up what we have seen from industry peers over the past month. For example, earlier this week, NVIDIA (NVDA) slashed its JulQ forecast considerably due to weakness in gaming. Also, last month, Microsoft (MSFT) issued a bearish SepQ forecast for its gaming business, predicting revs to fall in the low-to-mid single-digits. Shortly thereafter, Sony (SONY) stated that weakness in gaming would adversely impact its SepQ results after its gaming software sales had already tumbled 25% in JunQ.

However, the market may have expected TTWO to buck this broader trend after rival Electronic Arts (EA) delivered upbeat JunQ numbers last week, partly leading to today’s pullback.

Although not meeting analysts’ expectations, TTWO’s net bookings of $1.0 bln in Q1 were still strong. A large part of the company’s net bookings growth was due to its acquisition of mobile game publisher Zynga, which closed during the quarter. Nonetheless, even when excluding Zynga’s positive impact, TTWO’s net bookings of $731 mln were within its projections of $700-750 mln.

Meanwhile, as made evident by social media giants Meta Platforms (META) and Snap (SNAP), advertising spending is already sliding, creating a sour combination for TTWO.

These headwinds culminated in underwhelming FY23 guidance. TTWO expects net bookings of $5.8-5.9 bln, falling short of analyst projections.

Overall, macroeconomic headwinds are creating plenty of short-term hurdles for TTWO. However, its long-term future remains sound. TTWO boasts excellent intellectual property, such as GTA, where the online community is 49% higher than pre-pandemic levels. Also, TTWO is positioned to benefit from new console supply beginning to catch up with demand. We also think that it is not out of bounds for TTWO to see a similar fate as Activision Blizzard (ATVI), which is being acquired by MSFT for $69 bln.