Take-Two Interactive Software (NASDAQ: TTWO) has benefited greatly from the success of its Grand Theft Auto franchise, which has proven to be a lucrative moneymaker both in its original console form and in its newer online version. Yet time and time again, Take-Two investors are surprised by just how well the franchise continues to do long after its first release. It's their skepticism that leads to questions about whether Take-Two's stock has risen too far too fast, only to be proven wrong because of overly cautious growth predictions.
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Coming into Wednesday's fiscal first-quarter financial report, Take-Two investors once again had modest expectations for the video-game maker's ability to build on its past success. But the company managed to produce yet another stellar quarter, posting impressive sales growth and proving that it still has plenty of potential for further gains. Let's look more closely at Take-Two Interactive Software to see what its latest report can tell us about its prospects.
Take-Two plays to win
Take-Two's fiscal first-quarter results were nothing short of spectacular. Net sales jumped 28% to $348.3 million, simply crushing the tepid 3% growth rate that most investors were expecting to see. Net income came in at $60.3 million, reversing a year-earlier loss and working out to $0.56 per share. That was nearly triple the consensus forecast among those following the stock.
Looking more closely at Take-Two's numbers, the game maker is still riding high on the success of key franchises. Sales from digitally delivered content jumped by more than half to $268.2 million, and recurring consumer spending jumped by nearly three-quarters over the same period. Grand Theft Auto, NBA 2K17, and WWE were the key contributors to digital revenue during the quarter.
Take-Two also announced several strategic moves to its business and product lineup. The company acquired the rights to physics-based space simulator Kerbal Space Program, while Rockstar and 2K released various free content updates and downloadable add-on packs for key games. Key announcements included the naming of basketball players Kyrie Irving and Shaquille O'Neal as cover athletes on the company's two NBA 2K18 games, while Seth Rollins will grace the cover for the WWE 2K18 franchise release.
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CEO Strauss Zelnick celebrated the way that Take-Two performed. "Fiscal 2018 is off to an excellent start," Zelnick said, "with our business' positive momentum continuing to exceed our expectations in the first quarter." The CEO pointed to margin expansion, consumer demand, and internal operational execution as key elements of the game maker's success.
What's ahead for Take-Two?
Take-Two is also optimistic about what its latest results say about its future. Zelnick talked about how fiscal 2019 could be a record year for revenue and operating cash flow because the company expects not only the launch of Red Dead Redemption 2, but also a new title for the 2K series. With game pipelines also seeking new hit franchises, Take-Two is on top of its game.
The strong results led Take-Two to boost its existing guidance for the remainder of the year. For the current fiscal second quarter, Take-Two expects net sales of $465 million to $515 million, with earnings of $0.15 to $0.25 per share. After making appropriate adjustments to GAAP projections, those numbers look favorable compared to investor expectations. For the full year, the company boosted its guidance, now expecting net sales of $1.65 billion to $1.75 billion. Because of how well the current installments of Grand Theft Auto have done, Take-Two decided to extend the franchise's useful life for accounting purposes, and that had the effect of cutting GAAP revenue and income projections. However, from a fundamental standpoint, the move is extremely favorable and points to unexpected strength for the company's key products.
Take-Two investors were quite happy with the company's performance, and the stock soared 13% in after-hours trading following the announcement. With no loss of momentum on the horizon, Take-Two has the capacity to keep on benefiting from high demand for quality entertainment options from its loyal customer base. Things look favorable for the game maker for the foreseeable future.
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