Why Take-Two Interactive Stock Climbed 12% in May

What happened

Shares of Take-Two Interactive (NASDAQ: TTWO) gained 11.7% last month, according to data provided by S&P Global Market Intelligence.

Continue Reading Below

The company reported revenue below analysts' estimates and issued lower-than-expected guidance for the fiscal first quarter, but investors overlooked that shortfall. The stock was hammered in late 2018, so there were low expectations baked in to the stock price heading into the latest earnings report.

Management had several positive things to talk about during the conference call that encouraged investors. Most notably, existing games are performing very well, and the company plans to ramp up spending this year for new releases in the next few years.

So what

Wall Street has been worried about competition from popular battle royale shooters like Epic Games' Fortnite, but Take-Two's flagship games continue to attract millions of players. Grand Theft Auto and Red Dead Redemption had a combined 90 million unique player accounts in fiscal 2018 (which ended in March). Red Dead Redemption 2 has sold 24 million units since its launch last fall, and NBA 2K19 is on pace to be the best-selling sports title in the company's history. These numbers reveal strength, not weakness.

Take-Two might have missed Wall Street's numbers, but results were within management's previous guidance. Net bookings increased 19% year over year to $488 million, in line with management's guidance of $450 million to $500 million. Recurrent consumer spending (or in-game spending) increased 27% -- outperforming management's outlook for 10% growth -- and made up 62% of net bookings.

Now what

Take-Two issued guidance below analysts' estimates for fiscal 2020, but keep in mind that the company is known to give conservative guidance at the start of the fiscal year.

Management is calling for fiscal 2020 net bookings to be between $2.5 billion and $2.6 billion. That's down from $2.929 billion in fiscal 2019. GAAP earnings per share are expected to be in the range from $3.39 to $3.65, while net cash from operating activities is expected to be more than $430 million, down from $843 million last year.

Revenue this year will be down because the company faces tough comparisons in fiscal 2020 with last year's blockbuster release of Red Dead 2. However, management called fiscal 2020 "a year of significant investment" as management paves the way for long-term growth by investing in technology and new games.

President Karl Slatoff said, "You will expect to see these investments coming to fruition over the next few years." Investors are optimistic about what these investments could mean for the future, which explains why the stock shot up last month.

10 stocks we like better than Take-Two InteractiveWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Take-Two Interactive wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

John Ballard owns shares of Take-Two Interactive. The Motley Fool owns shares of and recommends Take-Two Interactive. The Motley Fool has a disclosure policy.