Why Is Take-Two (TTWO) Up 5.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Take-Two Interactive (NASDAQ:TTWO). Shares have added about 5.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Take-Two due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Take Two’s Q2 Earnings and Revenues Increase Y/Y

Take Two Interactive Software reported second-quarter fiscal 2020 GAAP earnings of 63 cents per share, up 186.4% year over year.

Net revenues surged 74.1% from the year-ago quarter to $857.8 million. The growth was driven by robust performance of Borderlands 3, NBA 2K20 and NBA 2K19, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2, Red Dead Online, Social Point’s mobile offerings, WWE 2K19 and WWE SuperCard.

Recurrent consumer spending (virtual currency, add-on content and in-game purchases, including the allocated value of virtual currency and add-on content incorporated in special editions of certain games) increased 32% and accounted for 37% of total GAAP net revenues. NBA 2K20 launched by 2K Visual Concepts during the second quarter contributed to growth in recurrent consumer spending.

The Zacks Consensus Estimate for earnings and revenues was pegged at $1.67 and $913 million, respectively.

Top-Line Details

Digital revenues (81.1% of revenues) surged 35.8% year over year to $615.8 million. Revenues from Physical retailer and other segments (29.7% of revenues) soared 80.2% to $242.1 million.

Notably, the Diamond Casino & Resort update rolled out in July led to the highest player engagement and daily active users, weekly active users and monthly active users for Grand Theft Auto Online in the second quarter.

Region-wise, revenues from the United States (57.7% of revenues) surged 77.1% year over year to $494.7 million. Moreover, revenues from International markets (42.3% of revenues) increased 70.2% to $363.2 million.

On the basis of platforms, revenues from console (76% of revenues) surged 75.1% to $651.8 million. Revenues from PC and other (24% of revenues) increased 71.1% to $206 million.

Booking (NASDAQ:BKNG) Details

Net bookings of $950.5 million rose 63% on a year-over-year basis.

Net bookings from recurrent consumer spending accounted for 45% of net bookings and grew 39% year over year.

Notably, Catalog accounted for $372.1 million of net bookings. Strong demand for Grand Theft Auto, NBA 2K, Red Dead Redemption and Social Point’s mobile offerings was observed in the reported quarter.

Digitally-delivered net bookings (73.2% of net bookings) soared 63.2% to $695.3 million. Bookings from Physical retail (26.8% of net bookings) and other segments increased 62.3% to $255.2 million.

Take Two’s private division released Ancestors: The Humankind Odyssey for digital download on PC in the second quarter, which contributed to digitally-delivered net bookings.

Operating Details

Take Two’s gross profit increased 51.1% year over year to $389.6 million. However, reported gross margin of 45.4% contracted significantly from 52.3% in the year-ago quarter.

Reported operating expenses jumped 35.8% year over year to $314.8 million, primarily due to higher selling & marketing (S&M), research & development (R&D) and general & administrative (G&A) expenses in the quarter. S&M, R&D and G&A expenses increased 58.8%, 13.9%, 25.8%, respectively, on a year-over-year basis.

Income from operations came in at $74.8 million, up 187.9% year over year. Operating margin expanded 340 basis points to 8.7% in the reported quarter.

Guidance

For the third quarter of fiscal 2020, Take Two expects GAAP net revenues between $915 million and $965 million. Net bookings are projected between $860 million and $910 million. The company projects GAAP earnings between $1.39 and $1.49 per share.

For fiscal 2020, net bookings are expected between $2.75 billion and $2.85 billion. GAAP net revenues are likely to be in the range of $2.93-$3.03 billion.

Take Two now projects GAAP earnings of $3.38-$3.63 per share.

The company projects operating cash flow to be more than $450 million.

Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -12.78% due to these changes.

VGM Scores

Currently, Take-Two has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Take-Two has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.