Take-Two Interactive Software (TTWO): Growth in sector won’t help if games don’t impress

Take-Two Interactive Software Inc. (NASDAQ: TTWO) had a particularly strong Q4 2020 with revenue growth in the double-digits and profits up 116%. The restrictions brought on by the COVID-19 health crisis pushed people to spend more time on gaming thus boosting the company’s performance.

The company benefited from its strong portfolio of console and mobile games as consumer engagement with NBA 2K stayed at record levels throughout FY2020 and daily active users grew 13%.

On its quarterly conference call, Take-Two said that based on data from media consultancy firm Activate, time spent on gaming increased 39% across all age groups during the pandemic period and that post-COVID-19, after everyone goes back to their normal routines, this time is expected to grow further at a rate of around 14% versus pre-COVID levels.

Looking ahead, the company expects to see meaningful growth in interactive entertainment buoyed by shifting trends as people staying at home develop new gaming habits and existing gamers increase their time spent on gaming. However, Take-Two emphasized that all these changes would not help if the games it produced failed to attract users.

“I think the smart view is that all pre-existing trends have been accelerated by this crisis, and the shift to interactive entertainment and the growth in the sector is one of those trends. Now with all that said, we still have to execute every day. The growth in the sector is not going to help us if we don’t make great games, if we don’t deliver hits.” – Strauss Zelnick, Chairman and CEO

The strong performance across the company’s labels indicates that this should not be a problem.

Rockstar Games

Take-Two’s Rockstar label primarily publishes internally-developed titles. The Grand Theft Auto and Red Dead Redemption series contributed significantly to revenues and net bookings in FY2020. The Grand Theft Auto Online, Grand Theft Auto V and Red Dead Redemption 2 titles outperformed during the fourth quarter.

Grand Theft Auto Online saw consistent sequential growth in monthly active users through March 2020, which helped drive recurrent consumer spending growth of 87% in the quarter and 40% in the year. The Grand Theft Auto V title exceeded expectations on sales and sold-in over 130 million units. This compares to over 105 million units sold-in at the end of FY2019.

In FY2021, Take-Two expects 35% of net bookings to come from Rockstar Games. The Grand Theft Auto Online, Grand Theft Auto V and Red Dead Redemption 2 titles are expected to contribute significantly to net bookings in the coming year.

2K

The 2K label publishes titles across various genres including action, role-playing and casual entertainment. In the fourth quarter, recurrent consumer spending and full game sales of NBA 2K20 significantly outperformed expectations.

For the full year, recurrent consumer spending on the NBA 2K franchise rose around 30% and remained the largest contributor to that part of the business. To date, NBA 2K20 has sold-in over 12 million units. The company expects the lifetime units, recurrent consumer spending and net bookings for NBA 2K20 will be the highest ever for a 2K sports title.

The latest installment in the Borderlands series, Borderlands 3 saw growth in each month during the fourth quarter outperforming expectations. The title sold-in over 10 million units.

Pipeline

Take-Two has 93 titles planned for release over the next five years through FY2025 across its internally-owned labels and outside development studio partners. 47 of these 93 titles are from existing franchises and 46 are from new intellectual properties. 72 of these have been planned for console, PC and/or streaming while 21 are planned for mobile.

Click here to read the full transcript of TTWO Q4 2020 earnings call