Take-Two reports Q4 earnings beat but provides a weak outlook

Take-Two Interactive’s (TTWO) shares were down 1% after the bell after the gaming giant reported earnings beat in the fourth quarter. However, revenues failed to surpass estimates. In addition, the revenue outlook provided for both the first quarter and full year fell short of street expectations.

On an adjusted basis, revenues rose 19% to $488.4 million, which came in lower than $506.46 million expected by the analysts. Non-GAAP earnings came in at $0.78 per share surpassing estimates of $0.75 per share.

For the first quarter, adjusted revenues are forecasted in the range of $310-360 million, which came in well below estimates of $418 million. For the full year, non-GAAP revenue is expected to be between $2.5-2.6 billion compared to $2.95 billion expected by the street.

The muted revenue outlook was primarily due to the tough comps from the last fiscal year due to a solid contribution from Red Dead Redemption, which was an instant hit post-launch.

Commenting on the fiscal outlook, CEO Strauss Zelnick said, “We expect fiscal 2020 to be another strong year for Take-Two, with operating results currently forecasted to be lower than fiscal 2019, due to the extraordinary success of Red Dead Redemption 2, and growing as compared to fiscal 2018.”

One of the concerns for investors would be the surge in software development and royalty (SDR) expenses. For the Q4 period, SDR expenses shot up to $111.59 million compared to $26.98 million in the prior year period. Marketing expenses rose 63.5% while G&A expenses increased 25% in the fourth quarter, which dragged earnings.

In the first nine months of this year, Grand Theft Auto (25.1%) and Red Dead Redemption (35%) together contributed 60% of revenues to the company. Red Dead Redemption was an instant hit which should come as a big relief for the firm to reduce its dependency on the Grand Theft Auto franchise. Within three months after launch, the company sold 23 million units, surpassing analyst lifetime estimates for the game.

NBA 2K franchise has also been getting good traction with gamers. Jointly owned with NBA, the basketball game was launched in May 2018 on the lines of a sports league format. Take-Two has announced that next season would see 21 teams participating which would augur well to bump up its revenues. This also would help the firm to grow its esports business in the near future.

Kerbal Space Program: Breaking Ground is slated for launch this month through its Private Division label. In addition, three games are in the pipeline for release in 2019: Borderlands 3, Ancestors: The Humankind Odyssey, and The Outer Worlds.

Last week, Electronic Arts (EA) fourth quarter revenues and earnings saw a double-digit decline over last year. Top line came in better than estimates, while EPS missed analysts’ forecast. However, EA’s stock gained after it provided above-consensus guidance for fiscal 2020.

Earlier this month, Activision Blizzard (ATVI) saw a 7% dip in revenues and 11% drop in profits. However, the first quarter results surpassed estimates. Activision’s Q2 guidance came in line with estimates.

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