Take-Two Interactive Software Inc. (TTWO - Snapshot Report) recently announced fiscal third-quarter 2015 results wherein the adjusted earnings of $1.81 per share beat the Zacks Consensus Estimate of $1.33. The growth was driven by higher net revenues owing to increased sales of Grand Theft Auto series, NBA 2K15,the Borderlands and Sid Meier’s Civilization: Beyond Earth franchise.
Take-Two Interactive Software Inc. - Earnings Surprise | FindTheBest
Quarter Details
Take-Two reported non-GAAP revenues (including deferred revenues) of $954 million, which came ahead of $767.6 million reported in the year-ago quarter. Revenues convincingly beat the Zacks Consensus Estimate of $789 million.
Catalog sales accounted for $103.7 million of non-GAAP net revenue led by the combined sales of Grand Theft Auto series and Borderlands 2.
Non-GAAP net revenue from digitally-delivered content grew 64% year over year to $217.2 million. The improvement was backed by Take Two’s portfolio of digitally delivered offerings, continued growth in the Grand Theft Auto series, NBA 2K15, the Borderlands franchise, and Sid Meier’s Civilization: Beyond Earth.
Revenues from recurrent consumer spending (virtual currency, downloadable add-on content and online games) grew 23% year over year and accounted for 36% of non-GAAP net revenue from digitally-delivered content.
From the geographic perspective, the United States accounted for 63% of revenues compared with 44% in the year-ago quarter. The remaining 37% came from International markets, which declined from 56% in third-quarter 2014.
Gross profit (including stock-based compensation) was $435.8 million versus $343.2 million in the year-ago period. Gross margin expanded 100 basis points (bps) to 45.7%.
Total operating expenses were $187.5 million compared with $137.8 million in the prior-year quarter.
Take-Two reported non-GAAP operating profit of $268.6 million compared with $216.2 million in the year-ago quarter.
Balance Sheet & Cash Flow
Take-Two exited the quarter with cash and cash equivalents of $897.5 million compared with $935.4 million in fiscal third-quarter 2014. Long-term debt was $470.4 million versus $454 million at the end of fiscal 2014. Cash outflow from operations was $60.5 million.
Guidance
For the fourth quarter of fiscal 2015, Take-Two expects non-GAAP net revenue in the range of $410 to $460 million.
Non-GAAP earnings are expected in the range of $15 to 25 cents per share, while the Zacks Consensus Estimate is pegged at $2 cents.
For fiscal 2015, the company expects non-GAAP net revenue in the range $1.65–$1.70 billion, up from previous estimate range of $1.4–$1.5 billion.
Earnings per share are expected in the range of $1.65–$1.75, up from $1.05–$1.30. The Zacks Consensus Estimate is pegged at $1.25.
Our Take
We believe that Take-Two’s robust product pipeline will drive top-line growth and profitability in fiscal 2015. The company’s top line continues to grow on the back of hit franchise Grand Theft Auto series, NBA 2K15, Evolve and The Borderlands.
However, it will be challenging for the upcoming games to repeat the success of Grand Theft Auto V, in our opinion, given the stiff competition in the industry. Take-Two is rumored to release the next installment of GTA V in 2017, which is expected to boost its near-term growth. However, we believe the release might be too late to capture market share from the likes of Electronic Arts (EA - Analyst Report), Activision (ATVI - Snapshot Report) and Zynga (ZNGA - Snapshot Report). Moreover, Take-Two's overdependence on console gaming sales and lack of mobile gaming titles is a major headwind over the long run.
Currently, Take-Two sports a Zacks Rank #1 (Strong Buy).
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