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Take Two Interactive (TTWO) Crushes Q2 Estimates

Take Two Interactive (TTWO): Reports Record Quarter Fueled By Grand Theft Auto V, Raises Guidance For Fiscal 2014

As reported two weeks ago,  wall street analysts were greatly underestimating sales of Take Two Interactive’s (TTWO) Grand Theft Auto V, leading to a blow out second quarter. Despite easily accessible sales figures for GTA V, most analysts failed to adjust their models, and kept earnings predictions for the quarter at levels that would reflect 18-19 million copies sold. Take Two announced that to date, 29 million copies have been shipped less than 40 days since its release, already exceeding the 25 million the street was anticipating during its first 12 months on shelves. This led to TTWO reporting earnings of $2.49 per share on $1.27 billion in revenue, versus consensus estimates of $1.70 per share in earnings and $947 million in sales. Take Two also significantly increased their fiscal year 2014 outlook. The company now expects full year revenue of $2.2- 2.3 billion generating earnings per share between $3.50- $3.75, up from their previous view of $2.25- $2.50 EPS on revenue of $1.78- $1.88 billion.

While management failed to highlight their next major release, they did sound upbeat about their future and their ability to continue producing huge hits…

Take-Two has an extensive development pipeline of groundbreaking new intellectual properties and exciting titles from our proven franchises, along with digitally-delivered offerings to complement our core business. We currently have more than ten unique titles planned for next-generation consoles, including multiple releases slated for fiscal 2015. As a result, I am confident that we will be able to achieve Non-GAAP profitability in fiscal 2015 and every year for the foreseeable future.

Since the quarter’s end, Take Two has released their annual installments of the NBA 2k and WWE 2k series, with NBA 2k14 moving over a million units in its first 12 days. Given the consistent track record of these franchises and the launch of Grand Theft Auto Online this month, revenues throughout the holiday season will remain strong. With a huge cash position and arguably the most valuable portfolio of intellectual property in the industry, shares of Take Two have little downside from current levels and significant room to appreciate. I continue to view TTWO as a strong buy and one of our top picks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.

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4 Responses to Take Two Interactive (TTWO) Crushes Q2 Estimates

  1. Your analysis and forecast were right on, absolutely brilliant. But what the heck do you think happened today????!!?? TTWO dropped 5% on this news! This was TTWO’s best quarter in it’s history, and it’s going to be the most profitable year ever for the company, yet the Street nosedived this stock. It’s unfathomable what happened today. TTWO has over a billion in cash now, and after today’s drop it’s not even trading at 1x earnings. I think fair value for TTWO should be $25 dollars at least, and if the next gen consoles sell well out the gate then I would say $28.

  2. Take Two has had a history of reporting huge quarters and subsequently trading down over the course of the next few days before beginning to appreciate, hard to say why this tends to occur. I believe that TTWO’s big quarters tend to be overshadowed by a perceived uncertainty about their future, and shares get punished in these instances. Must say I didn’t anticipate that occurring this time around after such an amazing quarter and all of the points you made about their current financial position. Concerns over the pipeline with TTWO are almost always overblown, Rockstar has a history of producing huge hits and there is no reason to anticipate this changing. I see fair value in the $24- $26 range.Thanks for contributing.

  3. TTWO is still up from when 5th street posted their first post on the company. (Barely higher, but higher nonetheless.)

    In any case, the Q2 report looked good. You would recommend buying, even after the significant drop today?

    • Yes I would. Their quarterly results exceeded my already lofty expectations and made most analysts look foolish. I believe shares were punished yesterday because management failed to provide an update on their next major release, I was not anticipating they would do so, so I did not take this as a negative. Take Two has always been heavily reliant on big name franchises with a new installment coming only every few years, as compared to EA and ATVI who put out annual installments of their most popular titles. The strength of their balance sheet, talent of their development team, and extremely valuable portfolio of intellectual property make Take Two a great long-term buy. Nothing has occurred since my last report to cause me to lower my target range of $24-$26, if anything their blowout results strengthened my conviction.

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