Take-Two Interactive Software (TTWO): A look at the headwinds and tailwinds ahead of this game company

Shares of Take-Two Interactive Software Inc. (NASDAQ: TTWO) rose more than 2% on Wednesday. The stock has fallen 30% since the start of the year, but has gained 17% over the past three months. The company’s first-quarter 2023 results, released earlier this week, failed to impress the street. Additionally, concerns about the impacts of a recession on the industry led to a bearish outlook on the stock. Here’s a look at some of the positives and negatives from the company’s recent quarterly report:

Revenues and profits

Take-Two reported net revenue of $1.1 billion for the first quarter of 2023, reflecting 36% growth over the prior year quarter. Despite the year-over-year growth, revenue missed market projections. Additionally, the company posted a net loss of $0.76 per share in the first quarter compared to EPS of $1.30 in the prior year period, which was also below expectations. The failures were not well received by investors.

For the full year 2023, Take-Two expects net income of $5.73 billion to $5.83 billion and a loss of $2.50 to $2.75 per share. For the second quarter of 2023, net income is expected to be $1.37-1.42 billion, while net loss is estimated at $0.86-0.96 per share.

Reservations

In the first quarter, net bookings rose 41% year-over-year to $1 billion, but were also below analysts’ forecasts. This net number of reservations included the acquisition of Zynga. Pre-consolidation net bookings were $731 million, which was within the company’s guidance range of $700-750 million that excluded Zynga, and also reflected 3% growth from baseline. period of the previous year.

Recurring consumer spending grew 48% in the quarter, accounting for 73% of net bookings. Net reservations delivered digitally accounted for 95% of total reservations and increased by 41% in the third quarter. The bookings momentum was led by the outperformance of titles like NBA 2K22 and WWE 2K22. The company also had strong performances with Grand Theft Auto V, which sold nearly 170 million units, and Red Dead Redemption 2, which sold over 45 million units worldwide. .

Take-Two updated its full-year bookings forecast to include Zynga. The company now expects net bookings to be between $5.8 billion and $5.9 billion, with the largest contributions coming from titles such as NBA 2K, Grand Theft Auto Online, Grand Theft Auto V and Red. Dead Redemption 2. For the second quarter, bookings are expected to be $1.50-1.55 billion.

During its quarterly conference call, the company said that a drop in consumer spending and an increase in inflation could have an impact on the entertainment industry and that this impact would likely be greater on free games. This point has raised concerns among investors about the company’s prospects in a recession.

Acquisition of Zynga

The acquisition of Zynga provides Take-Two with a strong position in the interactive entertainment industry. The company sees vast opportunities in the long-term mobile games market and the potential to expand into several emerging markets where mobile games are popular.

Adding mobile games like Harry Potter: Puzzles & Spells, Empires & Puzzles and Words With Friends to its portfolio provides Take-Two with an additional opportunity for player engagement and retention. Take-Two expects to achieve $100 million in annual cost synergies within two years of closing.

During its call, the company said it is currently seeing some softness in the mobile phone market. The company added that in free-to-play mobile games, there will likely be lower discretionary spending among gamers amid growing inflationary pressures.

While Take-Two has done well in terms of revenue and bookings growth and the addition of Zynga opens up opportunities, worries about a recession and the impacts of inflation on the company’s growth prospects are clouding optimism.

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