Take-Two beats guidance with $711.4M in bookings, down 29%

Take-Two Interactive reported revenue for its first fiscal quarter (second calendar quarter ended June 30) today that beat its own and Wall Street’s expectations, with net bookings of $711.4 million. This is down 29% from a year ago, when pandemic lockdowns resulted in a spike in gaming.

Grand Theft Auto V sold more than 5 million copies in the quarter, and its total sales have now surpassed 150 million copies. Since its 2013 release, GTA V has generated more than $6 billion in revenue.

Revenue for the New York video game publisher came in at $813.3 million on a GAAP basis. Overall, Take-Two said that all evidence suggests that media consumption patterns are beginning to stabilize to a new normal, and while down from the highs of the previous pandemic year, recurrent consumer spending in products has leveled off and remains significantly higher than the first quarter of fiscal 2020 (the calendar quarter ended March 31, 2020). That was the final quarter reported before the pandemic.

Take-Two’s stock price is trading at $165 a share, down 4.75% in after-hours trading.

“They beat by a reasonable amount, but didn’t pass any of the upside through in guidance [for the full year],” said Michael Pachter, an analyst at Wedbush Securities. “The stock is down because beating and not passing through says that things are going to be worse the next three quarters than we thought, and that reinforces the unwind of the shelter-in-place trade.”

The company credited ongoing sales of Grand Theft Auto V, Grand Theft Auto Online, Red Dead Redemption 2, Red Dead Online, Borderlands 3, and other existing titles for the results.

Analysts expected the company to report non-GAAP results of 89 cents a share on revenues of $689.2 million. GAAP net income was $1.30 per share, or $152.3 million. The company had guided to $1 to $1.10 a share in GAAP net income.

In an interview today, Take-Two CEO Strauss Zelnick explained why established game companies are seeing more predictable results.

“It’s still a hit-driven business, like all entertainment businesses. Hits drive results. And that’s true,” Zelnick said. “Now, it has been true in the past. I think maybe it’s more investable because of the scale of the business. Interactive entertainment is now the largest entertainment vertical, with something like $180 billion in annual revenue. And it’s also possible it seems more investable because it’s no longer cyclical.”

He added, “Fifteen years ago it was still a cyclical business where you have a hardware cycle driving a software cycle. And that’s not the case anymore. Now it’s a 12 month-a-year entertainment business, and hardware comes and goes. But the business is stable or growing. I also think it’s a more diverse business. That it speaks to broad audiences, the average age of a gamer is now 37. And with the introduction of mobile games, you know, 45% of the overall market is females, and mobile games specifically skew female and something older. So I suspect those are some of the reasons.”

Live operations, such as tournaments in online games, also get players to come back and spend money in the games, and that helps smooth out the results over time, Zelnick said.

Zelnick said the new acquisitions would affect the pipeline. He said the company has 6,800 employees now, an all-time high, and it hired 700 game developers in the last 12 months.

Game performance

In comparison to the first quarter of fiscal 2020, Grand Theft Auto Online achieved a 72% increase in its audience size, a 77% increase in new players, and significant growth in recurrent consumer spending. Last week, GTA Online unveiled its Los Santos Tuners update, which enables players to engage in a non-combat social scene around modding cars. That was akin to a metaverse style update, where the aim is to get people to spend more time in the online world.

“I think Grand Theft Auto Online is a metaverse by any definition I come up with,” Zelnick said. “In the first place, the notion of the metaverse is a digital landscape that one can inhabit and in which one can act through a character, perhaps a character that reflects oneself. And that’s exactly what what you can do inside Grand Theft Auto Online, where you can do and read that online in ways you can do in the city. Is there is there more to be done? Absolutely. But there have been plenty of things that you could already do in Grand Theft Auto Online that that don’t involve combat, for example. And that’s been true for a very long time.”

Red Dead Redemption 2 sales edged up 1 million copies to 38 million copies sold to date since 2018. The game saw 18% growth in its audience size, 26% growth in new players, and outstanding growth in recurrent consumer spending.

NBA 2K21 has sold more than 11 million copies to date, and more than 2.7 million users are playing daily. The game saw 13% growth in first-time spenders and 30% growth in returning players. NBA 2K Online in China has nearly 54 million registered users.

Take-Two also said that PGA Tour 2K21 continued to exceed its expectations and expand its audience. In June, it had a community-driven program from both 2K and HB Studios that allowed the top golf course designers from around the world to create and submit ideas for inclusion in the game’s online playlist. This is helping the golf title’s replayability.

Borderlands 3 had a strong quarter during which 2K and Gearbox Software released the Director’s Cut add-on, providing new missions, characters, daily and weekly challenges, and unique rewards.  The game was also supported with an array of new free content offerings that gave players more ways to perfect and expand their arsenals.

Sid Meier’s Civilization VI has sold more than 11 million copies to date, outperforming Civ V at the same point in its lifecycle. The game launched its anthology version, which includes all previously released downloadable content, on Windows.

As for the Private Division indie label, Kerbal Space Program has now sold more than 5 million copies.

Recurrent consumer spending declined 25%, which the company said was better than its expectations of a 30% drop, and it accounted for 69% of net bookings.

WWE Supercard has now been downloaded over 24 million times and it is 2K’s highest-grossing mobile title.

The company updated its pipeline of games as well. Take-Two said 19 “immersive core” titles — including seven sports simulation games — are coming in the next three years. Fifteen will be available for premium prices, while four will be free-to-play games.

Of the games in the pipeline, Take-Two said four immersive core titles — NBA 2K22, WWE 2K22, Tiny Tina’s Wonderlands, and one unannounced game — are coming for the fiscal year ending March 31, 2022.

Also coming is one indie release, OlliOlli World, 10 mobile games, six new iterations of prior releases such as GTA V Expanded and Enhanced Edition; GTA Online — Standalone; Kerbal Space Program Enhanced; and three unannounced titles.

By the end of fiscal year 2024 (March 2024), Take-Two expects to also launch five independent games, which will all be available for purchase; 10 free-to-play mobile games; four midcore games, which will all be available for purchase and three of which will be sports-oriented; and three new iterations of previously released titles, which will all be available for purchase.

During the quarter, Take-Two acquired mobile game creator Nordeus to expand its mobile game-making capability, and it bought Dynamixyz to boost its graphics technology.

Outlook

Analysts were previously expecting second fiscal quarter earnings for the period ending September 30 of $1.36 a share on revenues of $878.2 million.

For the full year, Take-Two anticipates bookings of $3.2 billion to $3.3 billion — the same guidance as before. For the full year, analysts previously expected earnings of $4.72 a share on revenues of $3.45 billion for the full year. The company said that two of the planned releases for the year among the “immersive core” titles are shifting to later in the year than previously expected.

As COVID-19 moderates and the world returns to a new normal, Take-Two also expects a moderation of the trends that benefited the industry over the past year. But the company still believes the pandemic initiated a transformational shift in entertainment consumption.