Take-Two Whiffs It on Q4 Sales, Is it Game Over?

After the closing bell rung last night, Take-Two Interactive Software (TTWO) made headlines with its Q4 earnings report. At first glance, things looked pretty bleak for the video game publisher—shares plunged 6% immediately after the announcement. However, by the time the opening bell rung this morning, TTWO had regained its ground, and then some.

What caused such a ruckus last night? And is TTWO still a buy going forward? Let’s find out.

For those of you who haven’t heard of it, Take-Two Interactive is a leading developer of video games. The company develops and markets its products through Rockstar Games and 2K, its two wholly-owned labels. Take-Two Interactive Software’s games can be used on personal computers, smartphones and tablets, as well as game consoles like PlayStation and Xbox.

Under the Rockstar Games label, Take-Two Interactive Software provides popular franchise games, including Grand Theft Auto, Max Payne, Midnight Club and Red Dead. The 2K label offers role-playing, sports and family-oriented entertainment, with games like NBA 2K, WWE 2k, BioShock and Sid Meier’s Civilization.

For the past several quarters, Take-Two Interactive has been on an earnings winning streak. So, I currently recommend Take-Two Interactive in my Blue Chip Growth letter. However, last night’s fourth-quarter earnings report appeared to break that winning streak.

The video game publisher brought in $411.4 million in net bookings last quarter, compared with $407.1 million last year. Analysts were forecasting $445.4 million in revenue, so Take-Two missed estimates. Breaking it down, recurrent consumer spending—which covers virtual currency, add-on content and in-game purchases—jumped 42% over a year ago, accounting for 44% of total net revenue.

Net income came in at $90.9 million, or $0.77 per share, compared with $99.3 million, or $0.89 per share, a year ago. Adjusted earnings came in at $0.69 per share. Analysts were expecting $0.63 EPS, so Take-Two Interactive posted a solid 9.5% earnings surprise.

Looking ahead to the first quarter, the company expects net bookings to range between $216 million and $265 million. Earnings per share is expected to range from $0.53 to $0.63. This forecast is below the Street view of $370.7 million in sales, but above the consensus forecast of $0.45 EPS.

For the fiscal year, Take-Two Interactive is forecasting net bookings to range between $2.67 billion and $2.77 billion. Adjusted earnings per share is expected to be $4.12. The full-year forecast is below the Street view of $2.91 billion in revenue and adjusted earnings of $4.89 per share.

Despite the mixed guidance, TTWO shares opened in the green on Thursday morning. Now, I would have liked to have seen TTWO beat Q4 sales expectations and guide above FY 2019 forecasts. We all would have.

However, the reason that TTWO shares recovered so quickly from the disappointment is that this is still a fundamentally strong company. Looking at the latest forecasts, Take-Two Interactive’s sales and earnings are still expected to accelerate over the next several quarters. And, the fact is that Take-Two Interactive is still beating analysts’ expectations. So, rather than continuing to fall, TTWO shares rebounded like a fresh tennis ball this morning.

I see further upside potential for TTWO, so I consider it an A-rated Strong Buy

Until Tomrrow,

Louis Navellier

Louis Navellier

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