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Earnings Results: Take-Two sales and forecast undershoot Wall Street’s expectations, but the stock is doing fine


Take-Two Interactive Software Inc. reported and predicted softer sales than analysts expected Monday, but shares still gained as Wall Street awaits the acquisition of Zynga Inc. and acknowledges the videogame publisher’s history of conservative forecasts.

Known for its “Grand Theft Auto” and “NBA 2K” titles, Take-Two

reported fourth-quarter net income of $111 million, or 95 cents a share, compared with $218.8 million, or $1.88 a share, in the year-ago period. Revenue increased 11% to $930 million from $839.4 million in the year-ago quarter, while bookings came in at $845.8 million compared with $784.5 million in the year-ago period.

Analysts expected Take-Two to report fourth-quarter unadjusted earnings of 65 cents a share, adjusted earnings of $1 a share, revenue of $897 million, and bookings of $882.6 million. Take-Two does not provide adjusted earnings information, instead providing some financial information that can be used to calculate the number.

For the current fiscal year, Take-Two executives forecast earnings of $1.90 to $2.15 a share, revenue of $3.67 billion to $3.77 billion, and bookings of $3.75 billion to $3.85 billion. Analysts were forecasting GAAP earnings of $3.19 a share, revenue of $3.95 billion, and bookings of $4.15 billion.

That forecast does not include contribution from Zynga Inc.
which Take-Two has agreed to acquire for $12.7 billion, a deal that executives expect to close by the end of June; interest expense on the debt Take-Two has accessed to pay for the Zynga deal was also not included. Analysts expect the addition of the mobile-gaming company will change the forecast for the year once it closes.

“Given the Zynga transaction’s expected closing and with FY23 Take-Two stand-alone guidance likely to look similar to management’s internal budget from its March 14, 2022 S-4 filing (less the added interest expense from the acquisition-related debt financing), neither 4QFY22 earnings nor management’s outlook should prove overly surprising,” MKM Partners Managing Director Eric Handler wrote in a preview of the report.

Handle also noted that Take-Two executives tend to offer conservative annual guidance.

“Our top-line projection is 2% higher than management’s internally budgeted view of $3.893bn, a number we view as conservative considering Take-Two’s end-of-year revenue has exceeded its initial guidance by an average of 23% over the last 6 years,” he wrote, later adding, “our higher EPS estimate (of 6%) is a reflection of the company’s ending EPS outpacing its initial guidance by an average of 85% over the last six years.”

Shares gained between 2% and 3% in after-hours trading immediately following the release of the results, after closing with a 0.2% gain at $110.11

“In addition to our outstanding financial results, I am pleased that we took pivotal steps to position our organization for the long term by investing in talent, broadening our portfolio further, and agreeing upon our transformational pending combination with Zynga, which has the potential to exponentially increase our Net Bookings from mobile, while also enabling us to deliver substantial cost synergies and revenue opportunities,” Take-Two chief executive Strauss Zelnick said in a statement. Last quarter, Zelnick declared the pandemic boom in videogames as being over, while some analysts expect growth to slow considerably in 2022.

Read: The pandemic boom in videogames is expected to disappear in 2022

For the first quarter, Take-Two forecast earnings of 80 cents to 90 cents a share, revenue of $810 million to $860 million, and bookings of $700 million to $750 million. Analysts on average were expecting GAAP earnings of 10 cents a share, revenue of $780.3 million, and bookings of $796.2 million.

Last quarter, Take-Two’s Rockstar studio confirmed it was starting development on the next iteration of “Grand Theft Auto,” ostensibly “GTA VI,” which analysts have estimated could be out as early as the spring of 2023. “GTA V” is the highest-grossing entertainment title ever.

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