How Wall Street Misinterpreted Take-Two's Guidance and Bookings

Technology

Published: May 17, 2018 11:35 am

Last Updated: January 11, 2020 11:29 pm

At this stage in the bull market, it is not usually well received when companies miss on revenues and offer guidance that feels weak. Video-game maker Take-Two Interactive Software Inc. (NASDAQ: TTWO) is currently an exception to that rule.

24/7 Wall St. frequently looks into stocks that rally on what may have been deemed bad news. We also look over companies with shares that fall on what seemed to be good (or good enough) news.

Shares of Take-Two were up almost 3% late Thursday morning after investors and analysts got to hear its post-earnings conference call and parse through more data.

Some of the quick-hit highlights from Take-Two’s earnings report for the year included that its GAAP net revenue rose to $1.793 billion and its GAAP net income more than doubled to $1.54 per diluted share. The game-publisher also showed that its net cash provided by operating activities rose 19% to $393.9 million, while its net bookings grew 5% to $1.991 billion.

For the quarter is where the drag came in. Net revenue was down over 21% to $450.3 million, from the $571.6 million in last year’s fiscal fourth quarter. Digitally delivered net revenue rose by 8% to $301.4 million from the $278.7 million in the year-ago quarter. And Take-Two’s net income was $90.9 million (or $0.77 per share), compared with $99.3 million (or $0.89 per diluted share) last year.

Now zoom forward a day, and the “weak guidance” apparently was the pool of analysts are not accounting for a release slate for “Grand Theft Auto Online.” The guidance for net bookings in a range of $215 million to $265 million were more than $100 million short of official expectations, but the company’s GTA release is not slated for the first quarter in 2018 like it had been previously.

That had shares down 4% in the after-hours session on Wednesday after earnings, but the shares went positive on Thursday. Some of the analyst calls do involve lower price targets, but even the less positive calls seem to come with implied upside.

Barclays (Overweight) cut its target to $126 from $128.
Benchmark raised its target to $135 from $130.
Credit Suisse (Outperform) cut its target to $123 from $128.
KeyBanc Capital Markets (Overweight) raised its target to $152 from $144.
Wedbush Securities (Outperform) raised its target to $132 from $126.

The Wedbush report said:

Despite its lowered guidance, we think that Take-Two has a clear path for earnings growth ahead. The delay of the unannounced 2K title bolsters our confidence that the company can grow earnings again in FY:20, as catalog sales of Red Dead Redemption 2, the launch of Borderlands 3, and growth from the core portfolio (including contribution from at least one Private Division title) should allow Take-Two to grow its top line by 5% or more and its EPS by 10% or more. Going forward, we expect a new BioShock title, new games from Rockstar, new titles from Private division, and continued growth of recurring revenue. We expect Rockstar to launch titles annually beginning in 2020 after a 5 year hiatus.

Shares of Take-Two Interactive were last trading up 3.3% at $116.85 just before the noon hour on Thursday. It has a 52-week range of $65.63 to $129.35.