The Investment Case For Take-Two Interactive After FQ1 Print

The video software maker reported fiscal first-quarter revenue and adjusted earnings of $348.3 million and 41 cents, exceeding the guidance for $240 million–$290 million in revenues and 13–22 cents in earnings per share. The results were notably ahead of the consensus estimates.

Oppenheimer noted that GAAP operating expenditure were up 9 percent year over year, propped up by Social Point. This is despite the company cutting down on marketing expenses.

GTA Online Flies High

The firm also noted that 81 percent of the net sales were digital delivered, up from 70 percent in the year-ago quarter. Recurrent revenues were up 71 percent and accounted for 59 percent of net sales, thanks to GTA Online and NBA2K17.

Credit Suisse sees this as highlighting the ongoing benefits of the secular digital transition the industry is seeing, effectively raising the trough EPS for the company even higher.

Meanwhile, Oppenheimer's Andrew Uerkwitz, Martin Yang and Paul Dean said GTA Online had its best ever quarter due to record MAUs in June and July. The analysts pointed to the management expectations of year-over-year growth in GTA in 2018, although internally it expects some moderation in the second half.

The company also sees the extension of GTA+Online's deferral revenue to impact GAAP revenues going forward and forecasts the fiscal year 2018 Rockstar mix to be up 5–39 percent.

Other Titles

Credit Suisse analysts Stephen Ju and Christopher Ford noted that the company added two more titles, namely NBA and WWE for the Nintendo Switch, to the release slate. The analysts believe these would add $0.50 to the fiscal year 2018 guidance.

"The better-than-expected performance for GTA Online also catalysed a decision to spend more marketing dollars on the franchise presumably in a bid to reactivate lapsed users to return to the game," the analysts said.

Oppenheimer noted that NBA passed 8.5 million sold-in, with recurrent spend in NBA rising 64 percent and China boasting of over 35 million registered users for NBA online. Net sales from two largest titles of Social Point, namely "Dragon City" and "Monster Legends," rose in double digits, the firm added.

The firm also noted that the company is poised to have multiple launches over the next 24 month, with expansions likely for "Kerbal Space," "Xcom" and "Civ."

Changes In Model

Credit Suisse estimates fiscal second-quarter revenue and adjusted earnings per share of $517.2 million and 78 cents compared to the guidance that call for revenues of $465 million to $515 million and adjusted earnings of 65–72 cents.

The firm updated its fiscal year 2018 adjusted earnings per share to $2.14 and revenues to $1.72 billion.

Meanwhile, Oppenheimer raised its 2018 revenue estimate to $1.69 billion from $1.50 billion and adjusted earnings per share estimate to $2.8 from $1.55, citing increased recurrent revenue growth and gross margin expansion.

"With annual earnings volatility decreasing, a growing mobile business, continued secular tailwinds, and an upcoming mega-year (management reiterated F2019 guidance of >$2.5B and CFO of ~$700M), we see a premium multiple as warranted," Oppenheimer said.

The firm reiterated its Outperform rating on the shares of Take-Two and raised its price target for the shares from $85 to $93.

Credit Suisse has a Neutral rating and $73 price target for the shares of the company.

At last check, the shares of Take-Two were rallying 11.31 percent at $88.38.