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Going into Take-Two Interactive Software's (NASDAQ: TTWO) first-quarter earnings report, investors had plenty of lingering doubts that had carried over from its fourth-quarter report in May. The surging popularity of free-to-play games in the battle royale genre, led by Epic Games' Fortnite, had many wondering whether it was merely the latest fad, or a continuing trend that could upend the existing hierarchy in the gaming world.
Take-Two was able to put some of those fears to rest when the company reported results that were surprising on more than one account.
For the just completed fiscal first quarter, which ended on June 30, Take-Two reported that revenue fell 7% year over year to $388 million, but soared past analysts' consensus estimates for $288.32 million, and was at the high end of management's forecast. Profits also impressed, with adjusted earnings per share of $0.12 easily surpassing the $0.07 expected by analysts.
Image source: Rockstar Games.
Just the numbers
| Metric | Q1 19 | Q1 18 | Year-Over-Year Change |
|---|---|---|---|
| Net revenue | $388.0 million | $418.2 million | (7%) |
| Net bookings | $288.3 million | $348.3 million | (17%) |
| Operating income | $70.8 million | $50.2 million | 41% |
| Net income | $71.7 million | $60.2 million | 19% |
| Diluted earnings per share | $0.62 | $0.56 | 11% |
Data source: Take-Two First-Quarter Financial Report.
Grand Theft Auto is driving growth
Take-Two said the largest contributor to its better-than-expected revenue was the continuing health of its flagship Grand Theft Auto franchise, which is still going strong nearly five years after its initial release. During the conference call, Strauss Zelnick, Chairman and CEO of Take-Two, called the game the "standard-bearer for the current console generation," having sold nearly 100 million units to date. The game had no significant update in the current quarter, compared to a major upgrade in the prior-year quarter, so the robust sales of the game continue to surprise. NBA 2K18, Dragon City and Monster Legends, and WWE franchises also helped contributed to the positive results. NBA 2K18 also surpassed a milestone, selling more than 10 million units, setting a new record for the franchise. Digitally delivered revenue grew 17% year over year to $315 million and accounted for 81% of total sales, up from 64% in the year-ago quarter.
In one of the most important revelations from the report, Take-Two's recurrent consumer spending -- from virtual currency, add-on content, and in-game purchases -- grew to 62% of total net revenue, up from 41% in the prior-year quarter. Recurring revenue provides stable ongoing sales for the company and smooths out the lumpy results that accompany new game releases.