By Wallace Witkowski
Take-Two Interactive Software Inc.’s chief executive declared that the pandemic boom in videogames was dead Monday, and added that publishers were coming up short of gamers’ heightened expectations
The commentary followed quarterly results and a forecast that missed analysts’ expectations for Take-Two /zigman2/quotes/204008930/composite TTWO +4.28% , which produces series like “Grand Theft Auto” and “NBA 2K.” Publishers are showing and forecasting slower growth at the beginning of 2022, after huge gains during earlier phases of the COVID-19 pandemic.
“I don’t think we’re seeing enhanced demand because of the pandemic,” CEO Strauss Zelnick said on a conference call Monday. “I think we’re seeing normalized demand at this point.”
Earlier gains may have increased Wall Street’s expectations for the videogame publishers, but Zelnick seemed more concerned with the expectations of videogame fans.
“It’s really hard to make hit video games,” Zelnick said when asked by an analyst about a string of underperforming titles industrywide. “And now and then, we fall short; now and then, our competitors fall short.”
Publishers have faced complaints about their games for years, but since the buggy 2020 release of “Cyberpunk 2077” from CD Projekt SA /zigman2/quotes/206478470/delayed PL:CDR -0.38% that enraged gamers and forced distributors like Sony Group Corp. /zigman2/quotes/208567357/composite SONY +1.02% /zigman2/quotes/201361720/delayed JP:6758 +0.80% to offer full refunds, delays in game releases have become more conspicuous industrywide. Take-Two’s Rockstar Games has gone more than 10 years without a new installment of “Grand Theft Auto,” while Take-Two continues to make money on the last version, “GTA V” — Chief Financial Officer Lainie Goldstein said Monday that the 2011 videogame would once again be one of Take-Two’s biggest moneymakers in 2022.
“We just think that over time, as entertainment industries mature, consumers’ expectations always increase, and they should,” Zelnick said. “So, it’s always our goal to do better with each iteration of a franchise or with each launch of a new intellectual property.”
Rockstar confirmed Friday that 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 .
Take-Two shares declined as much as 5% in after-hours trading Monday following release of the results, but declines lessened to close down 2%. Shares closed at $175.10, and have declined nearly 16% in the past year.
Other videogame stocks have also suffered in the past year, and recent financial results haven’t turned around that trajectory. Electronic Arts Inc. /zigman2/quotes/206954087/composite EA +2.50% forecast slower-than-expected growth in its earnings report last Tuesday, while Activision Blizzard Inc. /zigman2/quotes/200717283/composite ATVI -0.52% reported a ‘disappointing’ earnings last Thursday with Microsoft Corp.’s /zigman2/quotes/207732364/composite MSFT +6.16% $69 billion offer for Activision Blizzard likely cushioned any blow there.
Take-Two reported that net bookings rose 6% to $866.1 million from the year-ago quarter, above Take-Two’s own forecast back in November of $800 million to $850 million. Analysts surveyed by FactSet, however, expected even more from Take-Two with a consensus estimate of $868.4 million.
In Take-Two’s forecast Monday, the company sees net bookings of $808 million to $858 million for the fourth quarter, while the Street estimates bookings of $924.9 million. Even Take-Two’s increased outlook for the full year didn’t quite clear the Street’s bar. The company forecast annual net bookings between $3.37 billion and $3.42 billion, compared with a previous forecast between $3.3 billion and $3.4 billion for the year. Analysts, on average, expect bookings of $3.45 billion.
The forecasts do not include any contribution from Zynga Inc. , which Take-Two offered to buy in January for $12.7 billion . Zelnick said he expects the Zynga deal to close in the first fiscal quarter of 2023, or by the end of this June.
On the call with analysts, CFO Goldstein said she expects bookings of about 50% from the company’s 2K studio, 40% from Rockstar Games, and 10% from its private division and mobile games. About 60% of those bookings are expected from the U.S., and 40% international, she said.
“The largest contributor to net bookings are expected to be ‘NBA 2K,’ ‘Grand Theft Auto Online’ and ‘Grand Theft Auto V,’ ‘Red Dead Redemption 2,’ and ‘Red Dead Online,’ ‘Borderlands 3,’ and ‘Grand Theft Auto: The Trilogy–The Definitive Edition,'” Goldstein told analysts.
For the fiscal third quarter, Take-Two reported net income of $144.5 million, or $1.24 a share, compared with $182.2 million, or $1.57 a share, in the year-ago period. Revenue rose to $903.3 million from $860.9 million in the year-ago quarter, while
Analysts expected Take-Two to report third-quarter unadjusted earnings of 79 cents a share and adjusted earnings of $1.12 a share on revenue of $870.1 million. Take-Two had forecast unadjusted earnings of 85 cents to 95 cents a share on revenue of $840 million to $890 million.
Take-Two forecast unadjusted fiscal fourth-quarter earnings of 46 cents to 56 cents a share on revenue of $835 million to $885 million. Analysts had forecast GAAP earnings of 71 cents a share and non-GAAP earnings of $1.15 a share, and revenue of $911.9 million.
For the year, Take-Two forecast unadjusted earnings of $3.10 to $3.20 a share on revenue of $3.41 billion to $3.46 billion, compared with its previous forecast of $2.75 to $3 a share on revenue of $3.35 billion to $3.45 billion. For the year, analysts forecast GAAP earnings of $3.31 a share earnings, non-GAAP earnings of $4.87 a share, revenue of $3.5 billion.
Over the past 12 months, the iShares Expanded Tech-Software Sector ETF /zigman2/quotes/201870252/composite IGV +4.39% is down 7.4%, the S&P 500 index /zigman2/quotes/210599714/realtime SPX +3.09% is up more than 15%, and the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +4.41% is up 1.2%.