By Wallace Witkowski
Take-Two Interactive Software Inc. shares dropped Tuesday, and led a decline in videogame stocks, after an earnings beat was marred by an unchanged outlook due to a delay of two games, causing analysts to weigh in on how that reflected upon the sector.
Late Monday, Take-Two /zigman2/quotes/204008930/composite TTWO +0.70% topped Wall Street expectations for its fiscal first quarter but largely surprised analysts by reiterating its guidance for the year. Strauss Zelnick, Take-Two’s chairman and chief executive, said the lack of a raised guidance was due to “some movement in our release schedule, including two of our immersive core titles shifting to later in fiscal 2022 than contemplated.”
Shares of Take-Two fell as much as 10% in early trading Tuesday to an intraday low of $155.88. That puts shares down more than 6% over the last 12 months, compared with more than 30% gains in both the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.34% and the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.84% .
While Take-Two did not mention the titles by name analysts said likely candidates were the next installment of the WWE franchise, “Tiny Tina’s Wonderlands,” and/or a yet-to-be-announced third title from the company’s 2K label. Zelnick told analysts that the delays were due to making sure the games were as polished as possible before release and not from pandemic disruptions.
Take-Two publishes such videogame franchises as “Grand Theft Auto” and “Red Dead Redemption” under its Rockstar Games label, and “Borderlands” and “NBA2K” under its 2K label.
Of the 27 analysts who cover Take-Two, 19 have buy or overweight ratings and eight have hold ratings. Of those, five lowered their price targets while two raised theirs, resulting in an average price target of $216.22, compared with a previous $218.67, according to FactSet data.
Cowen analyst Doug Creutz, who has an outperform rating and a $229 price target, called Monday’s report “a somewhat pedestrian quarter.”
“In total, we think investors may be somewhat disappointed at the lack of what is typically a very large FQ1 beat for TTWO, along with the lack of a FY guidance raise, though we also think expectations going into the call were far from elevated given recent share performance,” Creutz said.
Wells Fargo analyst Brian Fitzgerald, who has an overweight rating, maintained his $235 price target, said comparisons should get easier given the initial surge of videogame use following the height of stay-at-home COVID-19 mandates last year.
“We continue to see TTWO shares grinding sideways in the near term,” Fitzgerald said. “While 1FQ22’s call makes clear that FY22 won’t be a breakout year for TTWO, it also makes clear the significant investments TTWO will make, ahead of the curve, to permanently raise its net bookings run rate.”
Raymond James analyst Andrew Marok, who has a market perform rating, called operation from Rockstar and mobile games “solid,” but said the report did little to shift a view of the industry either way.
“As a read-through to other publishers, we expect TTWO’s commentary around engagement is enough to reassure fears of a sharp step back, though not likely to drive much incremental optimism,” Marok said.
Stifel analyst Drew Crum, who has a buy rating and a $237 price target, called the lack of an outlook raise a “notable” surprise.
“Overall we thought this was a solid start to what we’ve termed as a transition year for Take-Two, but probably not enough (at least near term) to change sentiment for the group (which is generally negative in our view),” Crum said.
Activision Blizzard Inc. /zigman2/quotes/200717283/composite ATVI 0.00% , which is reporting Tuesday after the close of markets, saw shares down more than 5%, while Electronic Arts Inc. /zigman2/quotes/206954087/composite EA -0.03% , which reports Wednesday, saw shares down more than 3%. Reporting Thursday is Zynga Inc. /zigman2/quotes/209662259/composite ZNGA +1.49% , which saw its shares fall more than 3%.