Has Take-Two Interactive Devolved into a One-Trick Pony?

Video game maker Take-Two Interactive Software NASDAQ: TTWO stock has been steadily falling due to fall in videogame sales. The publisher owns one of the most lucrative video gaming franchises in Grand Theft Auto (GTA). It’s Grand Theft Auto V game was originally released in 2013 and continues to generate strong revenues notably through its online mode. However, the Company received a lot of backlash for charging $20 for the “upgraded” version of GTA V for next-gen consoles Sony PlayStation 5 NYSE: SNE and Microsoft Xbox NASDAQ: MSFT, which was just a re-release of the same game. At least It pushed GTA V unit sales through the 166 million mark after nearly a decade. It’s 2K series is gaining some ground on the leader Electronic Arts NYSE: EA sports franchises. The Company completed its acquisition of mobile gaming publisher Zynga in May 2022 in an effort to drive bookings and grow its mobile gaming footprint. While it’s other titles are generating sales, none have recently placed in the top 10 video game sales in ages. With top and bottom lines expected to continue falling as guidance was slashed, investors are left to wonder if Take-Two has devolved into a one-trick pony.

Downtrending Videogame Sales

Videogame sales fell (-9%) in the month of July 2022. It’s no secret that the pandemic lockdown was a boon for videogame publishers as it pushed more (bored) people to connect with online players for gaming entertainment. Despite the drop in videogame spending, the pace of the down trend has slowed as May 2022 saw a (-19%) and June saw a (-11%) YoY drop in sales. Year-to-date (YTD) videogame spending fell (-10%), accessory spending fell (-15%), and hardware spending is down (7%). Inflation has taken a negative toll on consumer discretionary spending.

Bootleggers Cashing In

The majority of GTA V online revenues come from the purchase of Shark Cards ranging in denomination from $4.99 to $99.99 for in-game currency to purchase items. However, there are many underground mod companies providing deals like $200 million of in-game currency for $70 through the internet. Once this much in-game currency is easily purchased, GTA V quickly loses the incentive for playing missions and performing heists, which is the main draw of online play. It’s $20 upgrades for the PlayStation 5 version of GTA V with virtually no major improvements was considered a blatant money grab. The Company has rolled out a $4.99 monthly GTA V membership plan which provides members with in-game currency and special in-game merchandise and items perks. Once again, who cares if you are able to get $200 million of in-game currency for $70 elsewhere?

Attractive Pullback Levels

We the rifle charts on the weekly and daily time frames to provide a near to medium term interpretation of the price history for TTWO stock. The weekly rifle chart found a bottom near the $111.29 Fibonacci (fib) level and staged a rally back to a trading range in the 120s. The weekly 5-period moving average (MA) and 15-period MA are chopping flat at $124.95 and $126.87, respectively. The weekly market structure low (MSL) buy triggers on a breakout above $127.78. The weekly 200-period MA is flat at $142.54 as the 50-period MA falls at $148.54. The weekly upper Bollinger Bands (BBs) sit at $139.85 and lower Bollinger Bands sit at $109.02. The weekly stochastic peaked and reversed back down at the 70-band. The daily rifle chart is attempting to reverse its downtrend as the 5-period MA slopes up at $121.42 attempting to crossover through the 15-period MA at $123.33 and 50-period MA at $125.86. The daily upper BBs sit at $136.80. The daily stochastic coiled quickly up through the 20-band. Attractive pullback levels sit at the $123.19, $119.30, $117.20, $114.50 fib, $111.20 fib, $109.49 fib, and the $105.47 fib level.  

Milking the Cow and Gamers   

Despite some minor franchises like the 2K sports segment with NBA, NCAA, WWE, the main focus of attention continues to be its GTA V online. It’s latest downloadable content (DLC) Criminal Enterprise included new cars and missions which players can download free of charge. In an effort to retain and even pull online players back in, the DLC enables access to terminals in private and invite mode. Terminal access is required in order to build up online businesses and take on missions. However, these missions become extremely frustrating when leveled up griefers are incentivized to disrupt missions and kill players at any time. This is a definite turn-off for new players. However, it may be too little too late. The focus on GTA V online has taken away from its Red Dead Redemption online franchise, which is arguably the best western RPG game. Rockstar has stated it will no longer support new online DLC, to the disappointment of fans.

Earnings Faceplant

On Aug. 8, 2022, Take-Two released its fiscal first-quarter 2022 results for the quarter ending June 2022. The Company reported a GAAP earnings-per-share (EPS) loss of (-$0.76) missing analyst estimates for a profit of $0.85, by (-$1.61). Revenues rose 40.6% year-over-year (YoY) to $1 billion missing $1.11 billion consensus analyst estimates. The revenues included 39 days of the quarter from its Zynga acquisition. GAAP net cash for the quarter was $100.8 million. Net booking grew 41% to $1 billion.

Zynga Kind of Saves the Day

Core numbers were weak across the board but were juiced up partially due to the inclusion of Zynga revenues and metrics. The Company will not segment Zynga revenues since they are now a part of Take-Two. Take-Two CEO Strauss Zelnick commented, “We remain exceedingly optimistic about the long-term growth potential for the mobile industry, as well as our ability to create greater shareholder value as a combined entity with Zynga. Our creative teams are actively discussing potential new projects and we remain committed to delivering over $500 million of annual Net Bookings opportunities over time. At the same time, we continue to believe that we can achieve approximately $100 million of annual cost synergies within the first two years post-close, with the potential for upside.”

Slashed Guidance

Take-Two slashed its fiscal Q2 2023 GAAP EPS to come in between (-$0.96) to (-$0.86) versus %0.59 consensus analyst estimates on revenues between $1.50 billion to $1.55 billion versus $1.73 billion consensus analyst estimates. Full-year 2023 revenues are expected between $5.73 billion to $5.83 billion versus $6.4 billion.

All Eyes on GTV 6

The gaming world awaits any clues for the upcoming GTA 6 release. Apparently, the Company has been working quietly in the shadows for the past six years on its GTA 6 game but there is no mention of a launch date. Gamers estimate the release in 2023 or 2024. The release will no doubt drive a huge surge of bookings back into the GTA franchise as investors await any updates.