Take-Two Interactive Software Inc. (TTWO) is ticking higher after reporting strong earnings for its fiscal first quarter to ease investor anxiety.
After Take-Two shares fell more than 5% on Monday, the quarterly results and upbeat guidance made for a quick pivot, with the video game company's shares up nearly 7% before Tuesday's opening bell.
The company famous for titles such as Grand Theft Auto, 2K Sports and Red Dead Redemption reported results for the June quarter that topped both top- and bottom-line estimates as expectations were reined in ahead of the release.
The all-important bookings number also grew substantially, increasing 46% to $422.2 million, as online titles for Grand Theft Auto and Red Dead Redemption yielded strong results.
"We delivered significant net bookings and cash flow growth driven by the performance of Grand Theft Auto Online and Grand Theft Auto V, NBA 2K19, the Borderlands franchise and Red Dead Redemption 2, and Red Dead Online," CEO Stauss Zelnick told analysts on Monday evening. "As we approach the sixth anniversary of their initial launch, sales of Grand Theft Auto V and recurrent consumer spending on Grand Theft Auto Online once again exceeded our expectations in the first quarter.
Zelnick noted that despite being a bit long in the tooth by video game industry standards, Grand Theft Auto V continues to chart among the top 10 games in the U.S. and has continued to generate revenue from sales and in game purchases.
The company's mobile games, such as its WWE offerings, were also noted as a tailwind for the results as they cleared the bar set by Wall Street.
Looking at all of fiscal 2020, Take-Two boosted guidance slightly.
"As a result of our better-than-expected first-quarter operating results and increased forecast for the balance of the year, we are raising our outlook for fiscal 2020, which is anticipated to be another great year for our organization," Zelnick said.
Take-Two is now projecting full-year sales in a range of $2.83 billion to $2.93 billion and GAAP earnings of between $3.71 and $3.96 per share. Second-quarter net bookings should come in between $860 million and $910 million, compared to $583 million last year, thanks to gains from NBA 2K 20, the September release of Borderlands 3, Grand Theft Auto and Red Dead Redemption 2.
A console refresh is being touted as a key catalyst for share growth throughout the calendar year.
"Take-Two remains exceedingly well-positioned creatively, strategically and financially to capitalize on our industry's many opportunities, and to deliver growth and returns for our shareholders over the long term," Zelnick said. "With the promise of new consoles along with emerging platforms, distribution channels, business models and markets, we have tremendous potential to engage and expand further our global audience to our development team's passion and vision for creative excellence."
The global aims of Zelnick and Take-Two do encounter some trade-related risk in China, the company's second-largest market by share of revenue and a key factor in its e-sports efforts. The company's initiatives in China also have drawn it into a key partnership with Tencent Holdigs (TCEHY) , one of China's largest companies and a company firmly in the cross hairs of the trade war.
"Look, the NBA is beloved in China and NBA 2K Online in China reflects that, and we think there is a lot of opportunity for growth, particularly in mobile," Zelnick told investors. "As I've said before, I'm of the view, and this has got to be a particularly unpopular view today that the Chinese market will soften, will open up, will be more congenial to all forms of western entertainment. And while that won't happen overnight, we're good participants in the market. We have great local partners, including Tencent. We comply with government restrictions. And we think that it is possible that that market will open up."
BMO Capital Markets analyst Gerrick Johnson is positive on Take-Two and other video game makers.
"With the threat of an economic downturn we believe video game stocks will be increasingly seen as safe havens for investors," Johnson told clients on Tuesday. "Thus, we anticipate the elevation of valuation multiples for these stocks."