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Take Two (TTWO) to Report Q2 Earnings: What's in the Cards?

Zacks Equity Research

Take Two Interactive TTWO is set to report second-quarter fiscal 2020 results on Nov 7.

For the quarter, the company expects net revenues between $855 million and $905 million.

The Zacks Consensus Estimate for second-quarter revenues stands at $919 million, indicating 57.5% growth from the figure reported in the year-ago quarter.

Moreover, the consensus mark for earnings has increased by 2 cents over the past 30 days to $1.67 per share.

In the last reported quarter, Take Two delivered GAAP earnings of 41 cents per share, which declined almost 34% year over year. Net revenues increased 39.3% from the year-ago quarter to $540.5 million.

Notably, the company’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 193.6%.

Let’s see how things have shaped up prior to this announcement.

Take-Two Interactive Software, Inc. Price and EPS Surprise

Take-Two Interactive Software, Inc. Price and EPS Surprise

Take-Two Interactive Software, Inc. price-eps-surprise | Take-Two Interactive Software, Inc. Quote

Factors to Consider

Take Two’s growth is expected to have been driven by its popular franchises — Borderlands, Grand Theft Auto (GTA), Red Dead Redemption and NBA.

The company expects net bookings to be in the $860 million to $910 million range in second quarter fiscal 2020. In the year-ago quarter, bookings totaled $583 million.

Borderlands 3, launched on Sep 13, sold more than 5 million units in the first five days of launch, making it the fastest-selling title in 2K history and the highest-selling title for the label on PC.

This is expected to have driven user growth and engagement levels at the end of second-quarter 2020. Notably, Borderlands sold more than 48 million units worldwide till Aug 5.

NBA 2K20, Borderlands 3, GTA Online and GTA V, Red Dead Redemption 2 and Red Dead Online, and Social Point’s mobile offerings are expected to have been the largest contributors to net bookings in the to-be-reported quarter.

Activision’s continued support for both Red Dead Online and GTA Online with new features and updates is expected to have driven user engagement and player growth.

The Diamond Casino & Resort update rolled out in July recorded GTA Online’s highest player engagement and daily active users, weekly active users and monthly active users, which is expected to have contributed to Activision’s second-quarter 2019 top line.

Notably, the company expects digitally-delivered net bookings to increase by more than 40% from the year-ago quarter, assuming that 48% of current generation console games are delivered digitally, up from 47% in the same period last year.

Activision’s private division released Ancestors: The Humankind Odyssey for digital download on PC in the second quarter, which is likely to have contributed to digitally-delivered net bookings.

Moreover, the company is also expected to have benefitted from a solid increase in recurrent consumer spending. Notably, Take Two expects recurrent consumer spending to grow by over 20% year-over-year in second quarter.

This growth is expected to have been driven by NBA 2K, Borderlands 3 and Red Dead Online with a modest contribution from GTA Online.

2K Visual Concepts launched NBA 2K20 during second quarter, which is expected to have driven user growth and recurrent consumer spending.

NBA 2K19 became the highest selling sports game for Take Two, selling nearly 12 million units on Aug 5. During the fiscal first quarter, net bookings from NBA 2K19 more than doubled. Recurrent consumer spending on NBA 2K grew more than 140% and was the single largest contributor to that part of its business.

However, higher operating expenses, particularly selling & marketing, are likely to have hurt margins. The company continues to face stiff competition in the video game market from the likes of EA, Activision Blizzard, Gluu Mobile and Zynga.

What Our Model Says

According to the Zacks model, the combination of two key ingredients — a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — increases the odds of an earnings beat.

Take Two has an Earnings ESP of +6.96% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks to Consider

Here are some companies, which, per our model, also have the right combination of elements to post an earnings beat this quarter:

iHeartMedia IHRT has an Earnings ESP of +3.17% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Liberty Broadband LBRDK has an Earnings ESP of +5.75% and a Zacks Rank #2.

Twin River Worldwide TRWH has an Earnings ESP of +13.25% and a Zacks Rank #2.

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