Take-Two (NASDAQ:TTWO) Reports Sales Below Analyst Estimates In Q4 Earnings, But Stock Soars 6.8%

Video game publisher Take Two (NASDAQ:TTWO) fell short of the market’s revenue expectations in Q4 CY2024 as sales only rose 1.6% year on year to $1.36 billion. On the other hand, next quarter’s outlook exceeded expectations with revenue guided to $1.57 billion at the midpoint, or 2.5% above analysts’ estimates. Its GAAP loss of $0.71 per share was 21.1% above analysts’ consensus estimates.

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Revenue: $1.36 billion vs analyst estimates of $1.39 billion (1.6% year-on-year growth, 2.1% miss)

EPS (GAAP): -$0.71 vs analyst estimates of -$0.90 (21.1% beat)

Adjusted EBITDA: $88.8 million vs analyst estimates of $177.4 million (6.5% margin, 49.9% miss)

Revenue Guidance for Q1 CY2025 is $1.57 billion at the midpoint, above analyst estimates of $1.53 billion

EPS (GAAP) guidance for the full year is -$4.34 at the midpoint, beating analyst estimates by 1.3%

EBITDA guidance for the full year is $290 million at the midpoint, below analyst estimates of $785.2 million

Operating Margin: -9.7%, in line with the same quarter last year

Free Cash Flow was -$48.2 million compared to -$165.2 million in the previous quarter

Market Capitalization: $32.48 billion

“We achieved solid results during the holiday season. Our Net Bookings of $1.37 billion were within our guidance range, as significant outperformance in NBA 2K helped to offset moderation experienced in several of our mobile franchises. At the same time, our operating results surpassed expectations, led by the upside from NBA 2K, as well as a shift in timing of expenses that benefited the quarter,” said Strauss Zelnick, Chairman and CEO of Take-Two Interactive.

Best known for its Grand Theft Auto and NBA 2K franchises, Take Two (NASDAQ:TTWO) is one of the world’s largest video game publishers.

Since videogames were invented in the 1970s, they have gradually taken more share of entertainment time. Ubiquitous mobile devices have powered a surge in “snackable” games that can be played on the go. Over time, games have developed more social engagement features where friends can play games together over the internet. The business models of games publishers have become less volatile due to digitization of distribution, in game monetization, and like Hollywood, an increasing dependence on surefire hit franchises. Covid driven lockdowns accelerated adoption and usage of videogames – a trend that has not slowed.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, Take-Two grew its sales at a solid 16.4% compounded annual growth rate. Its growth beat the average consumer internet company and shows its offerings resonate with customers.

Story Continues

This quarter, Take-Two’s revenue grew by 1.6% year on year to $1.36 billion, falling short of Wall Street’s estimates. Company management is currently guiding for a 16.3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 43.6% over the next 12 months, an acceleration versus the last three years. This projection is eye-popping and implies its newer products and services will fuel better top-line performance.

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If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Take-Two’s demanding reinvestments have consumed many resources over the last two years, contributing to an average free cash flow margin of negative 6.6%. This means it lit $6.55 of cash on fire for every $100 in revenue. This is a stark contrast from its operating margin, and its investments (i.e., stocking inventory, building new facilities) are the primary culprit.

Taking a step back, we can see that Take-Two’s margin dropped by 8.8 percentage points over the last few years. Almost any movement in the wrong direction is undesirable because it is already burning cash.

Take-Two burned through $48.2 million of cash in Q4, equivalent to a negative 3.5% margin. The company’s cash burn slowed from $112.6 million of lost cash in the same quarter last year.

It was encouraging to see Take-Two’s quarterly revenue guidance and full-year EPS outlook beat analysts’ expectations. The company also confirmed its much-anticipated GTA VI title will come out in the fall of this year. Overall, this was a solid quarter. The stock traded up 6.8% to $195.50 immediately following the results.

So do we think Take-Two is an attractive buy at the current price? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.