Video game publisher Take-Two Interactive Software badly missed the mark with its guidance for the March quarter, sending TTWO stock plummeting on Friday.
The New York City-based company late Thursday reported fiscal third-quarter results that narrowly missed Wall Street's earnings target on in-line net bookings. It earned an adjusted 71 cents a share on net bookings of $1.34 billion in the quarter ended Dec. 31. Analysts polled by FactSet had expected earnings of 72 cents a share on net bookings of $1.34 billion. On a year-over-year basis, Take-Two earnings declined 17% while net bookings dipped 3%.
For the current quarter, Take-Two predicted adjusted earnings of just 5 cents a share on net bookings of $1.29 billion. That's based on the midpoint of its guidance. Analysts were modeling adjusted earnings of 94 cents a share on net bookings of $1.51 billion in the fiscal fourth quarter ending March 31.
Take-Two Chief Executive Strauss Zelnick blamed the underperformance on weak sales of major title "NBA 2K24" and softness in mobile advertising. Also, the company's guidance reflects a planned game release moving out of the March quarter. The title being delayed has not yet been announced.
TTWO Stock Sinks After Report
On a positive note, Take-Two said it had better-than-expected sales of "Grand Theft Auto 5," "Grand Theft Auto Online," "Red Dead Redemption" and "Toon Blast" in the December quarter.
In response to its disappointing performance, Take-Two is working on a "significant cost reduction program" across its entire business, according to a news release.
On the stock market today, TTWO stock fell 8.7% to close at 154.91. During the regular session Thursday, TTWO stock notched a two-year high of 171.59.
In an interview with Investor's Business Daily, Zelnick said he is upbeat about Take-Two's prospects for its fiscal 2025, which starts in April.
"We're heading into an amazing period of growth," he said.
As for "NBA 2K24," Zelnick sees the recent sales weakness as a blip. It's still a hit title, having sold over 7 million units to date, Zelnick said.
"It's the No. 1 sports title in North America," he said. "And we do expect that the net bookings of the title will be in line with net bookings of last year's release. So it's really just a timing issue."
'Grand Theft Auto 6' Postponed?
Take-Two management also lowered its sales projection for fiscal 2025. The company now expects just over $7 billion in bookings in fiscal 2025, which is considerably lower that its first estimate for over $8 billion.
"We can only surmise that 'GTA 6' has slipped out of fiscal 2025," Wedbush Securities analyst Nick McKay said in a client note. However, the highly anticipated game is still likely to come out in calendar 2025, he said.
McKay rates TTWO stock as outperform with a 12-month price target of 190.
TD Cowen analyst Doug Creutz said Take-Two's decision to lower its fiscal 2025 bookings estimate in the question-and-answer portion of its earnings conference call was "aggravating."
"This is the second straight quarter they have waited until Q&A to announce a fiscal '25 bookings cut rather than foregrounding it in the press release or prepared remarks, which we think is a poor practice," Creutz said in a client note. He rates TTWO stock as outperform with a price target of 173.
Take-Two Ranks Fifth In Group
Last week, industry peer Electronic Arts delivered mixed results for its fiscal third quarter ended Dec. 31. It also guided below views for the current quarter.
EA earned an adjusted $2.96 a share on net bookings of $2.37 billion in the December quarter. Analysts had been expecting earnings of $2.93 a share on net bookings of $2.4 billion. On a year-over-year basis, EA earnings fell 7% while adjusted sales increased 1%.
EA said its new soccer game franchise "EA Sports FC" was a standout performer in the quarter. "Apex Legends" was a notable underperformer.
For the current quarter ending March 31, EA predicted adjusted earnings of $1.50 a share on sales of $1.78 billion. That's based on the midpoint of its outlook. Analysts were looking for earnings of $1.56 a share on sales of $1.83 billion in the fiscal fourth quarter.
EA's initial guidance for fiscal 2025 calls for low-single-digit percentage top-line growth due to a light release slate. But it sees mid- to high-single-digit percentage earnings growth next year.
EA ranks fourth out of 20 stocks in IBD's Computer Software-Gaming industry group, according to IBD Stock Checkup. TTWO stock ranks fifth in the group.
On Nov. 14, TTWO stock broke out of a 17-week consolidation pattern at a buy point of 153.84, according to IBD MarketSmith charts. On Friday, Take-Two stock plunged below its 50-day moving average line, a key support level.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
