Strong Digital Booking Growth Highlights Take-Two Q3

Take-Two (TTWO) reported a slightly better than expected fiscal 2022 third quarter as non-GAAP revenue met and EBITDA beat FactSet consensus expectations. The launch of Grand Theft Auto: The Trilogy, growth of NBA 2K22, and the continued strength in catalog titles contributed to the top line growth and EBITDA beat. Management reiterated that it expects the Zynga transaction to close in the first quarter of fiscal 2023. Given U.S. regulators’ relatively quick decision to review Microsoft’s acquisition of Activision Blizzard, we think a six-month closing period may be somewhat aggressive but do expect that the deal will close well before the end of 2022. We are maintaining our narrow moat rating and our $200 fair value estimate, which incorporates our outlook for the Zynga acquisition.

Non-GAAP revenue, or net bookings, of $866 million (up 6% year over year) came in just ahead of the firm’s guidance of $800-850 million. Recurrent consumer spending increased 2% year over year but fell to 57% of total net bookings from 60% a year ago. Digitally delivered net bookings improved 12% to 762million and made up 88% of non-GAAP net bookings, up from 83% a year ago. This growth was driven by increased full-game downloads, as the pandemic pull-forward effect on the digital delivery has persisted.

GTA V remains a stellar seller with an additional 5 million units sold in the quarter, bringing the worldwide total to over 160 million. In a long-awaited announcement, Rockstar Games finally disclosed that the next installment in the game is in development but did not offer a launch date. Both GTA V and Red Dead Redemption 2 launched within around two years of their respective announcements despite delays for both titles. Our model assumes that GTA VI will be released in the fiscal second quarter of 2024, roughly 20 months after the announcement. We expect that the firm would like to release GTA VI prior to the 2023 holiday season, leading to our possibly slightly aggressive projection.

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