Take-Two Earnings: Core Franchises Drive Recurrent Spending Growth Even With Strong Competition

Take-Two TTWO started off fiscal 2024 on a weak note as non-GAAP first-quarter revenue met and adjusted EBITDA missed FactSet consensus estimates. Despite the mixed results, management held to its flattish top line guidance for fiscal 2024 and aggressive fiscal 2025 bookings guidance of over $8 billion. This implies that the highly anticipated Grand Theft Auto VI remains on track to launch between April 2024 and March 2025. We are maintaining our $165 fair value estimate.

Non-GAAP revenue, or net bookings, of $1.2 billion came in at the top end of the firm’s guidance of $1.1 billion-$1.2 billion. Recurrent consumer spending improved 38% year over year, above of the 35% guidance, and generated 84% of total net bookings, up from 73% a year ago. Despite a strong release competition including new installments of Zelda and Diablo, Take-Two benefited from increased engagement across its catalog, including Grand Theft Auto and NBA 2K23. Digitally delivered net bookings jumped by 22% and created 99% of non-GAAP net bookings, up from 95% a year ago. With increased importance of mobile at Take-Two, we expect the percentage to remain well over 90% in the next few years, though the release of GTA VI could spark a one-year downturn as more than a few gamers may opt for a physical copy.

Take-Two has announced or launched 11 titles for fiscal 2024, with three major AAA titles, including the iterative releases for NBA and WWE 2K, two midcore titles, two independent titles, one remake/port (Red Dead Redemption), and three mobile titles, including Star Wars Hunters. While the sports titles tend to get overlooked compared with EA sports franchises, NBA 2K remains one of the core franchises for Take-Two as the game continues to drive a high level of recurrent spending. The game is also still expanding its base, with NBA 2K23 selling over 13 million units, the second-highest behind the pandemic-boosted NBA 2K20. We expect that NBA 2K will remain a core title for the firm in the future.