Take Two Interactive Software Stock takes a step back
Video game developer and publisher Take-Two Interactive Software (NASDAQ: TTWO ) stock was hammered on its recent second-quarter 2023 earnings report. Losses were larger than expected, with 70% attributed to weakness in its mobile business and $50 million in currency headwinds as it collects 40% of net income abroad. This prompted the company to lower expectations heading into a weak Christmas trading season as CEO Strauss Zelnick unapologetically said: “We call it like we see it…”. It is important to note that Take-Two Interactive consists of many brand divisions each responsible for its own list of video game titles, including Rockstar Games which handles the Grand Theft Auto series, Private Division, T2 Mobile Games, 2K which handles sports titles and Zynga which is its acquired mobile subsidiary. The most popular brand is Rockstar Games which operates its most popular franchise in the Grand Theft Auto (GTA) series followed by the western-themed Red Dead Redemption series.
GTA V Metaverse
The GTA V title was published in 2013, but the company has been able to milk it for over a decade as it powers its Grand Theft Auto online experience for consoles like the Sony PlayStation 5 (NYSE: SNE ) and Microsoft Xbox (NASDAQ: MSFT ) and PCs powered by Advanced Micro Devices (NYSE: AMD ) and NVIDIA (NASDAQ: NVDA ) graphics processors. Rockstar has constructed an interactive metaverse of outlaws and criminals even before Meta Platforms (NASDAQ: META ) coined the term metaverse. The company reached its 100-day integration milestone for Zynga. Take-Two has 87 game titles coming to mobile, PC and console through fiscal year 2025.
Hack attack
Take-Two received surprise publicity when a hacker claimed to have accessed a Rockstar employee’s Slack (NYSE: CRM ) account to obtain videos of GTA VI that were leaked online. This sent shares down initially, but the market was able to let it roll off. Many speculate that it was an old development video from as far back as 2017. The company acknowledged that it was hacked and that it had not affected or hindered the development of GTA VI. Most importantly, none of the source code was stolen.
The world is waiting for GTA VI
With the success of GTA V, the whole world is waiting with bated breath for any news related to the GTA VI release date. GTA V has sold over 165 million copies worldwide since 2013. It has been the most lucrative title in the series as Rockstar continues to provide a steady stream of patches, upgrades and DLC content to the GTA Online service. Microtransactions are performed by purchasing Shark Cards and subscriptions for in-game currency. The company has not given any indication of a release date which players have speculated to be from 2023 to 2025. GTA VI is expected to be a separate metaverse with multiple playable characters including a female protagonist. The announcement of the launch date will rocket shares higher. It is the most important catalyst for the company.
The pendulum swings completely from green to red
Take-Two shocked investors with its Q1 2023 financial report showing a surprise GAAP loss of ($0.76) versus analysts’ expectations of a profit of $0.85, a ($1.61) earnings miss. On November 7, 2022, Take-Two released its second quarter 2023 financial results for the quarter ending September 2022. This was the first full quarter to include Zynga’s financial results since the completion of the $12.7 billion acquisition. The company reported a GAAP earnings per share (EPS) loss of ($1.54), missing analyst estimates for a loss of ($0.82). Revenue rose 52.3% year-over-year (YoY) to $1.5 billion, above the $1.4 billion consensus analyst estimate. Net orders increased 53% to $1.5 billion. Net cash provided by operating activities for the six months ended September 30, 2022 was $155.4 million.
Is capitulation on the cards?
The weekly TTWO chart formed a head and shoulders (HS) breakdown through $173.30. Shares traded low at $98.65, triggering a weekly market structure low (MSL) trigger on the bounce through $127.08. The weekly stochastic peaked just below the 80 band and dropped back down as the weekly exponential 50-period moving average (MA) led the downtrend at the resistance trade at $120.65 followed by the weekly 50-period MA falling at $137.72. A weekly inverse cup and handle (CH) triggered the break through the “lip” support at $106.54 on heavy volume selling as a result of the weak Q2 2023 earnings report and lowered guidance. This also caused the weekly stochastic to cut the bounce short and reverse at the 40 band, thereby forming a divergence top on the short-term bounce as a new swing low forms at $90.00. Pullback support levels to watch are at $92.81, $90.00 after earnings swing low, $84.41 and $80.54.
To support investors for more weakness
Take-Two CEO Strauss Zelnick commented: “We posted another consecutive quarter of solid results, with Net Bookings of $1.5 billion, underscoring our ability to launch exciting new games and content updates across our portfolio. We continue to making good progress with our integration of Zynga, and we remain very optimistic about the tremendous long-term growth potential of the mobile industry, which is expected to reach over $160 billion in gross orders over the next four years.” He lowered forecasts due to the macroeconomic backdrop and currency swings from a strong U.S. dollar. The company expects third-quarter accounting net orders to fall to $1.41 billion to $1.46 billion. It expects full-year orders to come in between $5.4 and $5.5 billion, down from the previous forecast of $5.8 billion to $5.9 billion.Shares fell as low as (-12%) in the post-market on the reduced outlook.
Analysts remain firm but cut price targets
Analysts have not given up hope on Take-Two, but they have withdrawn their price targets. Wedbush remained firm on its Outperform rating, but cut its price target from $162 down to $140. Analyst Michael Pachter pointed out that the mobile gaming woes will continue to persist for another quarter or two, with the wild card of a new hit game that could help beat the reduced top-line estimates. He adjusted his 2024 revenue expectations to $7 billion from $7.2 billion. Stifel analyst Drew Crum maintained his Buy rating but lowered his price target for Take-Two to $130 from $161 per share. Crum pointed to three transitory headwinds affecting Take-Two, which are general financial headwinds, privacy changes coming into play, and the reopening of businesses after COVID. All of these factors should ease over time. Bank of America (NYSE: BAC ) upgraded shares of Take-Two to Buy from Neutral, but lowered its price target to $120 from $130.
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