By Brandon DaSilva

  • TTWO has seen an 15% increase after releasing Q4 results that impressed analysts
  • The pipeline for 2016 does not expect to see as many new releases as 2015, however, the company is relying on other revenue streams
  • When compared to other gaming companies, Take-Two is on the cheaper end of the scale

Gaming company Take-Two Interactive Software, Inc. (NASDAQ:TTWO) used their two labels, Rockstar Games and 2K, to report fourth quarter sales of $427.7M and EPS of $0.49. According to a Thomson Reuters survey, analysts had expected $459M in top line and EPS of $0.27. Even though revenue results came below expectations, the fact that Q4 non-GAAP revenues grew 83% and non-GAAP net income 153% YoY caused TTWO to increase by nearly 15%.

Can These Results Last?

This substantial growth was largely due to the seamless launch of “five triple-A titles for the holiday season led by Grand Theft Auto V and NBA 2K15.” It has been noted by management that Take-Two will not be releasing as many triple-A new titles for fiscal 2016. However, there are trends that will compensate for the decrease in 2016 releases.

  • New Generation Consoles

There are currently over 34 million “new gen” consoles globally and this number expected to increase to 50 million in fiscal 2016, a 47% increase. This trend will lead to new console owners buying games from fiscal 2015 such as GTA V and boost 2016 revenue.

  • PC Compatible Triple-A titles

On April 14, Take-Two brought GTA V to the PC platform, outperforming expectations with more than 75% of units delivered through digital downloads. With GTA V, they set new records by having “the highest number of concurrent users for a non-Valve title in the history of games.”

  • Mobile Gaming Platforms

The mobile gaming industry has been growing rapidly, with a 42% increase from 2013 to 2014, and an expected increase of 21.2% from 2014 to 2015. Two-Take has been utilizing this platform recently with the launch of WWE 2K on both iOS and Android devices on April 16, 2015. The company expects to launch NBA 2K16 on mobile platforms by the fall.

For fiscal Q1 2016, Take-Two anticipates profit between 25 to 35 cents a share on sales of between $325 million to $350 million. Analysts were estimating a loss of 2 cents a share on sales of $197 million. For the full year, Take-Two forecasts sales of between $1.3 billion and $1.4 billion and annual earnings of 75 cents to $1 per share. The strong guidance is what the main driver behind the price surge was.

Digital Shift: Better Late Than Never

GTA V’s online component that allows players to spend real money on in-game currency represented almost half (47% to be exact) of quarterly revenue. The emergence of Take-Two’s digital sales is promising as they represent continuing revenue streams, rather than one-time purchases like conventional video games.

Competitors Electronic Arts and Activision Blizzard have shifted to selling games as software over the internet rather than traditional discs. EA’s online sales were 51 percent of total revenue, while Activision’s sales online were 76 percent of its annual total.

gaming peer valuation

As seen above, Take-Two’s valuation metrics are on the cheaper range when compared to competitors. As the company transitions into the digital shift and the pipeline is rotated, expect Take-Two to trade on par with others in the gaming industry.