Take-Two sells an incredible 23 million copies of Red Dead 2 – but the share price falls
Game developer and publisher Take-Two Interactive posted quarterly earnings last week that left analysts’ expectations so far behind they’re barely visible. The company’s long-awaited latest release Red Dead Redemption 2 ended up being the biggest video game of last year, and boasts the largest opening weekend of any media release ever. It’s hard to imagine a better quarter for the company – yet, its share price declined on the back of the news. What gives?
Despite crushing estimates, Take-Two’s share price suffered on the back of earnings
Source: Yahoo Finance
First of all, lets add a little detail as to how well the company did. It all starts with Red Dead 2: the game sold an incredible 23 million units over Take-Two’s third quarter (ended December 31), blowing every sales estimate published about the company firmly out of the water. As we said above, this game’s opening weekend is now the largest of any media release ever, and it sold more copies in 8 days than its wildly popular predecessor did in 8 years. However you look at it, the game has been shockingly successful thus far, and has been lauded by fans, critics, and investors alike as a blockbuster worthy of the name.
Beyond (although, obviously, including) Red Dead 2, Take-Two revealed some incredibly strong figures last week: consensus estimates had called for earnings of $2.75 per share – Take-Two delivered earnings of $4.05 per share. That’s a massive jump against analysts’ predictions, as well as its own year-ago figure of $1.26 per share. The company also more-than doubled revenue against the third quarter in the previous year to $1.57 billion, which beat the Street’s predictions by 5.61%. On a year on year basis, Take-Two’s operating profit increased by 547%, and its cashflow was up 62%. In short: the three months to December were incredible for the company.
So why did the share price go down? It’s all about the guidance. Take-Two increased its guidance but, according to analysts and investors, it didn’t increase it by enough. This is probably a reflection of negative sentiment over the video game industry: investors (many of whom are, frankly, outsiders looking in when it comes to video games) remain panicked over Fortnite – the runaway shoot-‘em-up success of the summer. The concern is that this massively multiplayer battle royale style of play is an existential threat to gaming’s big dogs – a new genre that could disrupt their established properties. Of course, crystal balls are in short supply, but investors should take note that no one who plays video games, or works in the industry, shares their fear. Hence, requiring insane guidance figures to demonstrate Take-Two’s rude health (which is already clearly on show) seems a little melodramatic.
In any case, one person who remains cogent of the company’s position is its CEO Strauss Zelnick. In a statement, he said: “Looking ahead, as our industry continues to embrace new technologies that enhance consumers’ experience with, and access to interactive entertainment, we remain focused on broadening the reach of our content and expanding further globally. Take-Two is exceedingly well-positioned – creatively, strategically and financially — to capitalize on the vast opportunities that will shape the future of our business, and to deliver long-term growth and margin expansion.”
Dominion holds Take-Two Interactive in its Global Trends Luxury Fund.
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