Will Take-Two Interactive's Share Price Drop Post-Earnings?

Take-Two Interactive Software’s [TTWO] share price has dropped off its game so far in 2021, falling 19.6% in the year-to-date (through 14 May).

The stock had seen modest gains of 2.7% from the start of the year to 8 February, when Take-Two Interactive’s share price closed at $213.34. A month later, it had slumped 24.2% to close 8 May at $161.62.

Take-Two Interactive’s share price staged a small recovery during April, hitting an intraday high of $186.21 on 8 April, but lost the bulk of these gains throughout the month and fell to close 14 May at $166.99. Despite its recent struggles, Take-Two Interactive’s share price has gained 43.2% over the past 12 months (through 14 May).

Can the company’s upcoming fourth quarter 2021 earnings announcement provide a much-needed boost for Take-Two Interactive’s share price?

Another earnings beat?

Take-Two Interactive’s fourth quarter 2021 results are expected on 18 May. Zacks Equity Research predicts revenue of $659.58m and earnings of $0.68 per share. If Take-Two manages to hit the forecasted range, these figures would represent year-over-year declines of 9.6% and 59%, respectively, for the videogame developer.

In the company’s Q3 report, revenue had fallen 7.4% from the year-ago period to $860.9m, making it the second consecutive quarter of revenue declines following a 2% year-over-year fall in the second quarter. Take-Two Interactive posted earnings of $0.87 per share in the second quarter of 2021, representing a 38.1% increase from the year-ago period.

Take-Two Interactive’s earnings in the third quarter beat analysts’ expectations by $0.30, according to Seeking Alpha, with net bookings of $814.3m also outperforming predictions by $61.54m.

Quiet Rockstar Games

Take-Two Interactive has a rich library of game titles under its belt. As the publisher of one of the world’s most successful video game franchise of all time, the Grand Theft Auto series, many might have expected the coronavirus pandemic’s impact to drive demand for its latest releases.

The problem was, partly, that there haven’t been many new releases. In May 2020, Karl Slatoff, president of Take-Two Interactive, announced plans to release 93 titles in the next five years. In February 2021, he confused his audience by reiterating the same target and timeframe, including the breakdown of expectations for those 93 titles, as he did almost a year prior.

One of the company’s subsidiaries, 2K, released numerous titles in the interim. However, Rockstar Games — the studio behind flagship franchises Grand Theft Auto and Red Dead — has released no new titles. This could be partly due to reduced productivity under work-from-home conditions, especially given the studio has been struggling with “crunch” issues of overworked developers since before the pandemic’s outset, according to Business Insider.

Take-Two Interactive’s competitors have, meanwhile, been busy. Activision’s [ATVI] Call of Duty series, Nintendo’s [7974.TYO] Animal Crossing: New Horizons and EA’s [EA] FIFA 21 have all performed well in recent months, according to Zacks Equity Research. In the face of this competition, Take-Two Interactive has been experiencing increasing marketing and product development costs, even as its output decreases, the publication noted.

There is hope on the horizon for Take-Two Interactive’s investors, however. For one thing, the next Grand Theft Auto instalment has been in production for over a year and its eventual release should boost Take-Two Interactive’s performance.

Matt Taylor, a portfolio manager at Anderson Opportunity Capital (who has a position in Take-Two Interactive), believes the fall in Take-Two Interactive’s share price creates a good buying opportunity for the stock, according to Barron’s. He draws attention to the massive potential for in-game monetisation, particularly in-game advertising, that titles like Grand Theft Auto, Red Dead and NBA 2K21 hold.

Whether Taylor’s price target of $370 over the next 2-5 years is realistic remains to be seen. The stock is held in several gaming and e-sport ETFs, such as the Roundhill BITKRAFT Esports & Digital Entertainment ETF [NERD]. The ETF also counts Activision and EA among its top ten holdings (as of 16 May). The fund had gained 81.1% over the past 12 months (through 14 May’s close).