01—Abstract
Summary
Summary of the 10-K filed May 17, 2018. Cited figures are marked; the original filing is the authoritative source.
Take-Two Interactive Software, Inc. (TTWO) reported strong financial performance for the fiscal year ended March 31, 2018, with net revenue increasing slightly to $1.79 billion and net income more than doubling to $173.5 milliona.
This growth was driven by strong performance from key franchises, particularly the NBA 2K series, and continued success from Grand Theft Auto V and its online component. The company also saw a significant shift towards digital distribution, with digital online channels accounting for 63.1%b of net revenue, up from 51.8% in the prior year. Recurring consumer spending through add-on content and microtransactions also showed substantial growth, representing 41.6% of net revenue.
Looking ahead, Take-Two is well-positioned with a robust product pipeline, including the highly anticipated "Red Dead Redemption 2" and "NBA 2K19." The company's strategy emphasizes developing high-quality, internally owned franchises and leveraging emerging digital distribution channels and recurring consumer spending. Key risks include reliance on "hit" titles, particularly the Grand Theft Auto franchise, and dependence on a few major customers. However, the company's diversified portfolio and strategic focus on digital growth and in-game monetization strategies provide a solid foundation for future success.
02—Key points
Key Highlights
- Net revenue increased by 0.7% to $1.79 billion for the fiscal year ended March 31, 2018.
- Net income significantly increased by 158% to $173.5 million, with diluted EPS at $1.54.
- Digital online revenue accounted for 63.1% of total net revenue, up from 51.8% in the prior year.
- Recurrent consumer spending (virtual currency, add-on content, microtransactions) grew substantially, representing 41.6% of net revenue, up from 25.8% in the prior year.
- The company generated strong operating cash flow of $393.9 million.
- Key upcoming releases include 'Red Dead Redemption 2' (October 2018) and 'NBA 2K19' (Fall 2018).
- Despite a slight increase in Selling & Marketing expenses, Research & Development costs rose significantly by 42.4%, reflecting investment in future titles.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Take Two Interactive Software Inc kept $0.10.
- Revenue$1.79B100.0%
- Cost of revenue−$898.3M50.1%
- Gross profit$894.6M49.9%
- Operating costs−$759.0M42.3%
- Operating income$135.6M7.6%
- Interest, other & tax$38.0M2.1%
- Net income$173.5M9.7%
Where FY2018 revenue went
$1.79B- Cost of revenue: $898.3M, 50% of revenue
- Operating costs: $759.0M, 42% of revenue
- Operating income: $135.6M, 7.6% of revenue
Kept 7.6% as operating incomeOperating income $135.6M · 7.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed May 17, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $1.79B$1.78B | +0.7% |
| Cost of Revenue | $898.31M$1.02B | −12.2% |
| Gross Profit | $894.58M$756.79M | +18.2% |
| Operating Expenses | $759.00M$665.48M | +14.1% |
| Operating Income | $135.58M$91.31M | +48.5% |
| Net Income | $173.53M$67.30M | +157.8% |
| EPS (Basic) | $1.57$0.73 | +115.1% |
| EPS (Diluted) | $1.54$0.72 | +113.9% |
| Shares Outstanding (Basic) | 110.21M91.92M | +19.9% |
| Shares Outstanding (Diluted) | 112.86M94.07M | +20.0% |
05—Questions
Frequently Asked Questions
What were the primary drivers of Take-Two's revenue growth in fiscal year 2018?
Revenue growth was primarily driven by strong performance from the NBA 2K franchise, which saw a significant increase in revenue, and continued strong sales from Grand Theft Auto V and Grand Theft Auto Online. The company also benefited from the successful acquisition and performance of Social Point's mobile titles.
How significant is the shift towards digital distribution for Take-Two?
The shift towards digital distribution is highly significant. Digital online channels accounted for 63.1% of net revenue in fiscal year 2018, an increase from 51.8% in the prior year. This trend is expected to continue and represents an important growth opportunity for the company due to potentially higher gross margins.
What are the main risks highlighted in the filing?
The company's business is heavily reliant on the success of 'hit' titles, particularly the Grand Theft Auto franchise, which accounted for 39.7% of net revenue in fiscal 2018. There is also a significant concentration of revenue from a few key customers, with the top five accounting for 70.7% of net revenue. Other risks include product development delays, intense competition, and the cyclical nature of console hardware releases.
What is the company's strategy for future growth?
Take-Two's strategy focuses on developing and publishing high-quality, internally owned franchises, such as Grand Theft Auto and NBA 2K. They aim to capitalize on the popularity of video games by creating compelling entertainment franchises with opportunities for incremental revenue through add-on content, microtransactions, and online play. Expansion into mobile gaming with Social Point and the new Private Division label for independent developers are also key growth initiatives.
06—Continue