01—Abstract
Summary
Summary of the 10-Q filed November 3, 2016. Cited figures are marked; the original filing is the authoritative source.
Take-Two Interactive Software, Inc. (TTWO) reported its financial results for the second quarter and first half of fiscal year 2017, ending September 30, 2016.
The company demonstrated strong revenue growth driven by key franchises, notably the NBA 2K series, and new releases like BioShock: The Collection and XCOM 2. While overall net revenue increased significantly year-over-year, the six-month period showed a net loss, an improvement from the prior year's larger loss, indicating progress in operational efficiency and product cycle management. The company continues to navigate a dynamic industry, with a growing reliance on digital distribution channels and recurrent consumer spending.
Management highlighted ongoing investments in research and development to fuel future growth, alongside a robust product pipeline including the highly anticipated Red Dead Redemption 2. Despite some revenue pressures from older titles like Grand Theft Auto V, the strategic focus on major franchises and new releases positions TTWO for continued engagement with its global player base.
02—Key points
Key Highlights
- Total net revenue increased by 21.1% for the three months ended September 30, 2016, to $420.2 million, and by 17.6% for the six months ended September 30, 2016, to $731.7 million.
- The company reported net income of $36.4 million for the three months ended September 30, 2016, a decrease from $54.7 million in the prior year, but a net loss of $2.1 million for the six months ended September 30, 2016, an improvement from a loss of $12.3 million in the prior year.
- Console gaming remains the dominant platform, accounting for 84.0% of net revenue in the third quarter and 83.0% in the first half of fiscal year 2017.
- Digital online revenue continues to be a significant channel, representing 54.9% of net revenue for the three months and 55.1% for the six months ended September 30, 2016.
- Recurrent consumer spending (add-on content, microtransactions, online play) decreased as a percentage of digital online revenue compared to the prior year, but increased in absolute terms for the six-month period.
- Selling and marketing expenses increased significantly, particularly for the six-month period, reflecting investments in advertising for new and upcoming titles.
- The company ended the period with $770.0 million in cash and cash equivalents, a slight decrease from the prior fiscal year-end, but maintained a strong liquidity position.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2017, Take Two Interactive Software Inc kept $0.09.
- Revenue$420.2M100.0%
- Cost of revenue−$205.6M48.9%
- Gross profit$214.6M51.1%
- Operating costs−$167.4M39.8%
- Operating income$47.2M11.2%
- Interest, other & tax−$10.8M2.6%
- Net income$36.4M8.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2017filed November 3, 2016Financial Statements
Q2 FY2017 against Q2 FY2016
| Line item | Q2 FY2017Q2 FY2016 | Change |
|---|---|---|
| Revenue | $420.17M$346.97M | +21.1% |
| Cost of Revenue | $205.60M$143.94M | +42.8% |
| Gross Profit | $214.56M$203.03M | +5.7% |
| Operating Expenses | $167.37M$136.60M | +22.5% |
| Operating Income | $47.19M$66.43M | −29.0% |
| Interest Expense | $8.67M— | — |
| Net Income | $36.43M$54.73M | −33.4% |
| EPS (Basic) | $0.42$0.63 | −33.3% |
| EPS (Diluted) | $0.39$0.55 | −29.1% |
| Shares Outstanding (Basic) | 87.18M87.56M | −0.4% |
| Shares Outstanding (Diluted) | 115.20M114.02M | +1.0% |
05—Questions
Frequently Asked Questions
What drove the revenue growth in the most recent quarter?
Revenue growth was primarily driven by increases in net revenues from the NBA 2K franchise due to the recognition of previously deferred revenues from NBA 2K16, and by new releases such as BioShock: The Collection and XCOM 2, which launched in September 2016. The release of Battleborn in May 2016 also contributed.
What is the company's strategy for future growth?
Take-Two Interactive focuses on building compelling entertainment franchises by publishing high-quality titles, creating sequels, and generating incremental revenue through add-on content, microtransactions, and online play. They are investing in research and development and have a strong product pipeline, including the highly anticipated Red Dead Redemption 2, expected in Fall 2017.
How is the company addressing the shift towards digital distribution and online play?
The company is increasingly relying on digital online delivery channels, which accounted for over 55% of net revenue in the first half of the fiscal year. They are also focusing on recurrent consumer spending through downloadable content, microtransactions, and online play to drive ongoing engagement and revenue post-initial purchase.
Are there any significant legal proceedings that could impact the company?
The company is involved in a lawsuit filed by Leslie Benzies, former president of a subsidiary, seeking at least $150 million in damages. While Take-Two believes it has strong defenses and has accrued an amount it deems adequate for this matter, the outcome is uncertain. However, management does not believe the ultimate outcome will have a material adverse effect on the business.
06—Continue