01—Abstract
Summary
Summary of the 10-Q filed August 6, 2019. Cited figures are marked; the original filing is the authoritative source.
Take-Two Interactive Software, Inc. reported solid financial performance for the quarter ended June 30, 2019, driven by strong sales from its major franchises, including Red Dead Redemption 2 and the NBA 2K series.
Net revenue increased by a significant 39.3% year-over-year to $540.5 milliona, bolstered by a robust digital distribution channel which now accounts for over 79% of net revenue. The company also saw growth in recurrent consumer spending, indicating continued player engagement and monetization of its titles. Despite a notable increase in operating expenses, particularly in selling and marketing, and research and development, the company maintained profitability.
Gross profit margin experienced a decrease compared to the prior year due to higher amortization of capitalized software costs. Management highlighted the continued strength of its key franchises and a promising product pipeline, including upcoming releases for Borderlands 3 and The Outer Worlds, suggesting a positive outlook for future revenue generation. The company's liquidity remains strong, supported by a substantial cash balance and an available credit facility.
02—Key points
Key Highlights
- Net revenue surged by 39.3% to $540.5 million, driven by strong performance of Red Dead Redemption 2, NBA 2K franchise, and Borderlands.
- Digital online channels continued to be the dominant distribution method, accounting for 79.2% of net revenue.
- Recurrent consumer spending, representing in-game purchases and add-on content, grew significantly, making up 58.3% of net revenue.
- Operating expenses increased, with selling and marketing up 57.5% and R&D up 36.0%, reflecting investments in future growth.
- Gross profit margin decreased to 55.3% from 66.1% year-over-year, primarily due to higher amortization of capitalized software costs.
- The company has a strong liquidity position with $1.61 billion in cash, cash equivalents, and restricted cash.
- Several key titles are planned for release in late 2019 and fiscal year 2020, including Borderlands 3, The Outer Worlds, and NBA 2K20, supporting future revenue expectations.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2020, Take Two Interactive Software Inc kept $0.09.
- Revenue$540.5M100.0%
- Cost of revenue−$241.5M44.7%
- Gross profit$299.0M55.3%
- Operating costs−$247.3M45.8%
- Operating income$51.7M9.6%
- Interest, other & tax−$5.5M1.0%
- Net income$46.3M8.6%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2020filed August 6, 2019Financial Statements
Q1 FY2020 against Q1 FY2019
| Line item | Q1 FY2020Q1 FY2019 | Change |
|---|---|---|
| Revenue | $540.46M$387.98M | +39.3% |
| Cost of Revenue | $241.47M$131.37M | +83.8% |
| Gross Profit | $298.99M$256.62M | +16.5% |
| Operating Expenses | $247.26M$185.77M | +33.1% |
| Operating Income | $51.73M$70.85M | −27.0% |
| Interest Expense | $0$95K | −100.0% |
| Net Income | $46.28M$71.69M | −35.4% |
| EPS (Basic) | $0.41$0.63 | −34.9% |
| EPS (Diluted) | $0.41$0.62 | −33.9% |
| Shares Outstanding (Basic) | 112.62M112.94M | −0.3% |
| Shares Outstanding (Diluted) | 113.73M115.98M | −1.9% |
05—Questions
Frequently Asked Questions
How did the company's revenue perform in this quarter compared to the previous year?
Take-Two Interactive's net revenue increased significantly by 39.3% to $540.5 million for the three months ended June 30, 2019, compared to $387.9 million in the same period last year. This growth was primarily driven by strong sales from Red Dead Redemption 2 and Online, the NBA 2K franchise, and the Borderlands franchise.
What is the contribution of digital sales versus physical retail?
Digital online channels are the primary driver of revenue, accounting for 79.2% of net revenue ($427.8 million) for the quarter. Physical retail and other channels contributed 20.8% ($112.7 million).
How is the company managing its operating expenses, and what is the impact on profitability?
Operating expenses rose by 33.1% year-over-year, primarily due to increased spending on selling and marketing (up 57.5%) and research and development (up 36.0%). While net revenue increased substantially, the gross profit margin decreased to 55.3% from 66.1% due to higher amortization of capitalized software costs. Net income decreased to $46.3 million from $71.7 million in the prior year period, resulting in lower diluted EPS of $0.41.
What is the company's outlook based on its product pipeline?
The company has a strong product pipeline with several highly anticipated titles scheduled for release in late 2019 and into fiscal year 2020, including Borderlands 3, The Outer Worlds, and NBA 2K20. This indicates management's focus on leveraging its established franchises and developing new intellectual property to drive future growth.
06—Continue