Take Two Interactive Q1 FY21 (TTWO)

Take Two Interactive is basically Rockstar Games and 2K and that is more than enough for this company. They have evolved Grand Theft Auto from a single player game to an evergreen franchise that has been constantly dominating the sales charts and acting as the engine behind the stock growth. As it stands TTWO share price is at an all time high.

Even before the quarantine struck, TTWO was on a gradual upswing and had been for nearly ten year around March TTWO was valued at around 130 per share. Since quarantine, the share price of TTWO has nearly increased 50 percent as it currently floats around 180 per share. Without even digging into the earnings report, it’s a safe assumption to say that things are going very well for the business of TTWO.

TTWO has also been a recent company up for debate as they were the first, and so far only to my knowledge to announce higher pricing for next generation at ten dollars more.

As expected, during the first quarter, TTWO saw their net revenue grow 54% to $831 million, which is a first quarter record for the company. Setting a record for a first quarter is quite impressive, especially when you don’t have any newly released marquee titles and when you are the company that has Grand Theft Auto in the portfolio. That’s not as impressive as the numbers get as TTWO saw digital net revenue increase 70% which accounted for 87% of their total business. This massive increase in digital revenue, as expected during the sheltering at home increased net income 91%. Sheltering at home has caused the gamers to fast forward on their preference between digital and physical. It’s not hard to see why GameStop and physical media is dying as companies can keep a lot more profits if there are less people involved during the process.

CEO Strauss Zelnick said “Our extraordinary results were driven primarily by the outperformance of NBA2K20, GTAV, GTAO, RDR2, RDO, and Social Points Moblie Games. As a result of our better than expected first quarter operating results, we are raising our fiscal 2021 outlook, which is poised to be another great year for Take Two” As it clearly shows this company doesn’t need a lot to be extremely profitable.

After the pricing of NBA2K21 was revealed to be higher, it felt like a given that this generation would mark a shift in pricing for the first time since 2005, when games went from 49 to 59. However, not all on the industry were as quick to accept the pricing increase as some companies like Ubisoft announced that their next gen prices would be the same. I personally think that Ubisoft would have liked to have raised their prices as well but due to the bad publicity they have received recently about their workplace environment they decided to keep pricing the same in a pro consumer move. I would say with confidence that within a year of next gen launch, Ubisoft will follow suit and raise their prices to 70 as well.  

During an interview with Games Industry dot biz, Strauss zelniick was asked about the pricing hike across the industry. "We just speak for ourselves," he said. "Obviously, we don't speak for the industry and the industry naturally does not coordinate on these matters, to say the very least. The pricing has to reflect the quality of the experience, and we aim to provide the best experiences in the business. And from our point of view, it's an extremely modest price change given that prices haven't changed for a very long time”

Looking ahead, its pretty safe to assume that we will see a GTA6 which will likely be a cash cow for another decade on top of existing players of GTA5 who didn’t upgrade on the live service side and thats not even considering the actual sales each copy will make during its initial year. On the 2K side of things, NBA2K has established itself as the top tier basketball game, MTX notwithstanding, but we have also seen 2K try to expand their sports portfolio with the recent announcement of the resurrection of 2K football which last made an entry in 2005 when madden acquired the NFL exclusive rights. 2K has also acquired the rights to use PGA as they have rebranded The Golf Club from HB and is now packaging that as PGA Tour 2K21, which is a great idea as that will likely attract more consumers to the title than the golf club would have. The series looks to be in its infancy and an influx of gamers and cash is likely to improve the series and attract more buyers each iteration.

As mentioned at the start this is a company that doesn’t need to do much other than to treat their golden gooses properly. Moving forward TTWO still expects a strong Q2, which runs until the end of September as they mentioned the “continuing benefit from sheltering at home, which we have factored into Q2, but have not yet factored into the back half of the fiscal year”