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Take-Two has target cut by Roth Capital

A disappointing quarter has Roth Capital Partners analyst Eric Handler striking a more cautious tone on video game company Take-Two Interactive Software (Take-Two Interactive Software Stock Quote, Charts, News, Analysts, Financials NASDAQ:TTWO). Handler delivered a Company Note to clients on Tuesday where he reiterated a “Buy” rating but lowered his 12-month target price from $140 to $130 per share.

Take-Two Interactive, which publishes titles such as Grand Theft Auto and NBA 2K, announced on Monday its fiscal third quarter 2023 financials for the period ended December 31, 2022. The company saw net bookings (which the company defines as products and services sold digitally or physically) grow by 60 per cent year-over-year to $1.38 billion and EPS drop by 37 per cent to $0.86 per share. (All figures in US dollars.)

The net bookings were under management’s previously stated guidance, with the company saying in its comments that consumer preference over the holiday season moved towards established blockbuster franchises that offered pricing promotions, with broader macroeconomic realities coming into play. The result was underperformance from some new releases and from recurrent consumer spending (RCS) on its console and PC games, Take-Two said.

“We are operating in an environment that is in many ways more challenging than we anticipated and we are lowering our Fiscal 2023 Net Bookings guidance to $5.2 to $5.25 billion to take this backdrop into account,” the company said in a press release.

“Accordingly, we have embarked on a cost reduction program that we believe will deliver over $50 million of annual savings, which is in addition to the $100 million of annual cost synergies that we plan to realize from our combination with Zynga,” Take-Two said.

Looking at the fiscal Q3 results, Handler said the $1.383 billion in net bookings was below his forecast at $1.432 billion as well as the consensus call at $1.462 billion, while the $0.86 EPS was a hair better than Handler’s estimate at $0.85 but under the Street at $0.89 per share.

The results coloured Handler’s outlook, where he has now moved his fiscal Q4 projections to $1.340 billion in bookings (previously $1.510 billion) and $0.66 per share in EPS (previously $1.07 per share).

At the same time, Handler says Take-Two’s development pipeline remains robust, with planned releases for GTA 6, Borderlands, Bioshock, Mafia and Civilizations along with multiple new titles.

“We maintain a positive long-term view toward Take-Two but acknowledge a second consecutive miss and lower earnings/guidance result combined with limited visibility into FY24 will likely keep a near-term lid on the shares,” Handler wrote.

“A deep development pipeline of games highlighted by GTA 6 is what keeps us hopeful about future prospects, although we are lowering our forward estimates and our price target,” he said.

At the time of his report’s publication, Handler’s new $130 target represented a projected one-year return of 23 per cent.

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