video game maker Take-Two Interactive Software (NASDAQ: TTWO) stock has steadily declined due to the decline in video game sales. The publisher owns one of the most lucrative video game franchises in Grand Theft Auto (GTA). The game Grand Theft Auto V was originally released in 2013 and continues to generate strong revenue, especially through its online mode. However, the company was criticized for charging $20 for the “upgraded” version of GTA V for next-gen consoles Sony PlayStation 5 (NYSE:SNE) and Microsoft Xbox (NASDAQ:MSFT), which was just a re-release. of the same game. In any case, it has pushed sales of GTA V units past 166 million after nearly a decade. The 2K series is gaining ground on Electronic Arts (NYSE: EA) leading sports franchises. The company completed its acquisition of mobile games publisher Zynga in May 2022, in an effort to boost bookings and expand its mobile gaming presence. While other titles are generating sales, none have made it into the top 10 video game sales in ages recently. With the top and bottom lines expected to continue to fall as guidelines were lowered, investors are wondering if Take-Two has become a one-trick pony.
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Falling video game sales
Video game sales fell (-9%) in the month of July 2022. It’s no secret that the pandemic lockdown has been a boon for video game publishers as it prompted more (bored) people to connect with online players for gaming entertainment. Despite the decline in video game spending, the pace of the downward trend has slowed as sales declined in May 2022 (-19%) and in June (-11%). Year-to-date (YTD) video game spending was down (-10%), accessories spending was down (-15%) and hardware spending was down (7%). Inflation has had a negative impact on consumer goods spending.
Cashing in Bootleggers
The majority of GTA V’s online revenue comes from the purchase of Shark Cards, ranging in value from $4.99 to $99.99 for in-game currency to purchase items. However, there are many underground mod companies that offer deals over the internet like $200 million worth of in-game currency for $70. Once that much in-game currency can be easily bought, GTA V quickly loses the incentive to play missions and raids out. which is the main draw of online play. It’s $20 upgrades to the PlayStation 5 version of GTA V with virtually no major improvements was considered a blatant money grab. The company has rolled out a $4.99 monthly GTA V membership plan that provides members with in-game currency and special in-game merchandise and items benefits. Again, who cares if you can get $200 million in in-game currency for $70 elsewhere?
Attractive pullback levels
We have the gun charts on the weekly and daily time frames to provide a short to medium term interpretation of the price history for TTWO stocks. The weekly gun chart found a bottom near $111.29 Fibonacci (fib) level and rallyed back to a trading range in the 120s. The weekly 5-period moving average (MA) and 15-period MA are chopping flat at $124.95 and $126.87, respectively. the weekly market structure layer (MSL) buy triggers on breakout over $127.78. The 200-period weekly MA is stable at $142.54, while the 50-period MA is down at $148.54. The weekly upper Bollinger Bands (BBs) sit at $139.85 and lower Bollinger Bands at $109.02. Weekly stochastics peaked and returned to the 70 band. The daily rifle chart attempts to reverse the downward trend as the 5-period MA rises to $121.42 and attempts to cross through the 15-period MA at $123.33 and the 50-period MA at $125 ,86. The daily upper BBs sit at $136.80. The daily stochastics quickly rolled through the 20 band. Attractive pullback levels are $123.19, $119.30, $117.20, $114.50 fib, $111.20 fib, $109.49 fib and the $105.47 fib level.
Milking the cow and gamers
Despite some minor franchises such as the 2K sports segment with NBA, NCAA, WWE, the main focus for GTA V remains online. The latest downloadable content (DLC) Criminal Enterprise includes new cars and missions for players to download for free. In an effort to retain and even withdraw online players, the DLC provides access to terminals in private and invite mode. Terminal access is required to build online businesses and take on missions. However, these missions become extremely frustrating when level-up mourners are incentivized to disrupt missions and kill players at any time. This is an obvious turn-off for new players. However, it may be too late. The focus on GTA V online has been taken away from the Red Dead Redemption online franchise, which is arguably the best Western RPG game. Rockstar has announced that it will no longer support new online DLC, much to the disappointment of fans.
Income Faceplant
On August 8, 2022, Take-Two announced its fiscal results for the first quarter of 2022 for the quarter ended June 2022. of $0.85, with (-$1.61). Revenues were up 40.6% year-over-year (year-on-year) to $1 billion, excluding consensus analyst estimates of $1.11 billion. Earnings include 39 days of the Zynga acquisition quarter. GAAP net cash for the quarter was $100.8 million. Net bookings grew 41% to $1 billion.
Zynga kind saves the day
Key numbers were weak across the board, but were boosted in part by the inclusion of Zynga’s revenue and metrics. The company will not segment Zynga’s revenues, as they are now part of Take-Two. Take-Two CEO Strauss Zelnick commented, “We remain extremely optimistic about the long-term growth potential for the mobile industry, as well as our ability to create greater shareholder value as a combined entity with Zynga. Our creative teams are actively discussing potential new projects and we remain committed to achieving more than $500 million in annual net bookings over time, while continuing to believe we can achieve approximately $100 million in annual cost synergies within the first two years after closing, with potential for upside potential.”
Sliced Guidance
Take-Two lowered its fiscal GAAP EPS for the second quarter of 2023 to reach between (-$0.96) to (-$0.86), compared with consensus analysts %0.59 on revenue between $1.50 billion to $1.55 billion versus $1.73 billion consensus analyst estimates. For the full year 2023, revenue is expected to be between $5.73 billion and $5.83 billion versus $6.4 billion.
All eyes on GTV 6
The game world awaits clues for the upcoming GTA 6 release. Apparently, the company has been quietly working in the shadows on its GTA 6 game for the past six years, but there’s no word on a launch date. Gamers are estimating the release in 2023 or 2024. The release will no doubt bring a huge wave of bookings back to the GTA franchise as investors wait for updates.
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