Take-Two Interactive (NASDAQ:TTWO) just wrapped up a strong fiscal year (2019) despite intense industry competition for gamers’ time and money. Even as both Activision Blizzard (NASDAQ: ATVI) and Electronic Arts (NASDAQ: EA) posted lower sales, Take-Two’s revenue launched to a new record thanks to the hit Red Dead Redemption sequel. Cash flow soared, too, as sales continued shifting toward digital delivery.
That success ironically sets the company up for a difficult fiscal 2020 as the developer works to maintain momentum. A packed release pipeline across both new and existing properties will help, according to CEO Strauss Zelnick, but it likely won’t be enough to avoid a modest sales decline in 2020. Zelnick and his team discussed the details of that outlook in a conference call with Wall Street analysts, and below are a few highlights.
We generated record net bookings and adjusted operating cash flow [in 2019], which exceeded our outlook at the start of the year, along with strong earnings growth, driven by the record-breaking launch of Red Dead Redemption 2, the outstanding performance of NBA 2K and better-than-expected results from Grand Theft Auto Online and Grand Theft Auto V.
Take-Two’s record 2019 was powered by the Red Dead Redemption sequel, which sold over 24 million units and accounted for 32% of annual revenue despite having launched in the back half of the fiscal year. Grand Theft Auto products kicked in another 26% of sales, and the NBA 2K franchise rounded out the top three by selling 9 million copies and powering a new record in recurring, subscription-based revenue. These strong results together produced a significantly better year than management had predicted, while both EA and Activision came up short of their annual targets.
Keeping engagement going
One of the key drivers of success is our proven ability to sustain long-term engagement with our titles well after their initial launch. As a result, we’ve generated strong growth in recurrent consumer spending over the past several years.
GTA V titles continue to attract lots of play time from gamers nearly six years after their initial launch. That suggests Take-Two can achieve increasingly stable revenue growth over time. In fact, recurrent consumer spending for the full year on products like GTA Online and NBA 2K rose 20% and accounted for 39% of total sales, management said.
Executives are hoping to keep that positive momentum going with Red Dead Online over the quarters and years to come.
Big shoes to fill
We have the strongest development pipeline in our history, including sequels from our biggest franchises along with exciting new [intellectual property]. In addition, we are actively investing in emerging opportunities such as Private Division, mobile games, esports and geographic expansion, that have the potential to be enormous drivers of growth.
— CFO Lainie Goldstein
Given that over a decade passed between major Red Dead releases, Take-Two can’t count on a repeat blockbuster performance lifting results in fiscal 2020. That’s why the company predicts sales will fall to between $2.7 billion and $2.8 billion compared to $2.9 billion this past year.
Yet shareholders will have many launches to look forward to across the perennial hit sports franchises and established brands like Borderlands, which will release its first new chapter in almost six years. Overall, this pipeline should deliver a modest sales decline in 2020 following last year’s 47% spike.
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