We all recognize that there’s no such thing as a sure thing in the financial markets. Yet if I had to bank blindly on any one sector, I’d go with video gaming.
The appetite for gaming, particularly for Sony Corp (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT) consoles, seemingly has no end. On paper, that puts game maker Take Two Interactive Software Inc (NASDAQ:TTWO) and TTWO stock in an enviable position.
Featuring relevant action/adventure titles such as “Grand Theft Auto,” and leveraging popular sports brand names such as the NBA and the WWE, the TTWO news stream has no shortage of excitement for fans.
More importantly, this news translates into immense profitability for shareholders. Year-to-date, TTWO stock is up a whopping 121%. In comparison, rivals Electronic Arts Inc. (NASDAQ:EA) and Activision Blizzard, Inc. (NASDAQ:ATVI) average 59% YTD.
EA’s and Activision’s performances are by no means shabby. However, the enormous sentiment boost towards TTWO stock illustrates how dominant it is in the markets. While EA and Activision are industry mainstays, their second-half of the year performances leave something to be desired. For instance, EA is up 7% since June 30, while ATVI is a little better at 10%.
TTWO stock? Try 48.4%. Technically, that’s the primary difference; the price action is simply more reliable and consistent.
Moreover, TTWO news items are generally favorable. A majority of covering analysts rank TTWO stock as a solid buy. Blue Chip Growth editor Louis Navellier rated Take Two, as well as EA and ATVI, as bargains. Citing online gaming trends, virtual reality technologies and the upcoming holiday season, the game maker has plenty to look forward to.
But will this be enough to satisfy investors ahead of its second-quarter fiscal 2018 TTWO earnings report?
TTWO Earnings Preview
Given the positive vibes surrounding the company, another TTWO earnings beat isn’t out of the question. For Q2, Wall Street estimates Take Two’s earnings per share will hit 74 cents. This target is near the lower end of the forecast spectrum, which runs from 66 cents to 85 cents.
If history is any guide, an outsized TTWO earnings beat could occur. In the prior year Q2, TTWO stock hit an EPS of 66 cents, blowing past the 29-cent consensus target. The resultant earnings surprise was over 129%, a performance magnitude not unfamiliar to shareholders. Since Q1 FY 2015, TTWO earnings beats average nearly a 63% positive surprise.
On the revenue side, analyst consensus sees Take Two hauling in $514.4 million. Contrary to the earnings estimate, the sales target is near the higher end. Estimates range from $466 million at the low to $552.5 million at the top.
In the year-ago quarter, analysts expected revenue to hit $479.3 million. The actual figure was up slightly over consensus at $479.4 million.
Only a gambler will go contrarian on the upcoming TTWO earnings report. How TTWO stock will react is a bit ambiguous. Recall that EA slipped after its earnings beat, when management lowered its guidance for Q3. A similar situation could impact Take Two if forward guidance is weak, giving traders an excuse to secure profits.
Positive TTWO News Should Boost Shares
It’s always difficult to predict the market’s ebb and flow after an earnings report. But in the long run, with highly favorable TTWO news, I agree with Navellier’s analysis: company shares are definitely a buy.
TTWO stock, as well as its rivals, benefits from overwhelming demand for all things video games. The fervor has gotten to a point where gamers could potentially become Olympic athletes! If that seems like a “jump the shark” moment, it’s not.
Amazingly, 155 million Americans play video games on a regular basis, or three or more hours per week. Additionally, 80% of households own a video game console. Most importantly, the average video gamer is aged 35, meaning that this demographic has plenty of money to spend. As Millennials spawn more offspring, the gaming culture will become even more integrated.
That’s perhaps the best piece among TTWO news items. So long as the company doesn’t go off the rails, Take Two should find plenty of takers. Even if they commit missteps, the gaming industry is so powerful that sector whales can really do no wrong.
As of this writing, Josh Enomoto is long SNE stock.