With stocks swinging all over the place, Take-Two Interactive Software’s (NASDAQ:TTWO) wasn’t blessed with the ideal moment to release quarterly earnings that deviated even a fraction from perfection. Despite a huge earnings beat and good guidance, Take Two stock fell on its microscopic revenue miss.
Of course, it doesn’t help that these numbers were already under a cloud. Trader chatter betrayed a distinct lack of real consensus or even clarity around how to evaluate TTWO’s performance over the quarter. People spent a lot of time digging the wrong entries out of the 10-Q to match up against whisper targets.
The narrative turned bearish early on as commentators bungled the comparisons, calling a beat on generally accepted accounting principles (GAAP) a miss on an adjusted basis. It turns out they were given an apple and complaining that it wasn’t orange.
On a GAAP basis, Take Two stock, ran rings around expectations, posting a 21-cent-per-share profit against an estimated 17-cent-per-share loss. The adjusted earnings target was a whole lot higher at $1 a share, but even here, it turns out TTWO blew through expectations at $1.26 a share.
Comparing Apples and Oranges
Regardless, early impressions rarely correct immediately. By the time the trading day started, the mood had turned sour and the stock defensive. The red ink really isn’t too surprising, but investors are fixating now on a slight revenue miss as the smoking gun.
Yes, the company’s net bookings came in $9 million below consensus, but that’s just a 1% shortfall, barely noise in the quarter-to-quarter game development cycle. I think the telling detail is that, once again, the early chatter got the comparisons wrong.
TTWO reports bookings as the headline and buries its formal revenue number, so when investors were worried about a huge miss (they were actually reading revenue against a much higher bookings target) I knew the stock was going to be in for a bumpy ride.
This level of confusion might be surprising when you’re looking at a $12 billion enterprise, but it’s where you can find a lot of opportunities to profit from other investors’ lack of clarity and knee-jerk moves.
Bottom Line on Take-Two Stock
Comparing apples to apples, Take-Two stock had a great quarter and guidance for the coming year remains roughly where it was before the numbers were released.
It might take a little time for sentiment to reflect the fundamentals, but when it does, Wall Street is going to see that Take Two stock is as solid as ever. Buy the news and take the rumors with a grain of salt.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.