Video game stocks have been under heavy pressure from their summer highs, but Take-Two Interactive Software (NASDAQ:TTWO) has been pretty resilient. That’s even as TTWO stock is about 8% off its highs. Investors are hoping that Wednesday’s earnings report is enough to propel it to new all-time highs.
So what exactly should we be watching for?
Take-Two is best known for open-world games like Grand Theft Auto, a franchise that has generated more money than many people realize. Let’s put it this way, Grand Theft Auto 5 has made more money than any other form of media — that includes books, films and games. The almost 100 million units sold have generated over $6 billion in sales for Take-Two stock. What’s more, the game was released in 2013, yet remains in the top 10 for game sales … this year!
Now do you see how successful the company has been with this franchise?
Many are hoping that after the launch of Red Dead Redemption 2, Take-Two stock will be ready for another leg higher. However, given that the game was only released in the later half of October, its results won’t be tallied on the quarter that’s being reported. That will be saved for Take-Two’s earnings report in February.
Take-Two Stock Earnings Preview
With that said, management will surely talk about the game on the conference call, one of the most highly anticipated games of the year. Look for them to talk up Red Dead as much as they can, from engagement figures, to strong sales momentum continuing into the holidays. This is the company’s most important game for 2018 and investors want to feel the enthusiasm.
Management is sure to talk about plenty of games on the call, but one everyone will want to hear about is NBA 2K18 as well. The 2K series has become a pillar in the video game world and with the launch of the NBA 2K esports league, the game is becoming an even larger staple in the industry.
That said, if management tells an overall tepid tale on the call, the stock price won’t be happy with the results.
For third-quarter earnings, analysts expect earnings of 93 cents per share on revenue of roughly $550 million. In-line results would represent a year-over-year decline in earnings of ~15%, and a YoY decline in sales of ~5%.
Not too great, huh?
But investors aren’t buying Take-Two stock for its third-quarter earnings. Instead, it’s all about next quarter and ultimately, the full year. Next quarter, analysts expect revenue to more than double YoY to $1.35 billion and expect a 131% increase in earnings to $2.59 per share. For the full year, consensus expectations call for earnings and revenue growth of 41% and 43%, respectively.
That’s some impressive growth, but the conference call and management’s outlook will play a big role in how investors feel about those numbers.
Trading TTWO Stock
While Activision Blizzard (NASDAQ:ATVI) is struggling and Electronic Arts (NASDAQ:EA) is struggling badly, TTWO is holding up pretty well. What does that mean going into the print though?
Buying TTWO stock ahead of earnings may seem like a no-brainer to some. We’re heading into the holiday season amid a strong economic backdrop with a company that will surely do well. That said, Take-Two stock has already bounced from $110 to $125 ahead of earnings.
I like that shares are over short-term downtrend resistance (purple line). Still, I’m hesitant ahead of earnings simply because of the strong bounce back. On a decline, I’d love to see the area between $120 and the 200-day near $117.50 hold as support. Below there and uptrend support (blue line) near $112.50 should help. Below that and there will be an issue with TTWO stock.
On a rally, look for TTWO stock to close above the 50-day. See how it handles the backside of prior channel support near $137.50 on a strong rally.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he did not hold a position in any of the aforementioned securities.
