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Canceled unannounced Take-Two Interactive (TTWO) game contributed to Q2 2022 earnings miss

Take-Two Interactive (TTWO) is out with their Q2 2022 earnings results, and there are some interesting details to dig into. Please take a look.
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Earnings season is still raging on today, and Take-Two Interactive has just released their Q2 2022 financial results. The company reported $858.2 million during the quarter, just barely beating Wall Street analyst consensus predictions of $855.03 million. More interesting, the company missed the street's earnings-per-share (EPS) expectations of $1.33/share by a lot. Take-Two reported EPS in the quarter of $0.09/share, and disclosed that some of the losses came from an unannounced game that had development canceled during the quarter.

Here are some highlights from the Take-Two Interactive (TTWO) Q2 2022 earnings release:

  • Cost of goods sold included a $53 million impairment charge related to the Company's decision not to proceed with further development of an unannounced title in its pipeline.
  • During the six month-period ended September 30, 2021, GAAP net cash provided by operating activities was $283.7 million, as compared to $626.7 million in the same period last year.
  • GAAP net revenue increased 2% to $858.2 million, as compared to $841.1 million in last year’s fiscal second quarter.
  • Raising our Net Bookings guidance for the year to $3.3 to $3.4 billion.
  • Since July 1, 2021 the Company repurchased 1.26 million shares of common stock for approximately $200 million, at an average share price of $158.67 per share.

Outlook for Fiscal 2022

Take-Two is raising its outlook for the fiscal year ending March 31, 2022 and providing its initial outlook for its fiscal third quarter ending December 31, 2021:

Fiscal Year Ending March 31, 2022

  • GAAP net revenue is expected to range from $3.35 to $3.45 billion
  • GAAP net income is expected to range from $320 to $350 million
  • GAAP diluted net income per share is expected to range from $2.75 to $3.00
  • Share count used to calculate both GAAP and management reporting diluted net income per share is expected to be 116.6 million
  • Net cash provided by operating activities is expected to be over $380 million
  • Adjusted Unrestricted Operating Cash Flow (Non-GAAP) is expected to be over $400 million (2)
  • Capital expenditures are expected to be approximately $170 million
  • Net Bookings (operational metric) are expected to range from $3.3 to $3.4 billion

Third Quarter Ending December 31, 2021

  • GAAP net revenue is expected to range from $840 to $890 million
  • GAAP net income is expected to range from $99 to $111 million
  • GAAP diluted net income per share is expected to range from $0.85 to $0.95
  • Share count used to calculate both GAAP and management reporting diluted net income per share is expected to be 116.3 million
  • Net Bookings (operational metric) are expected to range from $800 to $850 million

Take-Two Interactive (TTWO) shares have been under pressure most of 2021 as the company laps very strong 2020 results and has struggled to beat the very high bar set by the effects of COVID-19 shutdowns on demand for video game entertainment last year. This coupled with the lack of a new title the scope and size of Red Dead Redemption 2 or GTA 6 has many investors wondering how the company will perform in 2021. Today's results show that there are still aspects of the company's underlying business that are performing well, but it is hard to ignore the cancellation of an unannounced game that was already in development. 

This daily time period TTWO chart showcases the volatile year shareholders have had to deal with in 2021.
This daily time period TTWO chart showcases the volatile year shareholders have had to deal with in 2021.

The $53 million impairment charge is most certainly a large part of Q2 2022 EPS coming in below Wall Street expectations, but shares of the company seem to be taking the news in stride this afternoon in after-hours trading. Perhaps some of the bad news for Take-Two has been priced into the stock that had fallen from its all-time high of $214.91/share in February 2021 all the way down to $144.58/share in September of this year. Shares have rallied considerably off of those lows, potentially buoyed by the nearly $200 million in share repurchases made in the last quarter. 

At the end of the day, many investors own this stock because of the Grand Theft Auto franchise and its incredible moneymaking abilities. While today's results and guidance aren't bad at all, it may be awhile for the stock to regain its momentum that comes from GTA hype. GTA 6 wen? Also, what was this canceled game? Probably Bully 2, right? Oh well.

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