Take Two Interactive Software Inc (NASDAQ: TTWO) impressed investors on Wednesday afternoon with an earnings report, but the firm’s customers may be a little dismayed by some of the news put out by the company. Grand Theft Auto V and Grand Theft Auto Online are still doing the business financially, and the firm will “extend the life” of the games.
That means disappointment for those hoping Grand Theft Auto VI is on the way. Take Two is going to milk its smash hit GTA V for as long as it keeps making money. Given the current economics of the games industry, it has few other options.
Right now gaming works on a Blockbuster model like Hollywood, helped out by continuing revenue from microtransactions. Take Two is getting the benefit of both with GTA V. It continues to be a major online earner, and it’s still on the best seller charts almost every month.
Grand Theft Auto is a cash machine
It’s hard to underestimate how important GTA is to Take Two Interactive Software Inc (NASDAQ: TTWO) financially. We don’t, however, know the exact numbers because the company won’t report them openly.
That’s to protect it from snooping competitors, but it makes it tougher for investors to see the inner workings of the greatest cash machine in gaming. In its last earnings report, the firm’s bosses revealed that a total of more than 80 million copies of the game had been sold thus far.
It’s important to keep in mind that no new full game was released during the second quarter. That makes this sales boom even more impressive.
The GTA online component had its highest Monthly Average User numbers ever in June and July, according to numbers it released on Wednesday. The firm’s total sales grew by about 31 percent year on year due to the online crime spree simulator.
A few other titles helped to contribute, including NBA 2K17 and Kerbal Space Program, but the real star of the show at Take Two Interactive Software Inc (NASDAQ: TTWO) is clear.
Grand Theft Auto VI rumors are bust
Grand Theft Auto VI rumors almost certainly took a hit after the report. There had been hints that GTA Online was going to be wound down, but management dispelled those rumors thoroughly on Wednesday afternoon.
Take Two Interactive Software Inc (NASDAQ: TTWO) isn’t going to kill its prize property. That means that the next installment in the series could still be years away.
In June of last year the game’s creators said that it would be wound down at some point. They added that it was not supposed to last eternally. The firm’s head Strauss Zelnick said “Not only was it not our intention that GTA Online was permanent, but it’s important that it not be permanent. We have to rest the franchise at some point.”
It appears that the facts of the case have changed.
Get ready for GTA forever
We will, almost certainly, see a sequel to the best seller over the next few years, but the success of GTA V may have changed the Take Two business model forever. The firm is sure to bring the cash generation structure of its most recent title to the sequel.
That means that GTA Online, should its success continue, could run right into the release of the next installment in the franchise. That is likely to be concerning to Take Two Interactive Software Inc (NASDAQ: TTWO).
The release of a new GTA game is received with huge publicity and marketing ordinarily. It’s become one of the biggest events in gaming every five to ten years, and the company behind it has made a huge amount of money by keeping it that way.
If it ends up changing the business model, its old marketing techniques will have to change alongside it.
Take Two stock charges forward
After it released its earnings number, Take Two stock exploded. The unexpected shock of the GTA earnings sent shares shooting up by more than 10 percent in after market trading. That means that the value of the firm has more than doubled in the last twelve months.
Most of this rise has to do with the outperformance of GTA V, but the firm also has a cast of supporting characters.
Wall Street analysts were deeply impressed by the numbers reported.
Doug Creutz from Cowen set a new price target of $83 on Take Two stock. He said that “baseline earnings power continues to climb,” on the back of the firm’s online blockbuster. Of particular note for Creutz was the fact that the firm was hitting new revenue highs in its fourth year. That’s amazing in today’s games industry.
Andrew Uerkwitz, from Oppenheimer, went one further. He put a $93 price target on the shares. In his view there will actually be year on year growth from GTA in 2018.
Even more enthused than the effusive Messrs. Uerkwitz and Creutz was Timothy O’Shea of Jeffries. His price target on Take Two stock hit a street high of $108. The stock is now his top pick among small and mid cap firms.
Take Two Interactive Software Inc waits on Red Dead 2
Unless GTA V keeps growing, the next big catalyst for Take Two Interactive Software Inc is the release of Red Dead Redemption 2. The game, which is a sequel to the 2010 console release , has now been delayed until the early part of 2018.
The game will feature an online component. In fact, it is speculated to mirror that of Grand Theft Auto V. Wall Street is more than excited about the prospect of another cash cow to augment the earnings.
However, there’s only so much control that the firm has over that success. It may be that GTA V is a freak of nature, and replacing the game with something similar set in the Wild West simply won’t make the cut.
For the time being, however, the firm’s management will be able to bask in the extreme earnings of a game built more than four years ago.
Those holding Take Two stock will be doing the same, at least on Thursday morning. Worrying about the future can wait at least until the market opens.