Take-Two Interactive Quarterly Report: Q2 FY2020

Key insights

7 takeaways

01
Take-Two Interactive reported significant revenue growth driven by the September 2019 launch of Borderlands 3 and continued performance from Red Dead Redemption 2, which has sold-in over 25 million units to date.
02
Grand Theft Auto V remains a cornerstone of the company's portfolio with over 115 million units sold worldwide, though the company noted a decrease in net revenue from Grand Theft Auto Online during the period.
03
Operating expenses rose by 35.8% to $314.8 million for the quarter ended September 30, 2019, primarily due to a $55.4 million increase in selling and marketing costs associated with the release of Borderlands 3.
04
Digital online channels accounted for 74.6% of total net revenue for the six months ended September 30, 2019, reflecting the company's ongoing shift toward digital distribution.
05
The company adopted the new lease accounting standard (Topic 842) as of April 1, 2019, resulting in the recognition of $118.8 million in right-of-use assets and $141.0 million in total lease liabilities.
06
Capitalized software development costs and licenses totaled $589.9 million as of September 30, 2019, down from $632.3 million at the end of the previous fiscal year.
07
The effective tax rate for the six months ended September 30, 2019, was 18.6%, influenced by audit settlements and tax credits, while being partially offset by a $19.8 million expense related to the reversal of deferred tax benefits from the Altera case.

Summary

Take-Two Interactive demonstrated robust financial expansion during the second quarter of fiscal year 2020, characterized by significant year-over-year growth in both net revenue and net income. Total net revenue reached $857.8 million for the quarter, while net income rose to $71.8 million. This performance was primarily fueled by the successful launch of Borderlands 3 and the sustained popularity of core franchises, including NBA 2K, Grand Theft Auto, and Red Dead Redemption. Digital distribution remains a cornerstone of the company’s business model, accounting for 74.6% of net revenue, as the organization continues to prioritize high-quality, internally owned intellectual property to drive recurrent consumer spending.

The company maintains a strong liquidity position, supported by $1.43 billion in cash and cash equivalents and a $200 million revolving credit facility. Financial operations were marked by the adoption of new lease accounting standards, resulting in the recognition of $118.8 million in right-of-use assets and corresponding liabilities. While revenue growth was substantial, gross profit margins experienced a slight decline due to the timing of software releases and increased royalty and amortization costs. Furthermore, operating expenses rose as the company invested heavily in advertising and personnel to support its expanding portfolio.

Operating on a global scale, with approximately 41% to 42% of revenue generated internationally, the company actively manages financial risks through foreign currency forward contracts and cross-currency swaps. Despite facing specific challenges, such as a $19.8 million discrete tax expense related to the Altera case and a high concentration of revenue among its five largest customers, the company maintains a conservative investment strategy. By focusing on highly liquid assets and maintaining rigorous internal controls, the organization remains well-positioned to navigate market volatility while continuing its strategic shift toward digital-first consumer engagement.