For investors who are heavily involved in technology investing, it should not come as a surprise to hear that Two-Take Interactive (NASDAQ:$TTWO) has delayed the release of its new game Red Dead Redemption 2. Many gamers have been anticipating the release of this game since it was first announced that it would be out in the fall of 2017. Now, however, Two-Take Interactive has reported that the game will be released in the spring of 2018. This, as one would expect, has caused management’s guidance for fiscal 2018 financial results to be considerably lower than what was originally predicted. As of right now, in fiscal 2018, revenue is predicted to be between $1.42 billion to $1.52 billion, which is short of 2016’s $1.78 billion.
As it should be, the stock didn’t move much following the news, since a business’ value comes from how much profit it generates over a number of years, rather than just one.
Take-Two Interactive’s subsidiary, Rockstar Games, have released a statement noting that Red Dead Redemption 2 will be the company’s first game that was created from the ground up and as a result, this will require some extra time to make sure that they provide gamers with the best possible experience. As stated by Rockstar, the decision to delay the release of a new game are not made lightly and they are solely driven by the team’s desire to provide unparalleled quality.
All in all, Red Dead Redemption 2’s delay comes down to the following: the game’s initial financial results will be filed under fiscal 2019 rather than fiscal 2018.
This is not the first time Take-Two Interactive has delayed the release of new games
Any gamer, or technology investor, who has remained loyal to Take-Two’s games in the past is probably not shocked by the delay of the game. The New York City-based company has had a long standing history with rescheduling release dates for its games. Grand Theft Auto V, for example, was initially scheduled to be released in the spring of 2013, but due to delays, it was released in the fall of that year. With that said, this has not stopped Take-Two’s stock from climbing over 300% throughout the past couple years. This 300% increase is on top of Take-Two obtaining large amounts of cash from in-game spending. Overall, gamers should not panic over the delayed release of the game as it means that the management team just wants to deliver to its customers a high quality game, rather than putting all of their effort into meeting near-term financial targets. This, in turn, makes players have a better game experience, while investors looking to make a technology investment have a better business to consider.
As mentioned, Take-Two’s subsidiary is Rockstar Games, which is the company behind Grand Theft Auto and Red Dead Redemption. Rockstar Games continues to put out games that receive massive amounts of praise, which generate satisfying financial results and become viral sensations in the gaming world. Red Dead Redemption 2 is no exception and it is predicted to be one of those games that becomes a big hit following its release.
For those disappointed with the delay, you can check out screenshots that the company has released of the settings of the game. The graphics of the game look extremely advanced and realistic, which should reassure gamers and investors that the delay was worth it. Following the release of the screenshots, CEO Strauss Zelnick stated: “there is no doubt that the engagement with the materials that we released was extraordinary, the screenshots are beautiful, the buzz is palpable and growing.”
Will the delay effect Take-Two financially?
Yes, the delay will cause fiscal 2018 to be a much lighter year for the release of new games than what was initially planned. As a result, there will be lower revenue and cash flow. Aside from a lower than expected revenue, management guided for cash flow is expected to be $150 million, which is considerably lower than the $300 million that was generated in fiscal 2017.
If, for example, you pushed the release of a new game 10 years ago, there would have been a massive ripple effect for the near-term financial results, but today not so much. As of right now, recurrent in-game spending leads to 26% of total revenue, and it is growing 52% to roughly $460 million in 2016. With this, Take-Two is able to create more consistent year-to-year cash flow. In addition, digital revenue plays a defining role in Take-Two’s results today, and digital revenue has doubled since fiscal 2014.
In regards to Take-Two’s digital revenue growth, Grand Theft Auto Online has been an important contributor. Following Grand Theft Auto Online’s initial launch in 2013, Take-Two’s growth has grown every year since. As mentioned, Red Dead Redemption 2 will be launched in 2018, but until then there are a number of games to keep gamers occupied, such as Grand Theft Auto, NBA 2K17, and WWE 2K17.
Featured Image: rockstargames.com
