Take-Two Interactive Software reported better-than-expected quarterly earnings but its sales guidance fell below analysts’ estimates, fueling concerns about competition from online and free-to-play video games such as Fortnite.
For the fourth quarter, the game publisher earned an adjusted 78 cents per share, above expectations of 75 cents. Its Red Dead Redemption 2 game continued to perform strongly, reaching 24 million in unit sales.
But adjusted revenue, or net bookings, was $488.4 million, missing the average analyst estimate of $506.5 million. For the first quarter, Take-Two is now forecasting revenue of $310 million to $360 million, compared with Wall Street estimates of $421 million.
Take-Two CEO Strauss Zelnick suggested the guidance reflected the tough comparison with the strong sales of Red Dead Redemption 2.
“We expect fiscal 2020 to be another strong year for Take-Two, with operating results currently forecasted to be lower than fiscal 2019, due to the extraordinary success of Red Dead Redemption 2,” he said in a news release.
But as The Financial Times reports, “Game makers are facing growing competition from online and free-to-play games such as Fortnite that are winning over players and pressuring sales of traditional console games.”
Take-Two rivals Electronic Arts and Activision Blizzard have also forecast revenue below estimates.
Zelnick told Barron’s that Take-Two is likely to stick with traditional console videogames, citing how 99% of free-to-play games fail in the marketplace, with Fortnite being a notable exceptions. “Free-to-play remains a challenge because the hit ratios are a whole lot lower than the console and PC business,” he said.
Other big contributors to Take-Two’s fourth quarter were NBA 2K19, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Online, Sid Meier’s Civilization VI, Dragon City and Monster Legends, and WWE SuperCard and WWE 2K19.
“Take-Two has the strongest development pipeline in its history, including sequels from our biggest franchises as well as exciting new IP,” Zelnick said.