Take-Two’s “GTA 6” forecast feels absurdly conservative

Take-Two Interactive pared its immediate post-earnings gains on Friday morning, dropping into the red as the market reacted to the company’s conservative net bookings guidance.

Shares were down about 5% midday Friday, after having risen about 4% after-hours Thursday in the wake of its Q4 earnings release.

In that earnings report, the “Grand Theft Auto” maker reaffirmed, again, its November 19 release date for the highly anticipated “Grand Theft Auto VI.” But its full-year net bookings guidance of between $8 billion and $8.2 billion was about 11% below Wall Street’s estimates.

If that forecast were to prove true, it would mean the year in which “GTA 6” — which Take-Two CEO Strauss Zelnick says might be the “most anticipated entertainment property of all time” — is published would have just $1.5 billion more in net bookings than its previous year.

Of course, for a film or any other video game, that would be a massively bullish forecast. But “GTA 5” booked $1 billion in sales in just three days when it was released in 2013. And “GTA 6” is expected to carry a 33% higher price tag ($80, per Bank of America).

Initially, it appeared that investors weren’t buying it: the stock rose after the earnings report was released. But Friday’s reversal reveals the conservative guidance, which according to JPMorgan would imply “GTA 6” unit sales in the mid-30 million range (many expect 25 million on day 1), may have struck a chord.

Industry analysts, however, don’t appear to be taking the figure too seriously.

“Zelnick knows he has a monster hit on his hands and is therefore doing the fiscally responsible thing by tempering expectations. In case of any disappointment, it contains downside risk, and in case of a blowout success, the firm looks even better,” said Joost van Dreunen, CEO of analytics firm Aldora and a gaming strategy professor at NYU.

“Historically, Take-Two blockbuster releases have consistently outperformed expectations because, well, they prove to be so popular that it is difficult to accurately predict even the most optimistic scenario,” said van Dreunen, who expects “GTA 6” to reach $1 billion in sales in the first 24 hours and sell 38 million copies in its first year.

In a Friday note, Morgan Stanley said the forecast was “consistent with [Take-Two’s] historical track record of conservative guidance,” and the firm still expects 40 million copies of the game to sell in fiscal year 2027.

JPMorgan similarly views the guidance as a case of underpromising to eventually overdeliver, writing that the estimate “strikes us as rather conservative.”

“In our view the combination of the marketing cycle kick-off this summer (i.e., trailers, pre-orders) and now the potential for material upward estimate revisions through the year creates a compelling set-up for TTWO shares into the GTA VI launch,” analyst Cory Carpenter wrote in a Friday note.

Zelnick copped to conservatism to some degree on Thursday’s investor call, admitting that the previous two “GTA” titles and both “Red Dead Redemption” games outperformed the company’s expectations.

Looking back, Zelnick may even have been downplaying the admission. In Q4 2013, with “Grand Theft Auto 5” on the horizon, the company forecast full-year net revenue between $1.75 billion and $1.85 billion. Take-Two would go on to book 34% more revenue than the midpoint of that guidance, reporting $2.41 billion in full-year 2014 sales.

The same is true, though to a lesser extent, for the more recent “Red Dead Redemption II.” Take-Two initially forecast full-year 2019 net bookings of between $2.67 billion and $2.77 billion, and went on to report $2.93 billion.