Take-Two Interactive Software Inc. (TTWO - Snapshot Report) recently announced fiscal fourth-quarter 2015 results wherein adjusted earnings of 35 cents per share beat the Zacks Consensus Estimate of 10 cents. The company reported non-GAAP earnings of 49 cents a share compared with 21 cents reported in the year-ago quarter.

Take-Two Interactive Software Inc. - Earnings Surprise | FindTheCompany

For full-year fiscal 2015, the company reported non-GAAP earnings of $1.98 per share, significantly lower than $4.26 reported in fiscal 2014. Non-GAAP revenues for fiscal 2015 also declined to $1.67 billion from $2.41 billion in fiscal 2014.

Quarter Details   

The company’s non-GAAP revenues increased 83% year over year to $427.7 million but lagged the Zacks Consensus Estimate of $458 million.

Catalog sales accounted for $78.3 million of non-GAAP net revenue led by the combined sales of Grand Theft Auto and Borderlands series.

Non-GAAP net revenue from digitally-delivered content grew 66% year over year to $202.5 million. The improvement was backed by Take Two’s portfolio of digitally delivered offerings, and continued growth in the Grand Theft Auto, NBA 2K, Evolve, Borderlands and WWE 2K series.

Revenues from recurrent consumer spending (virtual currency, downloadable add-on content and online games) improved 47% year over year and accounted for 54% of non-GAAP revenues from digitally-delivered content.

From the geographic perspective, the United States accounted for 55% of revenues compared with 57% in the year-ago quarter. The remaining 45% came from International markets, which increased from 43% in fourth-quarter 2014.

Non-GAAP gross profit was $204.5 million versus $111.3 million in the year-ago period. Gross margin expanded 10 basis points (bps) to 47.8%.

Total operating expenses were $131.8 million compared with $110.5 million in the prior-year quarter.

Balance Sheet & Cash Flow

Take-Two exited the quarter with cash and cash equivalents of $911.1 million compared with $935.4 million as on Mar 31, 2014. Long-term debt was $476.1 million versus $454 million as on Mar 31, 2014. Cash flow from operations was $212.8 million.

Guidance

For the first quarter of fiscal 2016, Take-Two expects non-GAAP net revenue in the range of $325 million to $350 million. Non-GAAP earnings are expected in the range of 25 to 35 cents per share.

For fiscal 2016, the company expects non-GAAP net revenue in the range of $1.3 billion –$1.4 billion. Non-GAAP earnings per share are expected in the range of 75 cents–$1.00.

Our Take

We believe that Take-Two’s robust product pipeline will drive top-line growth and profitability going ahead. NBA 2K15, Evolve, Borderlands: The Pre-Sequel andCivilization: Beyond Earth are expected to be significant top-line growth drivers in fiscal 2016, in our view. Further, Take-Two sales are gaining from Grand Theft Auto V, digital revenues and associated DLC revenues

However, it might be challenging for the upcoming games to repeat the success of Grand Theft Auto V, in our opinion, given the stiff competition in the industry from the likes of Electronic Arts (EA - Analyst Report), Activision (ATVI - Snapshot Report) and Zynga (ZNGA - Snapshot Report). Moreover, Take-Two's overdependence on console gaming sales and lack of mobile gaming titles is a major headwind over the long run.

Currently, Take-Two has a Zacks Rank #3 (Hold).