Pre-orders for GTA 6 are booming and may reverse the downward trend! Citigroup raises Take-Two Interactive Software (TTWO.US) target to $270

According to Golden Ten Data, American game publisher Take-Two Interactive Software (TTWO.US) released its second quarter fiscal 2027 results after market close on November 9, Eastern Time. The financial report shows the company's net bookings for the quarter were $1.60 billion, a year-on-year decline of 18%, slightly below the company's previous guidance range of $1.62 billion–$1.67 billion. Revenue was $1.50 billion, down about 15.4% year-on-year, also lower than the market consensus estimate of around $1.66 billion. On a GAAP basis, net loss was $54 million; loss per share was $0.29, significantly narrowing compared to a loss of $0.73 per share in the same period last year. Management reaffirmed full-year net bookings guidance of $8.0–$8.2 billion and, for the first time, issued third-quarter net bookings guidance of $3.35–$3.5 billion, implying GAAP net revenues will be more than double compared to this quarter, but this range is below the LSEG consensus estimate of $3.51 billion. As of press time, Take-Two Interactive Software's shares rose nearly 5% in after-hours trading on Monday.

According to Citi's research report released after Take-Two Interactive Software's earnings, the company's second quarter net bookings were 4% lower than market consensus; GAAP loss per share was $0.29, better than Wall Street's expected loss of $0.75 per share and also better than the company's previous guidance range of a $0.84 to $0.75 loss per share.

The company reaffirmed its net bookings outlook for fiscal 2027 at $8.0 to $8.2 billion. By comparison, Take-Two Interactive Software's guidance for fiscal 2027 net bookings is 6% below the Wall Street consensus, and the company's guidance for net revenue is also 5% lower than market expectations. In short, the market consensus is more optimistic than the company's own guidance.

Take-Two Interactive Software's CEO made positive comments on the release situation of the new GTA series title, stating that pre-orders are "far exceeding" initial expectations, helping to offset the weaker-than-expected net bookings for NBA 2K. Weakness in the NBA 2K business led to a 9% year-on-year decline in recurrent consumer spending (RCS), while management had previously guided for a 5% decline.

Given that GTA 6 is set to launch on November 19 and current pre-orders are far ahead of management's initial expectations, Citi believes the weakness in the NBA 2K business could offer investors a highly attractive buying opportunity ahead of the GTA 6 release.

Citi maintains a "Buy" rating on Take-Two Interactive Software with a target price of $270, roughly equivalent to 26 times the expected non-GAAP earnings per share for fiscal 2028. This valuation multiple is below the company's forward P/E (NTM PE) historical levels over the past five years.

Citi adds that factors that could lead to a decline in share price and pose downside risks to its target price include: 1) If certain game titles take longer to develop than expected and cannot be launched according to the market-expected timeline, consensus revenue and earnings forecasts may come under downward pressure, potentially weighing on the share price and the target price. 2) If consumer spending or the macroeconomic environment deteriorates, the company's actual reported revenue may fall short of current market expectations, leading to downside risk for the share price and putting pressure on Citi's target price. 3) If the mobile gaming ecosystem continues to weaken or if mobile privacy policies change further, this may adversely affect Take-Two Interactive Software's mobile gaming business.