Take-Two Interactive's (NASDAQ:TTWO) May 23 earnings release was preceded by the news that Red Dead Redemption 2, one of its most anticipated upcoming games, would have its release date pushed back from holiday 2017 to spring 2018. Strong earnings results in the recently reported quarter meant that the delay of the high-profile title hasn't stopped Take-Two's stock from reaching new heights, but postponing the Red Dead sequel does mean that the company probably won't have a major release for the remainder of the calendar year outside of its annual sports titles.
After postponing the launch for its upcoming Western-themed game, every title from Take-Two's flagship Rockstar development wing since 2009's Grand Theft Auto IV has now been subject to delays. What does this move mean for investors? And is the frequency of high-profile delays indicative of broader problems within the company?
Red Dead not ready
Missing the holiday sales window and moving to a spring 2018 release does come with the risk of lowering sales for Red Dead Redemption 2, but it could also wind up being a smart move in the long run. As legendary Nintendo game designer Shigeru Miyamoto once said, "A delayed game is eventually good, a bad game is bad forever." With success in the video game industry increasingly relying on in-game spending made after the initial purchase, delivering a strong core product to build upon is one of the best ways to drive profitability for a big-budget title.
Perhaps no game illustrates this concept better than Take-Two and Rockstar's own Grand Theft Auto V. The initial release of GTA V on Microsoft's Xbox 360 and Sony's PlayStation 3 was delayed roughly six months from its planned March 2013 release date, the simultaneous release of the Xbox One and PlayStation 4 versions of the game was delayed three times, and the title's subsequent release on PC also saw three separate delays. The developer and publisher identified the need for some additional time to polish up crucial products and acted accordingly. The end result? One of the most successful and best-reviewed games in history.
Across its releases on various platforms, Grand Theft Auto V has shipped more than 80 million copies, and its online mode has been a major source of the digital revenue that has boosted Take-Two's earnings performance over the last few years. That's not to say that all of GTA V's success is attributable to extra development time, but the game's lauded quality and attention to detail have certainly helped to keep players coming back for more. So, with that in mind, Red Dead Redemption 2 missing its planned 2017 release is disappointing, but the launch date shuffling shouldn't impact the game too much if it turns out to be a strong release -- and more development time should help Take-Two and Rockstar ensure that the franchise returns in top fashion.
Implications for Take-Two's release slate
Read Dead's move to spring 2018 arrived with a downward sales target revision from the company, suggesting that Take-Two's sales performance for the remainder of the year will hinge on WWE 2K18, NBA 2K18, and Grand Theft Auto Online. That's not a terrible thing for the long-term investor, as each of those series are going strong and putting up high-margin digital sales, but there's a more significant takeaway for Take-Two's future release timeline.
Pushing Red Dead Redemption 2 to 2018 means that the next mainline Grand Theft Auto game probably won't arrive until 2019 at the earliest. Take-Two stands to benefit from spacing out its major releases to avoid cannibalization and to maximize in-game purchases from their respective online modes, so releasing two major titles (both developed by Rockstar) only months removed is likely out of the question.
The company's biggest earnings periods revolve around new mainline Grand Theft Auto installments, so indications that the series' next release now appears to be further out is significant for Take-Two's short-term earnings trajectory. Still, it's not a game-changing development given that Grand Theft Auto V is still going strong and the company is riding digital sales momentum from other series like NBA 2K.
For the long-term investor, the tendency for big games from Take-Two and its Rockstar development wing to get delayed probably shouldn't be taken as a worrying sign, as prizing quality over release deadlines will usually turn out to be the right move. It's a tendency that's worth keeping in mind, and it's possible that Red Dead Redemption 2 might even be pushed later into 2018, but release postponements probably won't have much impact on long-term investors so long as the company continues to release high-quality content.
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Keith Noonan owns shares of Take-Two Interactive. The Motley Fool owns shares of and recommends Take-Two Interactive. The Motley Fool has a disclosure policy.