Blockbuster games always play a key element in driving performance for video game publishers, and for Take-Two Interactive Software (TTWO 0.10%), the long-awaited release of Red Dead Redemption 2 finally came during October. Yet even before the latest installment of the hit series came out, Take-Two was working hard to make the most of other opportunities in its portfolio of games, and ensuring that video gamers have good titles to play has been essential to the company's long-term success.

Coming into Wednesday's fiscal second-quarter financial report, Take-Two investors were prepared to see year-over-year declines in key metrics like bookings and earnings. Instead, the company defied those expectations, posting modest growth and building momentum coming into the key holiday season.

Gunfighter wearing cowboy hat and holding a gun in front of a sunset, with seven riders on a ridge on the horizon.

Image source: Take-Two's Rockstar Games.

Players ready for Take-Two

Take-Two's fiscal second-quarter results continued to build on success earlier in the fiscal year. Net revenue was higher by 11% to $492.7 million, which was considerably better than most had anticipated. Net income soared to $25.4 million, reversing a year-earlier GAAP loss, and adjusted earnings of $1.05 per share dramatically exceeded the consensus forecast among investors for just $0.93 per share on the bottom line.

Fundamentally, Take-Two held up well. Bookings were higher by 1% to $583.4 million, as Take-Two got the biggest contributions from various titles in the NBA 2K and Grand Theft Auto game lines as well Dragon City and Monster Legends. Recurring spending from customers was extremely important, climbing 28% from year-earlier levels and making up more than half of all net bookings that Take-Two brought in during the period.

Take-Two also kept making progress with its digital delivery capabilities. The video game maker reported 20% growth in digitally delivered net bookings, and nearly three-quarters of Take-Two's total net bookings came from content that had been digitally delivered.

Cost containment also played a key role for Take-Two. Gross margin soared by nearly eight percentage points to more than 52%, as costs of internal royalties and software development expenses plunged. Selling and marketing expense gains led to an 11% rise in operating costs, but that wasn't enough to dent the bottom line very much.

CEO Strauss Zelnick put things succinctly. "Take-Two delivered better-than-expected operating results," Zelnick said, "including growth in net bookings, during the fiscal second quarter." The CEO credited the Grand Theft Auto franchise as well as the newly launched NBA2K 19 for the gains.

What's next for Take-Two?

Yet the real story for Take-Two came from early results of the Oct. 26 release of Red Dead Redemption 2. Zelnick called the release "a massive commercial success" that "set numerous records, including achieving the biggest opening weekend in the history of entertainment with over $725 million in retail sell-through during its first three days." It took Red Dead Redemption 2 just eight days to outsell the original Red Dead Redemption's first eight years of revenue.

Because the game has done so well, Take-Two boosted its fiscal 2019 guidance. Sales should now be between $2.55 billion and $2.65 billion, up $50 million from its previous guidance, and full-year earnings of $1.73 to $1.98 per share marked a $0.28 per share boost to what Take-Two predicted three months ago. For the fiscal third quarter, Take-Two expects sales of $1.1 billion to $1.15 billion, and GAAP earnings should be between $0.31 and $0.41 per share.

Take-Two investors were happy with the results, and the stock climbed almost 5% in after-hours trading following the announcement. With a promising holiday season ahead, Take-Two expects that Red Dead Redemption 2 will add another bonus to an already strong lineup of much-loved game titles for video gamers to enjoy heading into 2019.