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Why Take-Two Stock Dropped 10% This Week

By Demitri Kalogeropoulos – Updated Aug 6, 2021 at 10:10AM

Key Points

  • Sales are expected to decline this year thanks to a tough comparison with 2020, plus a few delayed releases of new games.
  • Management is still targeting a return to revenue growth in 2022.

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The near-term sales outlook management offered investors this week was not what they were hoping for.

What happened

Take-Two Interactive (TTWO 4.28%) shareholders lost ground this week. The video game developer's stock was down 10% through the market close Thursday while the S&P 500 was up by 1%, according to data provided by S&P Global Market Intelligence.

The slump, which added to Take-Two's significant declines so far in 2021, was sparked by a disappointing earnings outlook.

A boy and girl play console video games.

Image source: Getty Images.

So what

Take-Two on Monday afternoon revealed strong operating results for its fiscal first quarter, which ended June 30. Thanks to robust demand for titles like NBA 2K21 and Grand Theft Auto Online, sales only dipped slightly compared to the booming revenue the company booked in the prior-year period.

But Wall Street was more interested in the developer's stagnant outlook for the rest of 2021. The company's forecast seemed worse in comparison to that of rival Activision Blizzard (ATVI -0.53%), which later in the week raised its own fiscal year forecast. Take-Two's short-term results are being pinched by delayed game launches, and investors are also worried about a potential slowdown in subscription service revenue.

Now what

Take-Two is still predicting a return to sales growth next year following a modest decline in 2021. And it's good news that management is aiming to get its titles right rather than releasing shoddy content sooner.

But the stock might continue underperforming until the company can reliably accelerate its development pace. A steady flow of high-quality releases is critical to success in the video game business, and on that score, Take-Two has stumbled recently.

Demitri Kalogeropoulos owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard and Take-Two Interactive. The Motley Fool recommends the following options: long January 2023 $115 calls on Take-Two Interactive. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Take-Two Interactive Software Stock Quote
Take-Two Interactive Software
$105.69 (4.28%) $4.34
Activision Blizzard Stock Quote
Activision Blizzard
$73.95 (-0.53%) $0.39

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