Take-Two Interactive (TTWO -0.06%) shares are trailing a weak market this year. The video game developer's stock fell 31% in the first half of 2022, according to data provided by S&P Global Market Intelligence, compared to a 21% drop in the S&P 500.
That performance is partly driven by weakness in the wider video game industry, which is being pressured as consumers take a step back from digital entertainment following the pandemic demand spikes in 2020 and 2021. But Take-Two stock is also trailing its peers due to a few unique operating challenges.
Take-Two issued an earnings report in mid-May that pleased Wall Street but also failed to erase the stock's broader decline for the year. Sales were up 11% in fiscal Q4 thanks to solid demand in many of its major franchises such as Grand Theft Auto, Red Dead Redemption, and NBA 2K22. And Take-Two remained solidly profitable.
However, its results didn't stack up well against those of industry rivals. Electronic Arts (EA -0.03%) reported an 18% sales boost in its comparable period. EA also noted improving profitability even as Take-Two's operating margin declined.
Given that growth and earnings trends are underperforming the wider industry today, it's no surprise that Take-Two's stock would trail the market.
Fortunes can change quickly in the video game industry as new releases bring bigger audiences or, alternatively, fail to live up to the hype. Take-Two's results will also depend on how well the management team can capitalize on the acquisition of Zynga, which will bring new monetization opportunities in the casual gaming space.
Investors should get important updates on these points when Take-Two announces fiscal Q1 results in late July or early August. Keep an eye on the developer's release calendar, as any major delays would threaten its growth outlook for the year.
Even an optimistic 2022 forecast might still leave investors wanting more, though, given the pressures that are expected to hit the industry in the second half of 2022. Booming year-ago results will create a high bar for video game developers to surpass, especially at a time when economic growth is slowing and consumers are prioritizing in-person entertainment.
Take-Two's widening portfolio gives it a better chance to navigate any potential downturn. However, its relatively weaker sales and earnings trends heading into that slowdown have given investors reasons to feel more cautious about holding the stock.