What happened

Shareholders of Take-Two Interactive Software (TTWO 0.01%) have had a great week. The video game developer's stock was up 11% through Thursday trading compared to a 1.8% boost in the S&P 500. That increase put Take-Two's shares up over 30% so far in 2023, according to data provided by S&P Global Market Intelligence.

This week's rally was sparked by some good news around growth and earnings.

So what

Take-Two announced late Wednesday that fiscal fourth-quarter bookings jumped 65% to $1.4 billion, outpacing management's prior forecast. Standout franchises contributing to this growth included NBA 2K23, Grand Theft Auto, and several casual titles such as Toon Blast and Words With Friends. "Our vast catalog of proven, high-quality titles achieved strong results," executives said in a conference call with investors.

The industry continued to feel pressure from pockets of weakening demand as gamers become more cautious in their spending. Take-Two responded by canceling a few unannounced titles, resulting in one-time write-offs in the period. These charges contributed to net losses for the full 2023 year of over $1 billion.

Now what

Take-Two executives forecast a weak fiscal 2024 thanks to the combination of sluggish demand trends and several release delays. Net revenue should land between $5.4 billion and $5.5 billion, or roughly even with this past year's results.

But trends should improve sharply after that. Those delays will make fiscal 2025 a huge year for new game releases, likely pushing net bookings over $8 billion, according to executives. "We expect to sustain this momentum by delivering even higher levels of operating results in fiscal 2026 and beyond," management said.

Shareholders will have to wait for several quarters before this sharp growth starts to show up in Take-Two's results. And a recession might push the timing of this rebound further out. Yet the game developer is laying the groundwork for much stronger earnings over the next several years.