Take-Two Interactive (TTWO 0.72%) didn't have an impressive 2023. Sales were essentially flat over the last 6 months, and operating losses ballooned. Analysts expect revenue to rise by just 4% this year, which would hardly qualify the video game publisher as a growth stock.
The future is much brighter, though. That's because Take-Two Interactive is preparing to release a flood of new video games over the next 18 months. These games promise to catapult it into the top ranks of its industry in terms of annual revenue.
The stock's rally in 2023 reflects optimism about these new properties and their ability to boost cash flow and earnings for many years to come. But is Wall Street getting ahead of itself? Let's take a closer look.
The pressure is on for Take-Two
Net bookings, a measure of sales to consumers, are on track to reach $5.5 billion in fiscal 2024, which runs through March. That would translate to growth of about 4%, marking a sharp slowdown compared to the prior year's 55% spike.
Pressures on the business include a broader pullback in the video game industry following huge gains during the pandemic. Gamers are becoming cautious in their spending and are focusing demand on established franchises. These shifts make it harder to win bigger audiences and monetize these users. That's partly why management decided to delay a few launches and cut several titles completely from the release plan.
The pipeline
Investors have some tantalizing details about Take-Two's multiyear growth strategy, which is ambitious to say the least. Management is planning more than 50 launches over the next two fiscal years, including 17 of the type of large, immersive games that can attract huge audiences for years. These will feature fresh titles in franchises like NBA 2K, Bioshock, and Grand Theft Auto, along with several entirely new intellectual properties. Executives in May described this portfolio as "the strongest, most diverse development pipeline" in Take-Two's history.
They've backed up this talk with some hard numbers, too, predicting that sales will rise to nearly $8 billion in fiscal 2025, up about 45% over the current year's haul. For context, Electronic Arts hasn't yet hit that revenue milestone and is on track for roughly $7.7 billion this year.
The cloudy outlook for Take-Two
The long-term outlook is much cloudier. Not only does Take-Two have to successfully develop, market, and support its biggest pipeline to date, but it must follow that up by fully capitalizing on these properties in the coming years. The video game business is shifting toward a software-as-a-service model, which is increasing the useful life and value of these properties. Yet there's still lots of risk around anticipating gamers' preferences and standing out in a competitive industry.
Investors are right to feel optimistic about Take-Two's growth prospects. Even if a few launches are duds over the next 18 months, the company is likely to enter fiscal 2026 with a much larger, more diverse portfolio that won't be as susceptible to sharp swings in annual revenue. That's a valuable shift, but investors don't have much concrete data to rely on as they judge the business' path from here.
Given that Take-Two's stock valuation has jumped to EA's level in 2023, it makes sense to watch the stock until there's more clarity on its fiscal 2025 operating momentum. The video game giant should be setting new annual earnings records in a few years, but it first has to navigate an unusually busy 18 months for title launches.
