Ttwo
Image: Take-Two Interactive Software.

The video game industry has changed dramatically over the years. For a long time, companies like Activision Blizzard (NASDAQ:ATVI) succeeded by coming up with brand-new games that would fire the imagination of game-players everywhere. More recently, though, video game giants have instead looked to develop top franchises and then come out with new installments that renew their audience's interest. That strategy shows itself clearly at Take-Two Interactive Software (NASDAQ:TTWO), and in the company's fiscal second-quarter financial report on Thursday, Take-Two posted record performance thanks in large part to some of its most popular series. Let's look more closely at how Take-Two did and whether it can keep up the momentum coming into the key holiday season.

Take-Two wins the game again
Take-Two Interactive's fiscal second-quarter results showed just how valuable its popular games are. Revenue soared 175% to $347 million, beating even ambitious expectations among investors for roughly $325 million in sales. Adjusted net income came in at $54.7 million, reversing a year-ago loss, and the resulting adjusted earnings of $0.30 per share doubled the consensus forecast among investors.

Looking more closely at Take-Two's results, the video game company pointed to the new release of NBA 2K16 as driving net revenue higher, along with existing titles Grand Theft Auto V and Grand Theft Auto Online, NBA 2K15, and Borderlands: The Handsome Collection. Sales from digitally delivered content climbed 57% to $141 million. As we've seen in past quarters, recurring revenue posted a solid growth rate of 39%, and Take-Two has done a good job of keeping recurring sources of sales responsible for more than half of its total digitally delivered content revenue.

New releases were an essential part of Take-Two's success. In addition to NBA 2K16, the game-maker also launched WWE 2K16, NHL SuperCard, and the latest expansion pack in the Sid Meier's Civilization series. Ongoing content upgrades for Grand Theft Auto Online also played a strong role in keeping Take-Two's performance strong during the quarter.

Take-Two CEO Strauss Zelnick put a positive spin on the quarter's results. "Our second-quarter results were anchored by the series record-breaking launch of NBA 2K16," Zelnick said, "along with ongoing demand for Grand Theft Auto V and strong growth in recurrent consumer spending."

Can Take-Two take it up a level?
Zelnick also sees a lot of positives for Take-Two's future. "Our holiday season is off to a great start," the CEO said, "and we expect the installed base of new-gen consoles to expand further and broaden our global audience." As Zelnick sees it, Take-Two has a "robust development pipeline" that should leave it "better positioned than ever to generate revenue growth and margin expansion."

Take-Two also took the opportunity to boost its full-year fiscal 2016 guidance. The company now expects revenue of between $1.325 billion and $1.425 billion for the year, equated to adjusted earnings of $1 to $1.15 per share. Moving planned releases of the sequel to XCOM and the Battleborn game into calendar 2016 partially offset the positive impact of Take-Two's solid performance so far during the fiscal year, but the game-maker is optimistic about its overall prospects. For the fiscal third quarter, Take-Two expects sales of $400 million to $450 million producing adjusted earnings of $0.40 to $0.50 per share.

Buyback activity also helped boost Take-Two's prospects. The company spent $26.6 million to repurchase stock during the fiscal second-quarter, buying back about 950,000 shares in the process. That gives Take-Two plenty of remaining room in its latest 10-million share authorization, but it shows that the company is serious about using buybacks to return capital to shareholders.

One interesting question involves whether Take-Two will try to monetize its content in other ways. Activision Blizzard recently announced that it would launch a movie and television studio, with the idea of using the characters it has developed in its games to power other forms of entertainment. Yet Activision Blizzard shareholders responded to the initiative negatively, sending the stock down 6% on the day of the announcement as many skeptics pointed to past failures of similar ventures elsewhere in the industry. Take-Two can afford not to follow Activision Blizzard in that direction, instead concentrating on maximizing the quality and popularity of its game offerings.

Take-Two Interactive investors celebrated the results, sending the stock up 3.5% following the announcement. The holiday season will remain important for the company, yet for now, Take-Two appears well-poised to take advantage of new console sales and reap its share of sales in a strong industry environment overall.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool recommends Take-Two Interactive. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.