Ttwo Gta
Image source: Take-Two Interactive.

Video game companies rely on a constant parade of hit releases to drive interest, and Take-Two Interactive (NASDAQ:TTWO) has seen its fair share of successful games generate huge financial gains for the company. 2015 was a strong year for Take-Two, thanks largely to its release of the PlayStation 4 and Xbox One versions of Grand Theft Auto V in late 2014 that gave the company a huge holiday season last year. Yet coming into its fiscal third-quarter report on Wednesday, Take-Two investors worry about the impact that not having a new blockbuster installment of its biggest franchise will have on its overall results. Moreover, competition from Activision Blizzard (NASDAQ:ATVI) remains fierce, and Activision Blizzard has outpaced gains in Take-Two stock over the past year. Let's take a closer look at how Take-Two Interactive has fared recently and what investors should expect in its earnings report on Wednesday.

Stats on Take-Two Interactive

Analyst EPS Estimate

$0.50

Change From Year-Ago EPS

(73%)

Revenue Estimate

$452.79 million

Change From Year-Ago Revenue

(53%)

Earnings Beats in Past 4 Quarters

3

Data source: Yahoo! Finance.

Getting ready for a big earnings decline at Take-Two
Investors have become more optimistic about Take-Two's earnings prospects in recent months, boosting their fiscal third-quarter projections by a nickel per share and giving nearly a 15% increase to their calls for the full fiscal year. The stock has held up well in a tough market environment, rising 4% since late October.

Take-Two's fiscal second-quarter results in November showed just how much of a game changer Grand Theft Auto V has been in recent periods. Revenue skyrocketed 175% from year-earlier figures, and Take-Two reversed a loss from the previous year's quarter in doubling the bottom-line earnings performance that investors had expected from the video game maker.

Take-Two has plenty of plans for future growth. Its sports franchises, such as NBA 2K16, offer the chance for recurring annual revenue as gamers seek the most recent lineups. Moreover, Take-Two has other games in the pipeline, including Battleborn and Mafia III, that could produce growth and give the company more diversification beyond its blockbuster Grand Theft Auto franchise. In late January, it announced that it would extend its partnership with WWE on wrestling-related content, offering both the WWE 2K16 game and new potential add-ons to the WWE SuperCard offering.

Yet Take-Two still lags behind competitors Activision Blizzard and Electronic Arts (NASDAQ:EA) in generating the sales that it needs to step up its game. In 2015, retail sales of Activision Blizzard's Call of Duty: Black Ops 3 finished in the top spot, and Electronic Arts took the No. 2 and No. 4 spots with Madden 16 and Star Wars: Battlefront respectively. Grand Theft Auto V and NBA 2K16 took the next two places, but it will likely prove tough for Take-Two to get past EA's sports franchises or to supplant Activision Blizzard's leadership role in the industry. That said, Take-Two has done a good job of tapping digital download channels to cut out retailer intermediaries and boost its margins, and that will be increasingly important going forward.

In the Take-Two earnings report, investors need to keep an eye on how the company's development pipeline is progressing. In the past, Take-Two's biggest booms have come when makers of game consoles upgrade their hardware offerings, and, unfortunately, the company won't benefit from refreshed new console models this holiday season. Now, Take-Two will have to find new ways to generate excitement in order to keep its stock moving in the right direction.

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.