News

Take-Two Interactive (NASDAQ: TTWO) has some big questions to answer for investors in a few weeks. The video game developer's stock soared through late 2023, but it has trailed the market recently on fears around its slowing growth. Shares are down following management's early February earnings update that outlined weaker demand for some key titles including NBA 2K24.

Yet there's another big update on the way that could change that narrative.

On May 16, Take-Two is slated to announce its fiscal 2024 Q4 earnings results while issuing a detailed outlook for fiscal 2025, which is expected to be a monumental year for the business due to several game-changing releases. A highly anticipated Grand Theft Auto launch is included in that list, but delays could threaten management's growth plan, meaning investors might want to wait for more information before buying this gaming stock.

Switching to defense

Take-Two didn't give shareholders much to celebrate in its fiscal Q3 report (for the quarter ended Dec. 31, 2023). Sales landed right within management's forecast range, sure, but the top line fell 3% year over year, compared to a 2% increase for rival Electronic Arts. Take-Two's content portfolio didn't draw a huge audience during the period, and gamers avoided a few big titles. The latest NBA 2K release stumbled, management said, and soft digital advertising spending pressured its casual gaming division .

That situation has Take-Two shifting to more of a defensive position ahead of its aggressive content launch plans for the current fiscal year. As a result, investors should look for improvements to metrics like cash flow and operating profit margin over the next few quarters. "We aim to achieve greater operating leverage as we roll out our outstanding release schedule," CEO Strauss Zelnick said in the February press release.

The growth outlook

The bigger question is whether management will satisfy investors with its short-term growth outlook in May. Executives lowered their fiscal 2024 revenue guidance in February from $5.42 billion to $5.30 billion (both figures at the midpoint of their respective ranges).

That shift had nothing to do with Take-Two's content release plans. Still, it was discouraging to see management forced to walk back their near-term forecast. Most of the stock's rally in the past year can be pinned on Take-Two's fiscal 2025 outlook, after all, so investors are nervous about a muted forecast on May 16.

Heading into the report, Wall Street analysts expect fiscal 2025 sales to jump over 30% to $7.0 billion. The timing of a few big releases could make all the difference here. Grand Theft Auto 6, the first new installment for the mega-franchise in over a decade, still doesn't have a firm release date. Management will ideally give investors a better idea of whether that title will still play a major role in fiscal 2025 results, or if delays to that game or others will instead push growth out into future years.

Given Take-Two's falling sales and its streak of losses heading into fiscal 2025, investors might prefer watching this stock from the sidelines for now.

Should you invest $1,000 in Take-Two Interactive Software right now?

Before you buy stock in Take-Two Interactive Software, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Take-Two Interactive Software wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $544,015!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

*Stock Advisor returns as of May 3, 2024

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Take-Two Interactive Software. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.