Take-Two Interactive Software (NASDAQ: TTWO) shareholders leveled up this past year. Their stock gained 55% in 2023, surpassing the 24% rally in the S&P 500 and the 43% surge in the tech-heavy Nasdaq Composite. That outperformance also allowed Take-Two to leave video game developer peers like Electronics Arts far behind.
Take-Two's big returns occurred despite a continued spending slowdown in the industry that put a lid on growth for most competitors. It was mainly driven by enthusiasm about its upcoming release slate.
The packed pipeline
Take-Two is on track to achieve about $5.5 billion of sales for the current fiscal year, which would translate into a modest 4% uptick. Revenue has been pressured by sluggish consumer spending and a few canceled and delayed product launches. These cancellations also spurred one-time charges that drove significant losses for the business in 2023. Take-Two reported over $500 million of red ink last quarter, translating into a $3.20 per share loss.
Yet there are some encouraging factors that point to better days ahead for the business. Take-Two's profitability is improving after adjusting for this past year's non-cash charges. Sales have held up well considering the relatively quiet release calendar in 2023 as well.
But the biggest factor driving Take-Two's stock higher is enthusiasm about launches on the way. The company said in August that dozens of titles, including several major releases, will arrive in fiscal 2024, which begins in early April. This pipeline will create an "inflection point," management recently told investors, that will drive "new record levels of operating performance next year and beyond."
Level up
Take-Two is projecting that sales will approach $8 billion in 2024, implying a 40% sales spike year over year. There's a lot of uncertainty built into that prediction, of course. But Wall Street is optimistic that the next year will push Take-Two near the top of the industry to match the annual sales level of Electronic Arts.
The stock's path from here will mostly depend on how well the company delivers on those high expectations. There's plenty of room for shares to underperform if a big title is delayed, for example, or if consumer spending trends slow. Electronic Arts and other rivals have their own ambitious plans to boost market share, too. That's why investors should expect continued volatility ahead as we get closer to Take-Two's biggest video game releases in 2024 and beyond.
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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.
