Take-Two Interactive Looks Beyond "Red Dead Redemption 2"

Take-Two Interactive (NASDAQ: TTWO) just wrapped up a strong fiscal year (2019) despite intense industry competition for gamers' time and money. Even as both Activision Blizzard (NASDAQ: ATVI) and Electronic Arts (NASDAQ: EA) posted lower sales, Take-Two's revenue launched to a new record thanks to the hit Red Dead Redemption sequel. Cash flow soared, too, as sales continued shifting toward digital delivery.

That success ironically sets the company up for a difficult fiscal 2020 as the developer works to maintain momentum. A packed release pipeline across both new and existing properties will help, according to CEO Strauss Zelnick, but it likely won't be enough to avoid a modest sales decline in 2020. Zelnick and his team discussed the details of that outlook in a conference call with Wall Street analysts, and below are a few highlights.

Continue Reading Below

Broad-based gains

Take-Two's record 2019 was powered by the Red Dead Redemption sequel, which sold over 24 million units and accounted for 32% of annual revenue despite having launched in the back half of the fiscal year. Grand Theft Auto products kicked in another 26% of sales, and the NBA 2K franchise rounded out the top three by selling 9 million copies and powering a new record in recurring, subscription-based revenue. These strong results together produced a significantly better year than management had predicted, while both EA and Activision came up short of their annual targets.

Keeping engagement going

GTA V titles continue to attract lots of play time from gamers nearly six years after their initial launch. That suggests Take-Two can achieve increasingly stable revenue growth over time. In fact, recurrent consumer spending for the full year on products like GTA Online and NBA 2K rose 20% and accounted for 39% of total sales, management said.

Executives are hoping to keep that positive momentum going with Red Dead Online over the quarters and years to come.

Big shoes to fill

Given that over a decade passed between major Red Dead releases, Take-Two can't count on a repeat blockbuster performance lifting results in fiscal 2020. That's why the company predicts sales will fall to between $2.7 billion and $2.8 billion compared to $2.9 billion this past year.

Yet shareholders will have many launches to look forward to across the perennial hit sports franchises and established brands like Borderlands, which will release its first new chapter in almost six years. Overall, this pipeline should deliver a modest sales decline in 2020 following last year's 47% spike.

10 stocks we like better than Take-Two InteractiveWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Take-Two Interactive wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

Demitrios Kalogeropoulos owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard and Take-Two Interactive. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.