What happened
Shares of Take-Two Interactive (NASDAQ: TTWO) were trading down 10.3% for the week as of 12:31 p.m. ET on Friday. The fall correlates with a disappointing earnings report from rival video game producer Activision Blizzard (NASDAQ: ATVI) on Tuesday, April 25.
So what
Activision Blizzard, which is in the process of being acquired by Microsoft, reported a weak start to the year. Revenue and adjusted earnings per share fell 22% and 35% year over year, respectively, in the first quarter. What really spooked investors was that earnings came far short of analysts' estimates. Investors are wondering if this signals a broader weakness across the industry.
We won't know the answer to that until other game companies report. But for what it's worth, the latest edition of Take-Two's flagship title, Grand Theft Auto, has seen rising viewership on Amazon's Twitch over the past three years. Meanwhile, Activision's Call of Duty has experienced a notable decline in popularity recently. Twitch is the popular game streaming site where players can watch others play video games. It's a good indicator of which games are trending in popularity in the industry.
Activision, indeed, reported a decline in sales for the Call of Duty franchise, with lower premium sales of Call of Duty: Vanguard compared with the previous installment in the series.
Image source: Getty Images.
Now what
Take-Two reported better-than-expected performance across Grand Theft Auto, Red Dead Redemption, and NBA 2K22 in the last quarter. The video game industry is highly competitive just like any other. Because of that, investors should keep in mind that just because one company announces weak results is not an indication of weak engagement with other video games.
Take-Two expects to report full-year revenue between $3.41 billion and $3.46 billion for fiscal 2022 (which ended in March). That is slightly up from last year's $3.37 billion. Analysts expect adjusted earnings per share to come in at $4.94, down from $6.58 in fiscal 2021.
Investors will know more when Take-Two reports fiscal fourth-quarter earnings on May 16 after the market close.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard has positions in Activision Blizzard, Amazon, and Take-Two Interactive. The Motley Fool has positions in and recommends Activision Blizzard, Amazon, Microsoft, and Take-Two Interactive. The Motley Fool recommends the following options: long January 2023 $115 calls on Take-Two Interactive. The Motley Fool has a disclosure policy.
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