What happened
Shares of Take-Two Interactive (NASDAQ: TTWO) were down 2.9% as of 10:55 a.m. ET on Wednesday. Investors have concerns about the near-term trends in gaming following a disappointing earnings report from Electronic Arts on Tuesday.
Electronic Arts missed earnings and revenue estimates for the recent quarter, in which management blamed lower engagement for some of its games that is not consistent with historical trends this time of year.
Even after the small dip today, Take-Two stock has performed in line with the S&P 500 index year to date, currently up 5.8%. What does EA's report mean for Take-Two?
So what
While EA's core sports titles, such as FIFA 23, seem to be performing well, its forward guidance for fiscal 2023 ending in March raised concerns about demand across the video game industry.
EA's lowered guidance for revenue and profits, which was partly credited to company-specific issues, such as the delayed release of Star Wars Jedi: Survivor and decision to shut down development of Apex Legends Mobile and the current mobile version of Battlefield. But most concerning for Take-Two is that EA has lower expectations for new releases this quarter.
Take-Two already lowered its guidance last quarter to reflect lower near-term growth expectations for the mobile business, where mobile bookings are expected to make up nearly half of the company's total bookings -- a non-GAAP (adjusted) measure of revenue -- following the acquisition of Zynga last year.
Now what
Take-Two will report earnings results on Monday, Feb. 6, after the market close. The stock had been drifting higher recently on optimism for the company's upcoming new release pipeline, but that could be spoiled if management lowers guidance again or offers a cautious outlook about player engagement and revenue trends.
Investors will want to pay special attention to management's commentary around Zynga's advertising business, which seems to be the company's main weakness right now, given the uncertainties in the advertising market.
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John Ballard has positions in Take-Two Interactive Software. The Motley Fool has positions in and recommends Take-Two Interactive Software. The Motley Fool recommends Electronic Arts and recommends the following options: long January 2023 $115 calls on Take-Two Interactive Software. 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.
