Take-Two Rises 24% YTD: Here's Why You Should Stay Away From the Stock

Take-Two Interactive TTWO shares have surged 24% year to date (YTD), outperforming the Zacks Consumer Discretionary sector’s modest growth of 1%. TTWO’s competitors, Electronic Arts EA, Ubisoft U and Microsoft MSFT-owned Activision Blizzard, have returned 0.4%, 9.2% and 8.5%, respectively, YTD.

However, this rally represents a classic bull trap that savvy investors should avoid. The gaming giant's recent performance masks fundamental weaknesses that make it a clear sell candidate heading into 2025.

For fiscal 2026, the company expects GAAP net revenues between $5.95 billion and $6.05 billion. The company expects net bookings in the range of $5.9-$6 billion.

The Zacks Consensus Estimate for TTWO’s fiscal 2026 revenues is pegged at $5.99 billion, indicating growth of 6.1% on a year-over-year basis. The consensus mark for earnings is currently pegged at $3.58 per share, down 51.6% in the past 30 days. 

Take-Two Interactive Software, Inc. Price and Consensus

Take-Two Interactive Software, Inc. price-consensus-chart | Take-Two Interactive Software, Inc. Quote

See the Zacks Earnings Calendar to stay ahead of market-making news.

GTA VI Delay Derails Revenue Projections

The most damaging blow to Take-Two's investment thesis came with the announcement that Grand Theft Auto VI, originally slated for Fall 2025, has been pushed back to May 26, 2026. This delay effectively removes the company's biggest revenue driver from fiscal 2026, creating a massive hole in near-term earnings expectations. The postponement forces investors to wait an additional year for the franchise's primary monetization opportunity, severely undermining growth prospects.

The delay is particularly concerning given that GTA VI represents Take-Two's most significant growth catalyst. With management projecting only modest 5% year-over-year growth for fiscal 2026, the absence of this blockbuster title leaves little room for upside surprises and exposes the company's lack of compelling alternatives.

Massive Share Dilution Signals Desperation

Take-Two's recent decision to raise more than $1 billion through public stock offerings reeks of financial desperation. The company priced 4.75 million shares at $225 each, with options for underwriters to purchase additional shares worth $150 million. This massive dilution comes at a time when the stock is trading near multi-year highs, suggesting management lacks confidence in maintaining current valuations.

The timing of this capital raise, coinciding with GTA VI's delay, indicates potential cash flow concerns that aren't immediately apparent in the company's optimistic guidance. Investors should question why a supposedly healthy company needs to dilute shareholders so aggressively.

Deteriorating Financial Metrics Raise Red Flags

Take-Two's fiscal 2025 results reveal troubling underlying trends. Operating expenses skyrocketed 44% to $4.6 billion, driven by a staggering $3.6 billion impairment charge related to goodwill and acquired intangible assets. This massive write-down suggests previous acquisitions, particularly the $12.7 billion Zynga purchase, have failed to deliver expected returns.

More concerning is management's projection that recurrent consumer spending will remain flat in fiscal 2026, with expected declines in mobile gaming and Grand Theft Auto Online revenues. These are the company's highest-margin business segments, and their deterioration signals structural challenges in maintaining profitability.

Dangerous Over-Reliance on Aging Franchises

Take-Two's revenue concentration in a handful of aging franchises creates significant downside risk. The company expects roughly 45% of fiscal 2026 net bookings to come from Zynga's mobile titles, 39% from 2K properties, and only 16% from Rockstar Games. This heavy dependence on mobile gaming, which is experiencing declining revenues, exposes investors to sector-wide headwinds.

With limited new intellectual property in development and increasing competition from emerging gaming platforms, Take-Two lacks the diversification necessary to weather industry disruptions. The company's pipeline appears insufficient to offset declining performance from core franchises.

Verdict: Sell Before Reality Sets In

Take-Two's 24% year-to-date surge represents an unsustainable rally built on hype rather than fundamentals. Between GTA VI's delay, massive share dilution, deteriorating financial metrics, and over-reliance on declining revenue streams, the stock faces multiple headwinds that make it a clear sell. Investors should take profits now before the market recognizes these fundamental weaknesses and reprices the stock accordingly. Currently, TTWO carries a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research