Driven by GTA Online's success, Take-Two sees future in Internet games

Could Take-Two Interactive Software have found its equivalent of World of Warcraft?

Grand Theft Auto, the video game maker's most popular franchise, may be morphing into more than just a short-term cash cow by generating sales over longer periods of time. This is happening through an online world called GTA Online, which allows players to interact with one another and build homes, steal cars and pull off heists.

GTA Online's success gives Take-Two a product similar to Activision's World of Warcraft, itself one of the most successful online video games ever made. That game, which is set in a medieval fantasy world, attracted as many as 12 million gamers at its peak in 2010. Competitors have tried to replicate its success with mixed results, but Take-Two may have found its answer. That's part of what the company discussed during its better than expected fiscal second-quarter earnings, released Wednesday.

GTA Online was released alongside the fifth installment in the company's Grand Theft Auto crime drama series, which itself broke video game sales records when it was released last September. The game rung up more than $1 billion in sales in its first three days on the market. Now, GTA Online has become one of the company's most popular products.

Take-Two has said it plans to continue investing in GTA Online, offering new features when the company launches a remastered version of Grand Theft Auto made for PCs, as well as Microsoft's Xbox One and Sony's PlayStation 4 video game consoles.

"We expect this is something that will continue to grow," said Strauss Zelnick, Take-Two's CEO, in an interview. "We remain optimistic that GTA Online for next-gen will also delight consumers."

The move is part of Take-Two's broader efforts to sell games not just for PCs and consoles, but mobile devices as well -- and to do so over the Internet. Take-Two was one of the first video game companies to offer extended story lines for its games about a decade ago. The company has since expanded to selling full games over the Internet as well, an effort that swept the industry and became even more widespread after Apple's App Store became a popular way to sell apps for mobile devices.

Now, Take-Two said sales over the Internet reached $90 million in the second quarter, down slightly from the same time a year ago when Grand Theft Auto V was released.

Overall, Take-Two said sales in the quarter ending September 30 were $135.4 million, down from $1.27 billion in the year-ago period due to last fall's GTA V release, after adjustments for deferred revenue and other items. The company's adjusted loss came in at 44 cents a share, down from a profit of $2.49 a share a year ago when it released GTA V. Analysts had expected the company to report on average a loss of 59 cents on revenue of $110.9 million, according to surveys by Thomson Reuters.

Take-Two has long been known only for publishing and funding development for Rockstar Games' Grand Theft Auto, a series that boosts sales and profit with a new installment only every few years. Yet Take-Two has been changing its formula to stay competitive as other large publishers like Electronic Arts and Activision Blizzard have moved resources toward sales through online marketplaces.

EA develops annual game titles for its FIFA soccer and Madden football franchises and has seen considerable growth in sales from the Ultimate Team fantasy sports services. Activision has spun off numerous titles from the Warcraft brand, including the free-to-play Hearthstone: Heroes of Warcraft tablet title. Take-Two is hoping its new titles can deliver similar long-term success that keeps players spending money online.

Investors responded favorably on Wednesday, sending Take Two's stock up more than 6 percent in after-hours trading. The company's shares have risen more than 31 percent so far this year.

For the third fiscal quarter ending December 30, Take-Two anticipates profit between $1.35 to $1.45 a share on sales between $735 to 760 million, after adjustments. Analysts on average estimate fiscal third-quarter earnings of $1.21 a share on sales of $778.6 million, according to surveys by Thomson Reuters.

Take-Two has raised its fiscal year sales guidance by $150 million to between $1.4 and $1.5 billion and increased its annual earnings forecast per share by 25 cents to between $1.05 and $1.30.