Friday, August 03, 2007

Take-Two Interactive (NASDAQ:TTWO): Carjacking, Murder & Mayhem Will Have to Wait

Couple of firms comment on Take-Two Interactive Software Inc (NASDAQ:TTWO) after the co delayed its most important upcoming video game, "Grand Theft Auto IV", and warned it would post a full-year loss, before one-time items, sending shares down 17 percent.

"We are very disappointed to reduce guidance after having previously reaffirmed it," Ben Feder, the chief executive who is part of a new management team at the troubled company, said in a statement, referring to the company's previous assessment, in June.

- Cowen notes that obviously, they view these developments as disappointing given their bullish stance on the stock. While they feel that management's decision not to ship an unfinished game is prudent, this will definitely be a blow to the new management's credibility given their relatively recent reaffirmation that GTA IV would ship on its original release date.

However, Cowen is reiterating their Outperform rating on TTWO shares. The delay of GTA IV does not fundamentally change the long-term drivers of their call: namely that 1) GTA remains one of the industry's leading franchises with very attractive economics, and the release of the game will be a catalyst for TTWO shares; 2) the company appears to be successfully developing 'AAA'-hit titles beyond the GTA franchise; and 3) new management will continue to take steps to improve the company's margin structure and resolve outstanding legal issues.

Firm recognizes that yesterday's events increase perceived risk around the stock. However, given teir continued confidence in the long-term potential of the company, they believe that current levels present investors with a compelling opportunity to take a position in TTWO shares.

- CIBC notes the news comes as a bit of a surprise considering the fact that TTWO reported 2Q07 earnings on 6/11, and reaffirmed the ship date on that conf call, and maintained guidance on its 7/9/07 100-day plan update CC. Manhunt 2, which has run into rating issues, will also be pushed out of FY07.

The shares were off 19% in after-hours trading. At $13.75, Take- Two trades at roughly 16x CIBCäs CY08 EPS estimate and 0.7x price-to- sales. While valuation provides some support, they note that the shares have touched 0.5x in the past. This news is disappointing and highlights visibility concerns that remain at the company. Firm maintains Sector Performer rating.

Firm believes the other video game publishers will benefit from GTA IV's absence this holiday season. While some have conjectured that the loss of GTA IV would impact sales of hardware, and in turn impact sales of software, they believe that the much anticipated Halo 3 is likely enough to spur hardware growth.

Notablecalls: I'm no industy expert when it comes to video games but I do think TTWO is buyable here. I think new management somewhat deliberately lowered the bar last night so they can claim some glory by stepping over it later on. GTA IV will likely be a big success when launched. Btw, mark my words - it will be launched somewhat earlier than currently promised by management.

Buy the bounce. Actionable!

1 comment:

JJ2000426 said...

Who SOLD OUT a piece of national treasure vital to our survival, to Russians, dirt cheap? On paragraph 4.

Watch out SWC on monday for earnings release after hour. Crooks knocked down SWC from $16.47 to $8.56 in less than 3 months, for no good reason. Maybe they want to sell the remainder to Russians cheap?

Deeply oversold, I expect a blowout SWC quarterly earning, and from here SWC MUST have a dramatic reversal and a great rally on the good earnings. Don't let go of the opportunity!