Analyst takes Take-Two to task

Pacific Crest Securities' Evan Wilson runs down a litany of shortcomings from the GTAIV publisher's upper management.

While Take-Two executives yesterday basked in the afterglow of Grand Theft Auto IV's 8.5 million copies sold, not everyone was thrilled with their performance. In a note to investors today, Pacific Crest Securities analyst Evan Wilson laid into Take-Two management, saying GTA developer Rockstar Games has made them look better than they actually are.

"Rockstar has supported this organization for too long and it is right to spend every dollar that it can get from Take-Two for keeping the business alive," Wilson wrote. "Unfortunately, management appears to be doing the same thing without it being nearly as deserved."

The management Wilson refers to is the group that first took control of the company in a March 2007 investor coup. Led by current Take-Two chairman Strauss Zelnick, that group rose to power promising to address five crucial shortcomings of the previous administration. They wanted to lower the company's cost structure, make the sports division profitable, sell off non-core business divisions, improve the green-lighting process to release more games on time and on budget, and resolve the wealth of legal issues inherited from the old regime.

Wilson ran down management's performance (or lack thereof) on each of those fronts. Starting with the cost structure, he noted that the publisher expects operating expenses to be up 23 percent for the year, when it originally told investors they would be the same as last year.

"At the same time as its cost structure is deteriorating, management is telling investors that it is the most efficient organization in the business," Wilson said. "That simply is not true. Management talks about having a lean sales, marketing, and corporate infrastructure behind its development talent. We disagree with this as well."

By Take-Two's own figures, sales and marketing expenses combined with general and administrative expenses are eating up more than 20 percent of the company's revenue this year. Wilson compared that to the totals of fellow US publishers Activision, Electronic Arts, and THQ, which Pacific Crest estimates account for 16.2, 19.2, and 18.2 percent of their respective revenues.

Regarding the sports business, prior to yesterday's earnings report, Take-Two's management stated it would have the division profitable this year.

"That dream just ended with management finally admitting sports would not be profitable," Wilson said, "although the loss is still 'manageable.' Management attributes this to a lower-than-expected attach rate on consoles. For the layperson, this means that Take-Two management has not owned up to the fact that it is not the hardware manufacturer's fault that its sports games have not sold."

As for making release dates more reliably, Wilson pointed out that Grand Theft Auto IV, Mafia II, Civilization Revolutions, Manhunt 2, LA: Noire, Borderlands, Midnight Club: Los Angeles, and more had all been publicly delayed since new management took over.

"If it appears that virtually every major game has been delayed, you would be correct," Wilson said.

Wilson was somewhat more conciliatory in assessing Take-Two's remaining areas of improvement, noting that it sold off peripheral maker JoyTech (though it can't find a buyer for distribution arm Jack of All Games), and that it had resolved some outstanding legal issues. As of the company's last 10-K filing, Wilson noted that the "Legal Proceedings" section of the document was down to just three pages.

While the publisher's stock price was trading up slightly earlier today, Wilson warned that its success could be fleeting.

"It is starting to appear that the company is back to where it started," Wilson said. "After the success of Grand Theft Auto [IV], it will be looking at a bloated cost infrastructure relative to its revenue opportunity, which will likely be further muted by game delays and underperformance."

As for the pending EA offer to acquire Take-Two, Wilson again questioned the Grand Theft Auto publisher's hesitance to accept a deal, especially since Pacific Crest estimates the ZelnickMedia management team stands to rake in $80 million in the event of a sale at the initially offered $26-per-share level. (EA has since lowered its offer to $25.74 per share due to possible dilution of Take-Two stock.)

"We believe that the risk of EA dropping its bid for [Take-Two] is greater than the reward of EA coming back with a modestly higher bid," Wilson wrote, "and we continue to recommend that investors take profits. EA's $25.74 offer is more than fair, in our view."

Written By

Want the latest news about Grand Theft Auto IV?

Grand Theft Auto IV

Grand Theft Auto IV

Discussion

127 comments
markharris31
markharris31

@autolycus You don't make any sense. Why would an analyst bother to analyze the financial situation of a company and then not tell anyone? What is the point of that? The general investing public is by-and-large uneducated about the companies in which they invest, and since they don't have the time to spend 8 hours per day researching companies we have analysts who get paid good money to offer reliable advice. Nothing about this article is hearsay, it's all based on years of ACTUAL reported financial numbers from Take Two. This guy isn't making Take Two look bad, they're doing it all by themselves. They are badly managed, and T2 stock is NOT a good investment, no matter how you look at it. Until they fix the shoddy financial practices that keep bleeding money away from the GTA profits, they will never be a good investment.

darkride66
darkride66

@ Autolycus. Yeah, investors are a panicky bunch, and yet still some hold on to their Take Two at $27 dollars, praying that EA will really give them almost that much for the stock. Time will tell. With NVDA, actually it's a highly recommended stock. S&P seems to love it right now.

Autolycus
Autolycus

Darkride66, I completely agree that Anaylst have to report what is possibly a good investment and a bad investment, but they can keep their opinions to themselves. Saying that company XYZ is run crappy, when they arent inside company XYZ, is all hearsay. It degrades the current value of the stock but investors dont care because they are only looking for new investors. Unforunately, humans as a group, are close the the dumbest thing on this planet. And bad news freaks humans in a group (such as a group of investors) out. What the real news should be is that oil prices are rising because people keep investing in oil, making the barrell sell for more and these investors are so rich they simply dont care about how gasolines costs. Sure Joe Schmoes, who arent filthy rich like to invest, but they should do their own research instead of listening to analysts that are thinking about the big picture. I have never once seen an analyst recommend NVDA, but guess what, it generated me a pretty nice profit...

jimmulvaney
jimmulvaney

@ article: ouch, thats gotta sting! @markharris31: could not have said it better myself. on an off note the same can be said about anyone that does anything for a living people! Otherwise it wouldn't be a living! @Karris: what the heck are you saying??? im so confused.. :?

darkride66
darkride66

@ Autolycus. Of course analysts don't run companies. Analyst's jobs are to inform investors so they can make wise investment decisions, and they do this by reporting on how companies are doing, how they're being run, etc. It's the analyst's duty to report bad news where they see it. They aren't doing anyone any favors by not reporting this type of news. And they aren't dictating to the company how it should be run, they're warning investors to stay away, because they should stay the hell away! Otherwise, an uninformed investor can come along and say "Hey! Take Two looks good. They're making money, and GTA is a big hit. I'll invest in them." When the reality is Take Two is NOT a good investment, is BARELY keeping itself afloat and has been knocking on bankruptcy for years, and one game WILL NOT save them if they continue their current practices and the new board doesn't seem capable or willing to make the changes necessary to get a handle on issues that nearly killed them the last couple of years. What they do seem capable of doing is giving themselves and other companies the management is affiliated with huge raises and stock options. I think the company needs something a little more drastic than raises for all their execs. This analyst is just doing his job.

Autolycus
Autolycus

Darkride, the analysts don't run the company and they never will. All they are doing is hurting the values of the people already investing by trying to spew bad news and get them into the "corporate media" bag where everything does well because there is no competition. It's not hard to figure out. If consumers only have 1 choice for a publisher, obviously that publishers value is going to go up. These analysts need to understand, they dont run company XYZ and they never will. They have NO POWER over the company's decission.

jmartin1016
jmartin1016

That stinks. I wonder if they can iron out their undesirables.

Hvac0120
Hvac0120

When is Take-Two going to step in and make themselves look good? Whether this analysis of T2's financial situation was paid for by EA or if this was just an analyst trying to put out a good recommendation doesn't matter. I have no doubt that T2 is in some trouble. T2 needs to be handling their "damage control" right now. They continue to state that EA is under the worth of the company with their offer, but they offer no substantial reason as to why. GTA and Bioshock can not hold an entire publisher up. Gamers need some answers and T2 hasn't been talking. I would at least like to have an idea of who (if anybody) else is in talks with them about a buyout or at least what their actual plans are.

darkride66
darkride66

@ Autolycus. Really? Is that what you think? 'Cause I see an analyst doing his job, reporting on the financial well being and stability of a company so investors can make informed purchasing decisions. If a company is not performing up to expectations, expect analysts to address this fact in their reports and not sugar coat it. The companies themselves are responsible for sugar coating this type of news. Analysts don't make any more money if they have more buy recommendations then sell, they make money when they're right.

Autolycus
Autolycus

yawn, analyst are just pissy they cant recommend EA/TAKE2 as a buy option

Awful_Cleric
Awful_Cleric

companies are always trying to make set lists to upgrade costs and standards. That is what running a multi-million dollar corp. is all about. But this analyst is not looking at the bigger picture, Take-Two made promises that they were going to address key functions of the company while still producing high quality games and just because we take an ascewed view of what they have implemented in the last year does not warrant an attack on this new structure.

mrjasler
mrjasler

haha, awesome post "markharris31" totally agree with you.. what you say is so true

markharris31
markharris31

I find it interesting that this has become about the games. The article, and the analysis, are about the financial state of Take Two. The analyst said nothing about quality of games, whether EA is good or evil, whether Take Two is the Savior born again or just another company taking your money, etc. He gave his analysis of Take Two's financial situation and decided that it is negative. Oddly enough, this jive's with what roughly 98% of the financial industry has to say. Take Two is an unstable, money-bleeding company. From a FINANCIAL perspective they are a terrible investment. As an aside, I think it's a little bit ridiculous that many posters here will totally ignore the numbers and the advice of trained financial analysts just because they think one company that only cares about making money is any better than another company that only cares about making money. Wake up. T2 doesn't care about you, your family, your dog Spot, your house, your car, your hopes and dreams, etc. The company exists to make money, period. Otherwise they would set themselves up as a non-profit organization in order to provide you entertainment.

raverrozza
raverrozza

cyw1988 "I know that EA is mainly interested in the 2k series." not at all. EA even admitted that it is GTA that they were interested in and have praised it many times during the take over. GTA is the cash cow and EA want it. although yes the 2k series would also be an added bonus.

cyw1988
cyw1988

I only have one point to make what would happen to Rockstar after the take over. With Rockstar being a subsidiary of take-two would the takeover give EA the complete control over the GTA series as well?! I know that EA is mainly interested in the 2k series. So far, take-two's 2k games ie nba 2k have been a threat to EA's sports dominance. But as far as I know GTA series has nothing to do with EA's plans... at least for the moment.... sighs in the end we consumers will lose out. Unless the Govt puts price regulations on these combined(money hungry)companies.

karnis
karnis

wait he wants them to sell out they wont damn analysts still don't get it EA is the blob they consume everything and kill it

Destroyeron13
Destroyeron13

melante this analist is obviously biased.... take the delayed games for example: manhunt 2 was delayed for reasons that had nothing to do with its development while the other recent great hit, Bioshock, was perfectly on time but he doesn't mention it. Regarding GTA, when the final quality is like this, a few months delay is very welcome. Take-Two rocks! This member is clearly biased....(multiple periods for emphasis) as they list 1 game that came out on time and says that the delay for GTA IV was perfectly fine. Unfortunately, it was still delayed, thus the new management = fail. As for "The only reason EA wants Take Two is because EA knows Take 2 is their strongest competitor " I see Activision-Blizzard kicking EA's ass moreso than T2.

brain20035
brain20035

If I didn't suspect the fact that EA might have paid out this Wilson guy to say things like this, I would've believed most of what he says.

HKBrad
HKBrad

He's absolutely right, the sports division is going down the tubes. Just look at this year's MLB or NHL. Prizefighter is going to suck hard. And Top Spin 3 is shaping up to be a real tennis sim - except almost nobody wants a real tennis spin. That's about as much fun as a realistic calculus homework sim.

melante
melante

this analist is obviously biased.... take the delayed games for example: manhunt 2 was delayed for reasons that had nothing to do with its development while the other recent great hit, Bioshock, was perfectly on time but he doesn't mention it. Regarding GTA, when the final quality is like this, a few months delay is very welcome. Take-Two rocks!

Ranteal
Ranteal

Pacific Crest Securities analyst Evan Wilson laid into Take-Two management, saying GTA developer Rockstar Games has made them look better than they actually are. Yeah they really suck. They only made the game of the year in 2008. Man, what a bunch losers.Wonder how much EA paid ol Evan to write this article.

senjutsu
senjutsu

yeah yeah, so? I think Rockstar should buy their liberty, they'd be better alone! :D

saintsrowCS
saintsrowCS

TakeTwo has the best sports division in gaming, sadly most people don't know it (or give it a chance) and taketwo really missed a good opportunity to let people know from the people who brought you GTA IV, MLB, NHL, NBA 2K8 etc

valdarez
valdarez

Finally have a Super Hit? Meaning they didn't have a hit before? They have had several successful franchises. Heck, even ESPN NFL 2K5 was a huge hit, but EA killed it with the exclusive license agreement. It would be interesting to see how much of their extra expenses were spent fending off the unwarranted / hostile take over attempt by EA. I'm sure they are throwing a ton of $$$ at lawyers right now. EA may just bleed them dry. I really hope the FTC stops this merger, or if they allow it to go through, forces EA to release all of their exclusive licensing deals so the Take Two guys can spin off another Sports company.

darkride66
darkride66

valdarez said "Please, Take Two has had more than 'one' hit game. It just happens that their biggest hit game is the #1 game in the industry." But that's the problem, isn't it. They have other great titles and bankruptcy has been knocking on their door for years. Now they finally have a super hit, to give them positive earning for once, but what's next? Back to patting each other on the backs about how well their doing while the creditors go back to banging on your door. You can't run a business like this forever. Clearly after the new management's priority hasn't been curbing their out of control spending, as spending is worse than ever and the first thing they did after coming on is give themselves and their buddies millions in raises and stock options. No, if EA or someone else, doesn't ride to the rescue Take Two will not last.

Duke_Bootee
Duke_Bootee

The only reason EA wants Take Two is because EA knows Take 2 is their strongest competitor

Henninger
Henninger

I don't understand y their sports games don't sell. NBA 2K series is far better than any other NBA game out there (NBA Live series, NBA 08), Their MLB 2K series is better than MVP Baseball, their College Hoops 2K series is FAR BETTER than March Madness series, they might not have the NHL 2K series as #1, but they have the best tennis (Top Spin series), & the gameplay 2 their football games r better than Madden & NCAA College Football. Yea this is only opinion but any1 who has played both the EA & Take-Two versions of these games knows that Take-Two is just a better provider of sports games.

coold_steam
coold_steam

if they make a good sport game ppl will buy them and they will get sold but u dont have to blame the sports games

Gammit10
Gammit10

As long as they don't get bought out, I can deal with minor "bad" news.

combatsoldier
combatsoldier

it seems like whenever there is something good happening there is something or some one that always trys to bring it down. its a good company and i dont know why there is all this bashing against one another. they all made tons of money so whats the problem. Bio shock is amazing and duke nukem is as equally amazing.

thepyrethatburn
thepyrethatburn

Y'know, I gotta say....the internet is your friend. I decided a few minutes ago to take a look to see what the truth is behind the claim that's being made of "Rockstar is the only thing propping Take 2 up". I figure, this way, whether I irritate Take 2 fans or anti-Take 2 fans, the truth will be out in this topic.

So what non-Rockstar games has Take 2 been doing?

Deal or no Deal.....Ewww, that's not promising. Duke Nukem Forever.....Okay, that's not really a good sign. Prey: Well, that's better, I guess. Still was hoping for something more... The Darkness: That did okay. I like it but I was still hoping for a big hit. Bioshock: There we go. That's more like it. The Elder Scrolls: Oblivion (and Shivering Isles): Alright! It's not my style of game but you'd be a fool to say that this wasn't a mega-hit. Civilization IV: Whoa! They own one of THE definitive PC game series. I'm impressed.

There are other games but you get the point. So, as you can see, Take 2 is more than "That publisher that Rockstar works with. Yes, Rockstar is a big thing for them and it is true that not every game that Take 2 touches turns to gold but Rockstar is not Take 2's only asset.

As for why EA wants to take them over (since the question keeps coming up), the answer is much the same. It isn't just that they want Rockstar. EA also wants 2K sports out of the picture. Once 2K sports is out of the picture, EA will effectively have a monopoly on the sports franchise. Admittedly, that will mean nothing to me as I don't do sports games but, to other people, that would be a big deal to them.

valdarez
valdarez

@darkride666 - Please, Take Two has had more than 'one' hit game. It just happens that their biggest hit game is the #1 game in the industry. They have Grand Theft Auto, BioShock, the Darkness, NBA 2Kx series, Bully, and several others that weren't necessarily slouches. New management was put in place last year, and while things haven't worked out as planned, they are still tracking towards success. That's the problem with the analysts report, and GameSpot's reporting. The analyst wants to paint a dark picture, and GameSpot appears to only report bad news as it relates to Take Two the company (they report good news about the Games, but not about the company for some reason). From the responses, many gamers not only feel this analyst's report is biased, but that GameSpot is showing bias by posting it on the website. Whether that is truth or not is irrelevant. It's the perception, and as we all know, perception is reality.

yoyoman10
yoyoman10

i hate EA. they are like the plauge

bigboynow0785
bigboynow0785

How bitter does he sound. Every1 is loving the game. Haters trying to ruin the fun, although Take Two Rockstar is acting stupid for a developer pulisher

thepyrethatburn
thepyrethatburn

*Looks at Lindburgh's comments* That's a lot of .....interesting....predictions. However, there are a few problems:

1) While the Japanese make good games, they tend to make them for a Japanese audience. Gaming could lose a lot of people who, say, prefer the Oblivion approach to the Final Fantasy approach for RPGs.

2) If the software market weakens that much, it's going to hit all publishers/developers as hard.

Combine the above two factors with a weakening U.S. economy (and, if the U.S. economy topples, it'll hit the economies of countries around the world as well) and gaming will be hit even harder as people either turn to piracy or simply stop buying.

So, basically, you're hoping/predicting the video game crash of 83 will happen again.

One last thing: So if Sega buys T2, I believe that a collapse will start a trend of Japanese publishers purchasing U.S. publishers. Keep in mind that T2 being owned by Sega is probably a better scenario then EA owning T2, After all, does anyone think that SEGA would milk GTA? No I don't think so, they'd still allow T2 to keep the rights. SEGA is not the company that it used to be. I imagine Sonic fans would have a thing or two to say on how Sega wouldn't "milk" GTA.

khai411
khai411

how will 2ksports make profits when they keep selling their games for less than the competition, even when it's superior

Kashmiro
Kashmiro

I think that Take-Two should try to have a sit down with Activision/Blizzard and see if they can come to terms on some kind a Merger that doesn't hurt either company, leaving them both separate...but making it so the company as a whole is worth over $20 billion becoming way over anything EA could touch.

DeltaSpirit
DeltaSpirit

PLEASE listen to the ANALySTs they know the truth!!! Like the down fall of nintendo because of the Wii

ctg867
ctg867

Ha ha, they used alliteration in their title. How original. Anyway, I think Take-Two would be doing great if they were able to get the various Rockstar divisions working on their respective games (what the hell happened to L.A. Noire?), to get 2K Games pumping out more titles, and to get 2K Sports on a regular cycle for it's games, keep the quality stuff, and forget about crap like All Pro, which I'm sure cost them big time last year.

LindBergh2007
LindBergh2007

To all those who are taling about boycotting EA, I see this happening: If EA continues to bid for Take 2 and then fails completely, then they'll drop thier bid and a Japanese publisher most likely SEGA will begin its official bid in hopes of bringing the GTA publisher to Japan for overseas work, Through a compromise possibly to keep publishing rights, Take 2 will agree to selling off thier stock,investments,assets and Japanese publishing rights to SEGASammy and will also give them back the "2K Sports" franchise for a couple of hundred million dollars possibly about $700 million(70 billion yen) or $400-500 million, while Take 2 keeps its rights to GTA, earnings, and is still allowed to publish it in the west. As for EA, thier failed atempt to obtain Take 2 all else fails and the stock plunges over 400 points in a single day, meanwhile EA's stock continues to weaken as the U.s. software market faces major collapse, in a single quarter despite strong Madden 2009 sales, EA loses over $600 million and faces layoffs,downsiding and runs down the value of it's stock and is forced to sell shares. By the Q1 2009, after a poor holiday season, EA officially files for chapter 9 bankrupcy having lost nearly $2 billion and is sold off possibly to a Japanese publisher probably NamcoBandai,Capcom(the Lord forbid) or Konami. So if Sega buys T2, I believe that a collapse will start a trend of Japanese publishers purchasing U.S. publishers. Keep in mind that T2 being owned by Sega is probably a better scenario then EA owning T2, After all, does anyone think that SEGA would milk GTA? No I don't think so, they'd still allow T2 to keep the rights.

makemeweak
makemeweak

Take Two is a terribly run business with few quality products. It's no wonder they are in shambles. I bet rockstar wishes they were with another publisher - one that can maintain profitability on a quarter to quarter basis.

BlackSnake123
BlackSnake123

Monopoly will ruin everything,and unfortunetly it is happening little by little.Not just in games...

mrjasler
mrjasler

Another FACT is that if this same article was about EA you would be all like, ya EA sucks and this article was definitely not paid for by taketwo! It is called bias that you have, not fact!

mrjasler
mrjasler

There are so many PRO take two articles here that are probably paid by taketwo then? this guy is just giving his opinion based on facts! the FACTS are that 2k Sports is losing money and that is managements fault! the fact that all their games are being delayed is a FACT! he is just telling that management said they were going to do this and that and then failed.

ps3thabest
ps3thabest

Ranteal said Did EA pay for this article? This reeks of Damage control prolly i smell a set up 2 get take-two

Ranteal
Ranteal

Get a grip dude. They're just reporting on the news as is. Nothing more, nothing less. If you really think that dude, than I want what your on. Bet you think there are still WMD's in Iraq too.

Chimpman_Z
Chimpman_Z

Yet another capitalist butthole that doesn't play videogames or care about the quality of gameplay. It's all deadlines and black ink to these paper pushing yuppies. Let Take-Two do their thing already. They won't go belly-up, not as long as Rockstar is a hit factory. Wilson, take a hike, you elitist ****-smocking *****bag.

afrothunda312
afrothunda312

I know nearly everyone hates EA (hey, I'm not a big fan of them, but occasionaly, very occasionaly, they can produce something good, eg Skate) but Take2's management is SERIOUSLY lacking, they are losing alot of money and although EA taking over is not the best thing, it would keep the company and it's games afloat. To be perfectly honest I doubt that EA would even try to meddle with Rockstar seeing as pretty much everytime they release a game its guaranteed revenues. The only real downside is the possible loss of the 2K sports brand (would another company pick up that license?) I don't think this takeover would be as bad as everyone is making out.

NA3D
NA3D

darkside - I am saying the Analyst is getting paid by EA. Not that the company is being bought out under the counter. In the end, if he sways enough holders, then it will have been bought under the counter by getting him to feed the holders bull. Boycotters - remember you can still buy used EA games from places like EB, GameStop, Ebay and so on if you are serious about it, but there are still a few EA games you enjoy. It might take a couple months, but it is at least an option that keeps EA from making profit from you, and you still get to enjoy the games you like to play, even if they are a bit tweaked.