Take-Two shares lose 30%, analysts react

GTA publisher's stock price down nearly one-third in less than a day, Pacific Crest's Wilson says confidence in management "can not get any lower."

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After the close of trading Thursday, Take-Two Interactive delayed Max Payne 3 by a few months and gave investors a grim outlook on its current fiscal year. The effect in after-hours trading was immediate, as shares in the publisher lost 21 percent of their value in a matter of minutes. That was just the beginning, as shares of Take-Two have continued sliding, down $3.34 (31 percent) at press time from yesterday's closing price of $10.92.

"Perhaps next year, things will be different."

One difference between last night's trading and this morning's is that a handful of industry analysts have now weighed in with their reactions to Take-Two's negative announcements. While the response was mixed, some industry watchers didn't bother mincing words.

Saying his confidence in Take-Two management "can not get any lower," Pacific Crest Securities Evan Wilson blasted the publisher's leadership for the 14th and 15th game delays since it took over in mid-2007 and for failing to make the company profitable without relying on Grand Theft Auto.

"We believe there are better ways to invest in video games via names that are not inextricably tied to a single franchise with a management team that has not established an investable track record," Wilson wrote.

Wilson acknowledged that delaying a game to make it better can be a preferable alternative to releasing an unfinished game on time but said if delays happen "to nearly every game released, structural problems likely exist at the company. Take-Two seems to remind investors every quarter that it falls into this category."

Janco Partners' Mike Hickey was similarly disappointed in Take-Two's announcement, retracting his previous "Buy" rating on the stock and placing it under review. He also expressed frustration at the publisher's reluctance to detail development expenses or reveal how many copies games would need to sell to achieve profitability.

"We are astonished at the level of disconnect between street expectations and management's guidance," Hickey said, "suggesting a profound misunderstanding of the company's profitability potential. Management credibility has been meaningfully compromised, in our view; although ultimate performance is product-centric, we remain alarmed provided the lack of clarity."

Not all analysts were so down on the company. Wedbush Morgan Securities' Michael Pachter maintained his "Neutral" rating on the stock but saw a variety of factors the publisher could have working in its favor.

"With no profitability in sight, investors may again conclude that Take-Two is a 'one-hit wonder' with GTA and little else," Pachter said. "We disagree and think that the company has at least eight bona fide franchises, with the potential for 10 or 12. We perceive the problem to be an overly ambitious development schedule, with high expectations and high quality standards leading to inevitable delays."

He also expressed frustration with Take-Two's reluctance to detail its future plans for Grand Theft Auto but said the company could still succeed even with one new installment every three years. If Take-Two generated $3 earnings per share in years when proper Grand Theft Auto installments came out, Pachter said the publisher could easily weather off-years with $0.50 losses per share and still grow the business. (Take-Two's expectations for fiscal 2010 are between $0.40 and $0.60 losses per share.)

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