Analysts react to Take-Two results

Industry watchers slash earnings-per-share expectations; stock surges 11 percent anyway.


Grand Theft Auto: Liberty City Stories
Rockstar Games presents Table Tennis

So what is an investor to make of yesterday's Take-Two Interactive (ticker: TTWO) quarterly report, in which the company's revenues and losses both exceed expectations? According to a number of analysts today, not a great deal.

In notes to investors, Friedman Billings Ramsey's Shawn Milne, PiperJaffray's Anthony Gikas, Wedbush Morgan Securities' Michael Pachter, and UBS Investment Research's Michael Wallace all slashed their earnings-per-share (EPS) estimates on the stock. Milne was the most generous with the EPS adjustment, knocking his assessment of the stock's EPS for FY2006 from $.50 down to $.20. At the other end of the spectrum, Wallace scrapped his $.55 projected EPS and now expects a $.19 loss per share for the year.

While Milne and Gikas stood by their 12-month price targets on the stock, Wallace and Pachter had second thoughts about their previously stated targets. Pachter's pessimism was especially pronounced, as he lowered his target to $12, more than $4 lower than the lowest of the other three analysts' expectations.

"We are not optimistic about the prospects for Table Tennis (though we are reminded of our skepticism about THQ's Destroy All Humans), and we expect Bully to be a mediocre title at best," Pachter wrote. "Notwithstanding the company's continuing optimism about its effort to diversify into sports, we think that the experiment is not working."

It wasn't all gloomy for Pachter. He did note that Grand Theft Auto was still chugging along. He estimated that the franchise would account for 25 percent of the company's publishing revenues for the year and noted that "the company controls its own destiny, and is a key announcement away [the next installment of GTA?] from providing a catalyst for rapid share appreciation."

Pachter's fellow analysts were more upbeat. Gikas actually described Take-Twos results as "a slight positive overall." In his own note to investors, Wallace said the company's near-term woes are just another part of the transition between console generations.

"We still expect the next few quarters to be tough for TTWO and the rest of the industry due to transition-related issues, so there is nothing to get excited about near-term. Next year, we do expect TTWO to grow along with other companies in the space, as industry growth accelerates," Wallace wrote.

Interestingly enough, the market reaction to the stock has been quite positive today. After closing at $14.85 before revealing its quarterly results yesterday, Take-Two stock opened the day up slightly and gained more than 11 percent on the day, finishing up $1.66 to $16.51.

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