Analysts split on Take-Two guidance

Pacific Crest's Evan Wilson believes BioShock bolstering publisher until GTAIV arrival, while Wedbush Morgan's Michael Pachter is skeptical of Rockstar's expectations.

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Yesterday, Take-Two Interactive reported better-than-expected revenues for its fourth fiscal quarter. For the quarter ended October 31, the publisher posted $292.6 million in net revenue, with net losses trimmed to of $7.1 million. The publisher also revealed its first-quarter guidance for fiscal year '08, projecting net revenues to fall between $175 million and $225 million. While the results were better than many industry watchers anticipated, they still fell far short of Take-Two's initial assessment of the quarter, when Rockstar Games' Grand Theft Auto IV was still on the table for October 16.

Pacific Crest Securities analyst Evan Wilson noted the publisher's Q4 results were significant, primarily due to GTA's absence. "Q4 was the first quarter that Take-Two has produced [an operating] profit without significant GTA revenue," said Wilson in an industry note to investors. "This may give investors confidence that [Take-Two's] restructuring is tangible and producing increased profitability, although the release of BioShock is the primary reason for the improvement, in our estimation."

Speculating on further signs of profitability, Wilson referenced the recently released trailer for 3D Realms Duke Nukem Forever, saying, "While the game does not appear to be close to completion, the trailer may promote rumors that the game will actually be released after 10 years in development." Wilson recently upgraded the publisher's stock, believing Take-Two's growth will outperform the gaming industry as a whole in the coming 12 months on the strength of GTAIV.

While Wilson believes Take-Two will ride GTAIV to a complete turnaround for the lawsuit-beset publisher, Wedbush Morgan Securities analyst Michael Pachter had a far more critical assessment of Take-Two's future. Speaking bluntly, Pachter cast a shadow on the expectations of Take-Two's highly coveted ace. "We are not convinced that GTA IV will be the panacea that investors anticipate," he said.

While Pachter believes GTAIV will sell 9 million units, as well as garner an additional 2.5 million downloads in bonus content for the Xbox 360 version, he isn't ready to buy into Take-Two's assessment of the game's impact on the publisher's bottom line. "While we expect the game to perform quite well, we think that the implied profit forecast is barely credible," he said. According to Pachter, management guidance indicates publishing revenues of around $975 million in Q2 to Q4 of Take-Two's fiscal 2008. "We find it remarkable that Take-Two management believes that operating income for the last three quarters of FY:08 can grow by $200 million on publishing revenue growth of only $445 million," he commented.

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