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| Friday, June 09, 2006 |
Take-Two Shares Tumble After 2nd-Quarter Results Disappoint Investors
NEW YORK -- Shares of Take-Two Interactive Software Inc. tumbled Friday, a day after the video game maker best known for the popular and bloody Grand Theft Auto series, posted a second-quarter loss far wider than Wall Street had expected.
For the quarter ended April 30, the company posted a loss of $50.4 million, or 71 cents per share, including accounting charges of 24 cents per share. Even without the charges, the results were far below the loss of 11 cents per share analysts polled by Thomson Financial were expecting.
The quarter's product mix weighed heavily toward lower-margin license titles in the company's publishing business, hurting results despite a 20 percent increase in sales, to $265.1 million. Software development costs were also higher than a year ago.
"Since the company does not give guidance, it's not fair to call this a 'miss', but the big losses despite a decent revenue number are troubling," wrote UBS analyst Michael P. Wallace in a note to clients.
Take-Two said lackluster retail sales in the video game sector, as well as declining prices, contributed to the quarter's weak results. The industry has seen a slump in recent months, as players await the release of Sony Corp.'s PlayStation 3, set for November, to buy new games. Nintendo is to announce the release date of its new console, Wii, in September.
Chief Financial Officer Karl Winters said during the company's conference call that, given its short-term uncertainty, Take-Two no longer has the visibility to give detailed guidance.
The company doesn't expect to return to profitability until the fourth quarter. Paul Eibeler, chief executive, said Take-Two is "taking a small break" from issuing guidance while business factors and conditions normalize.
Wallace, who rates Take-Two "Neutral," called the quarter's adjusted loss of 47 cents per share "disconcerting." The adjusted results exclude charges from game development write-offs for titles the company eliminated, as well as studio closures.
He added that the quarter's heavy losses came despite a top-selling game, "Elder Scrolls," and Take-Two's third-party exclusive rights for a baseball game. The company "paid a lot of money for the third-party exclusive, but got beaten to the market by Sony and has been outsold by them on the PlayStation 2," Wallace wrote.
Citigroup analyst Elizabeth Osur now expects the company to post a loss for the year instead of a profit and recommended that investors shed the stock. She downgraded Take-Two to "Sell" from "Hold," as the company's diversification strategies like sports have not yet proven profitable.
"Without guidance from management regarding the breadth of the release slate next year and even potentially incomplete data for this year, we find it difficult to forecast earnings for the coming years," she wrote in a note to clients.
She forecast a 2006 loss of $1.24 per share before stock options costs compared with a prior profit forecast of 14 cents per share. For 2007, the analyst now expects earnings of 81 cents per share, down from the prior projection of $1 per share.
Consensus estimates, which reflect stock options costs, are for break-even earnings in fiscal 2006 and earnings of 77 cents per share in 2007, according to Thomson Financial.
Shares plunged $2.94, or nearly 18 percent, to close at $13.83 on the Nasdaq Stock Market, skirting the 52-week low of $13.64, set in January. The stock traded at a 52-week high of $29.60 in June 2005.
Also on Thursday, Take-Two agreed to settle Federal Trade Commission charges for failing to disclose that animated sex scenes were hidden in its "Grand Theft Auto: San Andreas," game.
Under the deal, Take-Two and its Rockstar Games subsidiary, which developed the game, must notify customers of any hidden sexual content on future games, and represent rating or content descriptions accurately. The company received no penalties, but faces fines up to $11,000 per violation if it breaks the order.
The game is now rated "AO," or "Adults Only," after the Entertainment Software Rating Board, an industry body, changed it from "M," or "Mature" last year after a Dutch programmer unlocked the hidden sex content.
The company has since released a new version of "San Andreas" without the hidden content. |
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