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Take-Two Interactive (NASDAQ: TTWO) is riding high on its Grand Theft Auto IV title. The popular game (big understatement) helped push the top-line during the third quarter to a better than 100% gain, coming in at $433 million. As for the bottom line, forget about it -- that was blown out of the water. On an adjusted basis, net income was 93 cents per share versus a loss of $0.62 in the year-ago period.
According to Briefing.com, this simply was far more than any analyst anticipated. The bottom line bested estimates by 39 cents! Most shareholders probably anticipated Take-Two going beyond Wall Street's expectations, but I'm not sure they thought that the publisher could pull such an order of magnitude off. Nevertheless, management believes that next quarter might not be as hot as first anticipated due to some timing issues. So they guided lower for Q4. This might explain, in part, the lack of excitement surrounding the stock at the close of the after-hours session on Thursday. The stock ended up with a 0.5% gain in price.
However, all is not lost. While Take-Two thinks Q4 might not be the best thing since sliced bread, it is confident that it will be able to go beyond the original outlook for the fiscal year. Take-Two says it will deliver between $2.08 and $2.12 in adjusted earnings per share for the year. Wall Street was counting on $1.81 per share for the fiscal year. With the stock trading around the $23 mark, this would imply that the shares could be cheap.
But one has to remember that Take-Two's fortunes are tied to strategic alternatives. Electronic Arts (NASDAQ: ERTS) may or may not eventually buy the company. That whole drama has become one frustrating corporate dance, a sordid tale of due diligence and expired tender offers. Really, Take-Two has become a trading vehicle for arbitrageurs, and it's anybody's guess as to when the whole scenario will resolve itself and offer up a definitive conclusion.
EA wants Take-Two. Grand Theft Auto IV has sold ten over million discs since it was released, and while that is certainly the top bullet point in terms of Take-Two's attractiveness, I'm sure EA isn't overlooking other prime intellectual properties such as BioShock and Carnival Games (yes, Carnival Games, it's a whole lot of fun, actually). Take-Two is in a strong position.
If the publisher remains a standalone entity, it will do well this holiday season. Keep in mind that Microsoft (NASDAQ: MSFT) recently announced a really interesting price cut. That's going to get a lot of Xbox 360's into households, and thus more opportunities for Take-Two to move its cool software off retail shelves. However, I am going to remain consistent and state that I have no interest in Take-Two as a trading vehicle. Again, this has become a game of arbitrage, and individual investors should see no need in playing it. Take-Two had a great quarter, but I remain a satisfied shareholder of Activision Blizzard (NASDAQ: ATVI).
I own Activision Blizzard; positions can change at any time.
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