Take-Two Reports Much Higher Adjusted Income

Posted Dec 18th 2009 9:00AM by Steven Mallas
Filed under: Earnings Reports, Microsoft (MSFT), Sony Corp ADR (SNE), Electronic Arts (ERTS), Activision Inc (ATVI), Technology, Nintendo (NTDOY)

Take-Two Interactive (TTWO), a video game publisher whose competitors include Activision Blizzard (ATVI) and Electronic Arts (ERTS), actually held up well Thursday after the company issued its Q4 report. I was honestly expecting a sell-off after the news. Why? The video game industry just isn't popular these days, so I figured the market would have found some excuse to send the shares packing. To my surprise, Take-Two gained over 1.8% in the regular session and then another 3% in the after-hours following the release.

Revenues increased 6%, but the action was in the per-share profit line. On an adjusted basis, Take-Two brought home 9 cents per share versus 2 cents per share in the fourth quarter of 2008. But I don't think the market cared too much about the data. After all, guidance for Q4 had already been announced near the beginning of the month. At that time, the stock was punished for the bad outlook and the upcoming GAAP loss. And I mean really punished. It lost 30% of its value at one point.

So, the market could be expressing a belief that a bottom may have been put in for the company (I believe it is too early to declare such a line of thinking). However, there is something else receiving attention from the traders: According to Bloomberg, Carl Icahn increased his stake in Take-Two to 11%. This is very notable -- it not only gives one pause about Take-Two's intrinsic value, but it also makes an investor ponder the video game sector as a whole. After all, many stocks in the gaming arena have been hammered. If Icahn believes Take-Two has fallen too far, what about Nintendo (NTDOY) or Activision Blizzard?

It's hard to say, but in the specific case of Take-Two, I would not be a buyer right now. In my mind, there's too much uncertainty about the company's prospects, and the holiday season so far has seen its share of negative headlines regarding entertainment software and consoles from Sony (SNE) and Microsoft (MSFT). I'd keep the stock on a watch list, but that's about it.

Disclosure: I own Activision Blizzard; positions can change without notice.

Tags: activision blizzard, ActivisionBlizzard, ATVI, electronic arts, ElectronicArts, ERTS, inthenews, microsoft, MSFT, nintendo, NTDOY, SNE, Sony, take-two, TTWO, video games, VideoGames