Take-Two's current fiscal year holds few major game releases, but analysts said investors should look further into the future, when games like BioShock 2, Max Payne 3, and a new Grand Theft Auto hit shelves.
"Despite the execution missteps, we think that Take-Two shares should be valued on next year’s earnings, and believe that solid profits next year and a GTA announcement will trigger outsized share appreciation," wrote Wedbush Morgan analyst Michael Pachter in a research note this week. He expects Take-Two to release Max Payne 3, Mafia 2, Red Dead Redemption, BioShock 2, and The Agent in fiscal 2010, which begins in November 2009.
On Tuesday, Take-Two reported a $55.5 million loss on fiscal Q3 sales of $139 million, down year-on-year from $434 million. Take-Two released Grand Theft Auto IV last year, making for a tough comparison. The publisher expects to generate $975 million to $1 billion in revenues for the current fiscal year.
"We were mildly surprised that none of the company’s previously announced 'big games' -- Mafia 2, Max Payne 3, BioShock 2 or Red Dead Redemption -- will be ready for the holiday period. We had expected a several month delay for BioShock 2, but had expected one or more of the other three games to launch before the holidays," Pachter added.
Nevertheless, with major games coming out next fiscal year, he anticipates a "grand" fiscal 2010. Take-Two could also benefit from avoiding the crush of crowded holiday period when major titles compete at retail.
Pachter said, "As a practical matter, the holiday period is extremely crowded, with games like Call of Duty Modern Warfare 2, Beatles Rock Band, Assassin’s Creed 2, Halo ODST, Uncharted 2, Dragon Age and even Brutal Legend competing for scarce consumer dollars.
He continued, "The company committed to launching these titles in the first half of calendar 2010 (but after January 31), allowing some breathing room to determine the appropriate window for each."
The big question mark is when the next full-fledged GTA is coming out. Take-Two management would not comment, but Pachter said he would expect GTA 5 to arrive by holiday 2010. Take-Two and Rockstar are working towards releasing a second GTA IV add-on on Xbox Live, The Ballad of Gay Tony. That add-on and the previous download, The Lost and Damned, will hit retail together as a standalone package that doesn't require a copy of GTA IV.
Analyst Mike Hickey with Janco Partners was also optimistic about Take-Two's future, despite the company's recent lack of big releases. Hickey said in fiscal 2010, he expects BioShock 2, Max Payne 3, Mafia 2, and Red Dead Redemption to ship 9 million units combined.
Hickey also expects a new full-scale GTA to arrive in fiscal 2011, along with a new Midnight Club, L.A. Noire, Agent, a Ken Levine-helmed project, and a new Sid Meier project. He projected shipments of 19 million for these games.
He said the production of such high-profile games could once again make Take-Two an acquisition target. Last year, rival Electronic Arts made a failed bid to buy the company. "We continue to believe the company could be an appealing asset for an acquirer, particularly given the mega franchise centric nature of current market demand and retailer initial buys; in addition to the incredible game development talent and the potential online functionality of many of their games," Hickey wrote.
Aside from major game releases, Hickey speculated that the release of mass market-friendly motion controllers, such as the upcoming Sony "wand" controller or Microsoft's Project Natal, could help Take-Two expand its market.