Analyst: GTA Overdependence Still Affecting Take-Two

A research note published by Arvind Bhatia at analyst firm Sterne Agee has debuted ahead of Take-Two's Thursday earnings call, suggesting that "overdependence on the Grand Theft Auto franchise" is still hurting the company notably. Take-Two, which includes the Rockstar, 2K Games, Global Star and Jack Of All Games divisions, will be reporting its Q2 2006 earnings for the period ending April 30 on Thursday, June 8, 2006 after market close. The company reported a $29.1 million loss for its Q1 2006 results, and expects to return to profitability only in its fourth quarter of fiscal 2006. Bhatia noted that his firm maintains its sell rating on shares of Take-Two, and a price target of $12.50 to $14.00 per share, due to three reasons: "overdependence on the GTA franchise", what he described as "management’s inconsistent track record of meeting guidance", and most interestingly: "a deteriorating balance sheet, including aggressive accounting for capitalized software", something that has troubled the company in the past. In SEC filings originally published in March, Take-Two itself noted the GTA reliance issue, commenting: "For the years ended October 31, 2005 and October 31, 2004, our ten best selling titles accounted for approximately 48.2% and 46.3%, respectively, of our revenues, with Grand Theft Auto products accounting for 38.2% and 34.3%, respectively of such revenues for these periods. If we fail to continue to develop and sell new commercially successful “hit” titles or experience any delays in product releases or disruptions following the commercial release of our “hit” titles, our revenues and profits may decrease substantially and we may incur losses." Nonetheless, it's not all bad news for Take-Two - Sterne Agee raised its previous revenue and earnings estimates on Take-Two for the quarter by $30 million and $0.05, respectively, to $259 million and a loss per share of $0.03, thanks to "the better-than-expected performance of [Oblivion]: Elder Scrolls", which is co-published by 2K Games alongside Bethesda, and has been a significant seller for the company since its release.