Analysts: Take-Two Impresses With Red Dead, But Timeliness Concerns Remain

Take-Two surprised industry onlookers with the blockbuster performance of Rockstar San Diego's Red Dead Redemption, which has already shipped five million units, but analysts from research firms Wedbush and Cowen remain skeptical of the publisher's ability to ship its games when it says it will. Red Dead Redemption's strong opening is particularly significant "because it lessens Take-Two’s dependence on Grand Theft Auto for its overall success," according to Wedbush's Michael Pachter and Edward Woo. That's all the more important because of "the slight disappointment from BioShock 2, which faded quickly after a strong debut," they added. Both Wedbush and Cowen raised their fiscal year financial expectations for the company, but held back from endorsing its stock fully, due to its inability to achieve full-year profitability. Cowen's Doug Creutz and Adam Nelly stressed that Take-Two still has "no clear path to meaningful profitability in non-GTA years." Still, the company is slowly developing its slate of strong intellectual property, and Pachter and Woo expressed confidence in the company's ability to identify unlikely successes. "With the addition of Red Dead Redemption, Take-Two now has nine bona-fide franchises, and has shown the ability to develop hits when others don’t fully recognize a game’s potential," they wrote. "Red Dead Redemption...proved seemingly every industry commentator wrong, and bucked the historical trend of westerns performing poorly." Even the casual Carnival Games "exceeded very modest expectations from outsiders," they added. But even by Take-Two's own admission, the company continues to face problems maintaining timely release schedules. Red Dead was delayed before it was shipped, and while Take-Two says 2K Czech's Mafia II is on track to release this fall, that comes after years of delays. And, most notably, Rockstar Vancouver's Max Payne 3 has now slipped out of this fiscal year. "Take-Two’s main problem continues to be its inability to get titles to market in a timely fashion," wrote Pachter and Woo. "The average Take-Two game takes far longer than the industry average of two years in development, and the company must amortize an additional year or more of development cost for each of its major franchises." "Until Take-Two can provide more certainty around development times and release dates, we will have difficulty recommending the stock," they concluded.