Pachter 'Not Convinced GTA IV Will Be Take-Two's Panacea'

In his latest notes on Take-Two's recently announced financial results, Wedbush Morgan's Michael Pachter has expressed some skepticism over how bright the future might be for the company, with doubts about GTA IV's impact on the bottom line. "We are not convinced that GTA IV will be the panacea that investors anticipate," said Pachter, noting that while trends following the release of prior volumes in the series have generated operating income in the range of $150 million, Take-Two currently is running at an operating loss of $85 million, expecting GTA's release to bring that back to $114 million. "We find it remarkable that Take-Two management believes that operating income for the last three quarters of FY:08 can grow by $200 million on publishing revenue growth of only $445 million," he said, especially given the marketing and R&D costs for the launch, but he allowed that other yet-announced factors in Take-Two's future could sway the results. "We expect GTA IV to generate revenues of only around $460 million (including downloadable content) in the last three quarters of FY:08, and accordingly, we don’t expect the game to be as profitable this year as in past years," he continued. Part of the reason, Pachter says, is that while each version of GTA has outperformed the last, "the installed base for the Xbox 360 and PS3 as of the end of Take-Two’s fiscal year will be only around 25 – 27 million consoles in its addressable market." "In order for the game to exceed the 9 million units we have modeled during the fiscal year, GTA IV would have to attach at an unprecedented rate," he concluded. "It’s possible, but we believe unlikely." Finally, says Pachter, "New management appears to us to be sincere, but we think it is important to state the obvious: they are new. They have not managed a business like this one in an environment like this, and we don’t see them making tough decisions fast enough to deliver upside to the low end of company guidance." Pachter expressed surprise over the fact that there have as yet been no staff reductions at the company after "the abysmal performance of All-Pro Football, especially after keeping the development team occupied with that game a full two years after competitor Electronic Arts signed an NFL exclusive." "The company intends to grow its staff to facilitate growth of the business," he concluded, "but we don’t see its revenues growing fast enough to offset the considerable losses it continues to generate from its core business."