Pachter: Take-Two Heading For Disappointing Quarter

Ahead of Grand Theft Auto publisher parent Take-Two Interactive's Q1 earnings report, which is scheduled for tomorrow, Tuesday March 7th, analyst Michael Pachter of Wedbush Morgan Securities has indicated that he believes the firm is heading for "another weak quarter", arguing for "continued caution" from investors on the company. The results cover the three months up to January 31st, 2006, including the important holiday season. Nonetheless, Pachter and Wedbush Morgan expect the company to report Q1 results in line with its guidance for revenues of $230 - 250 million and a net loss per share. The company's previous results had surprisingly decided not to give any specific financial outlook for the entire 2006 fiscal year, citing a "transitional period for the industry" which makes prediction too difficult. Pachter particularly commented: "We note that NPD U.S. retail video game software sales data for the January quarter implies that Take-Two’s sales are down 40% compared with the prior year quarter... The company has some risk of delivering revenues at the low end of its guidance range, as weak industry sales may require higher than expected reserve additions." Take-Two's 2004 holiday season was particularly strong due to Grand Theft Auto: San Andreas, and with no similar GTA title for consoles in 2005, plus the console transition, it suffered notably compared to previous highs, also losing significant PR face due to multiple GTA-related lawsuits due to the company's 'Hot Coffee' mod issues. Even though the 2K co-published Elder Scrolls: Oblivion and the console versions of GTA: Liberty City Stories may put slightly more of a positive spin on the second fiscal quarter and beyond, Pachter notes: "We think that Take-Two will continue to face a challenging retail environment over the next six months. As we see no positive catalysts over the near term, we recommend that investors stay on the sidelines for the next few months until Take-Two can demonstrate that it can deliver on its guidance." Wedbush Morgan is maintaining its 'hold' rating, and a $15 price target for Take-Two shares, which were trading at $15.25, down around 14c, in mid-market trading on Monday.