Take-Two Reveals Disappointing Results, 2006 Plans

Rockstar Games, 2K Games, 2K Sports and Global Star parent company Take-Two Interactive Software has announced disappointing preliminary unaudited financial results of $1.2 billion in net sales and diluted net income per share of $0.53 for its fiscal year ended October 31, 2005 and $308 million in net sales and $0.27 in diluted net income per share for its fiscal 2005 fourth quarter. In addition, the company has surprisingly decided not to give any specific financial outlook for the entire next fiscal year, citing a "transitional period for the industry" which makes prediction too difficult. Major game-related announcements related to the release includes the announcement that Grand Theft Auto: Liberty City Stories will be converted to a current generation console system for release in the second fiscal quarter of 2006, from February to April 2006. In addition, Rockstar's Bully for PlayStation 2 and Xbox has been delayed into the second half of fiscal 2006, and other new Rockstar releases include two new titles for the PSP handheld system, including an all-new Grand Theft Auto franchise title, and a "title based on a new brand" for the Xbox 360, as well as a sequel of an existing Rockstar brand. Major 2K Games announcements included Da Vinci Code, Prey, and 24: The Game, all confirmed for fiscal 2006, and The Elder Scrolls IV: Oblivion confirmed as a second quarter fiscal 2006 release. In comments made in the conference call, Take-Two CEO Paul Eibeler commented that the company recognized that their financial performance for the year was "far from satisfactory", but had particular issues due to a number of problems, particularly related to the game hardware transition. However, Eibeler did indiacte that "ultimately [the results of the transition] will be a major plus." Sales of titles for current generation game platforms have not met expectations, and although there was a "high attach rate", the lack of Xbox 360 hardware affected results significantly. Finally, alongside "lower than expected re-orders from retailers", Take-Two is seeing tough comparisons with last year's holiday season, when Grand Theft Auto: San Andreas was a massive boon to the company. In fact, the company revealed that $236 million of last year's sales were specifically related to the Grand Theft Auto franchise. It was notably unexpected that Take-Two did not promptly release full results for the year, but, though the company partially blamed the Sarbanes-Oxley Act for increasing difficulty of filing results, it seems that the lack of timely filing was largely due to an inventory management system change related to Take-Two's Jack Of All Games distribution arm that "didn't go as well as planned". As for the most recent quarter, the company's CFO split out Take-Two's games by revenue, and GTA: Liberty City Stories was the biggest title for the firm, bringing in 12% percent of total revenue, tied with The Warriors, which also brought in 12%, with Civilization IV giving Take-Two 7% of revenue. Other comments made during the conference call included news that the company had reduced its $33 million reserve set up for returning Grand Theft Auto: San Andreas in the wake of the 'Hot Coffee' re-rating controversy, following lower than expected costs. This meant the firm was able to take $8 million of that amount back, and left-over reserves were still at an additional $8 million. In addition, CEO Paul Eibeler made an interesting comment regarding Grand Theft Auto: Liberty City Stories, which has nonetheless been the top-selling PSP games in North America since launch, indicating that PSP hardware sales were "lower than expected", at least according to Take-Two's estimates, in America this holiday season, affecting revenues for GTA: LCS. The question and answer session saw interesting responses from Take-Two executives on price cuts for current generation console games. Eibeler suggested, that: "...as we get into the first half of the year, we will see products being introduced not at the full price - more of a 39 dollar price range", but also noted with regard to the Take-Two Xbox 360 launch titles: "We saw no price resistance at all to the higher $59 price point." In addition, regarding next-generation consoles, Take-Two executives stated on the launch of the PlayStation 3, that: "We believe will occur some time near the end of our fiscal year", allying with recent comments by Electronic Arts executives that the launch would likely take place later in 2006 than many had originally thought, since Take-Two's fiscal year ends on October 31, 2006. In addition, the company mentioned that it expected Nintendo's Revolution "sometime in 2006". To end, Take-Two announced that it is revising its fiscal 2006 first quarter guidance "to reflect the continued retail weakness for video game software during the holiday selling season in both North America and Europe", as well as the movement into the second quarter of Top Spin 2 for the Xbox 360, Nintendo DS and Game Boy Advance and College Hoops 2K6 for the Xbox 360 to provide additional development time. The Company now expects $230 to $250 million in net sales and a net loss per share for the first quarter ending January 31, 2006, and, as earlier discussed, declined to provide estimates for the year.