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Take-Two (TTWO) Takes Two Steps Back

Posted on Sunday, Aug 5th 2007

By Frank Lara, Guest Author

What happens when you delay your flagship product and you exist in the cut throat gaming sector? How about a 22% drop in your company stock and plenty of time to beat yourself up questioning – what went wrong?

Take-Two Interactive Software Inc. (NASDAQ:TTWO) finished the week down 26% when you add in Friday’s after-hours activity. This week Take-Two announced it would not deliver “Grand Theft Auto IV” in time for the 2007 Holiday shopping season, and warned it would post a full-year loss, before one-time items.

Grand Theft Auto or GTA is the life blood of Take-Two’s revenue and everything else under the sun. Those who follow Take-Two know that the company has weathered just about every storm Wall Street can throw out you – bad management, ‘hot coffee’, stock back dating scandals, etc. You name it, I’m sure Take-Two has dealt with it and now that their stock is just $3 from a new 52-week low, I would expect the downgrades come in next week.

However bad news for Take-Two meant good news for other game makers that don’t have to compete with GTA this year. Shares of Activision (ATVI) picked up more than 5% in morning trading Friday, they are the guys that are behind the successful Guitar Hero series. Electronic Arts (ERTS) was trading up less than 1% as well and it’s good news for their latest “Medal of Honor” release, slated for the fall. Sramana has been talking with John Welch, CEO of Playfirst, and to get a taste of their take on the sector, read Building the Electronic Arts of Casual Gaming.

So what can you expect from Take-Two now that they expect to post a loss of 20 cents to 25 cents a share, with revenue in a range of $275 million to $300 million during the fourth quarter?

Not much until GTA IV finally hits the shelves at every retailer in the country. They have some decent titles slated for delivery such as BioShock, Major League Baseball 2K7, and Manhunt2. If management can hold it together and get some games released that don’t upset parents and actually make them some money, they should be able to turn Take-Two around — but it’s going to take at least 9 months.

Future TTWO investors, it’s going to get worse, before it gets better and it’s all dependent upon Grand Theft Auto.

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