Take Two - time to buy?

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SaveTHQ
I mostly agree with your

I mostly agree with your analysis, but I think Max Payne 3 sales will be decent on the long run because of the multi-player, so the sales can be comparable to LA Noire (or a little below). Releasing it vs Diablo 3 was stupid even if it's ATVI that decided it.

I've been saying it for a while but Borderlands 2 >> Max Payne 3. As a share-holder of TTWO, I am very disappointed they put that much effort in Max Payne 3. Don't get me wrong, Max Payne 3 is good. But the butter of TTWO is GTA 5. That makes more than 4 years that GTA IV was released.

Zelnick told us that we expect to have a 2$ EPS. It is not doable without GTA 5 with reasonable expectations. I still believe GTA V will be announced for October or December, but seeing the price action, I'm beginning to have doubts.

Worst case scenario GTA V is gonna be out in a year, so at this price, I have no choice but to hold. Also the fact that the MLB contract is now gone is really great (It was about a 0.30$ EPS drag every year)

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darrens
darrens's picture
While I think it is too early

While I think it is too early to draw any conclusions on Max Payne 3, the fact that it is now just about out of the top 20 in the US Amazon chart makes it reasonable to assume that (the US at least) hasn't been won over. It's doing better in Europe (according to Amazon) but it only came out Friday so we'll have to see if it falls down the charts like the US in a few days time.

So, I don't think it's too early to say that Max Payne isn't going to be any RDR, and may struggle to be a LA Noire. To put that into context:
o it's pretty much in-line with what you've been saying all along
o it's a disappointment to me who thought that stellar reviews and word of mouth would make this a 4m seller
o it's massively below what some of the analysts have been saying - they expect about 5m+ units of Max Payne 3 and are still bearish on Take Two.

Does this explain the slide in the share price? Not sure.

Does this justify the slide in the share price? For me, definitely not. I don't think Max is going to be a disaster (2m+ at least) but this year isn't Max Payne 3 plus NBA2K (like previous year). At the very least there Borderlands 2 (which is looking like a 4m+ seller), Bioshock Infinite (definite 2m+ seller) and er, probably, GTAV.

And I think it's the last bit of that which is probably the only thing which can justify the slide in the share price. As savethq says, if GTAV gets delayed into the next financial year then it would mean a) they almost certainly will reduce forecasts and b) they may well have missed the boat in terms of maximising GTAV revenue. A GTAV in mid/late 2013 could be launching into a landscape where the 360 and PS3 are dying and dead.

I genuinely don't think anybody knows anything (i.e. no leaks) but I think Max just adds to the eurozone, packaged goods poor sentiment woes rather than being the reason for the dramatic slide.

tsanalysis
tsanalysis's picture
I don't think it is too early

I don't think it is too early. With these types of titles aiming to survive as premium console experiences the outcomes are becoming increasingly binary (at least in terms of the effects on their publishers) - either a break-out hit which generates significant sales at full price and enjoys long-tail sales at close to full price or a title which sells OK for a week to the increasingly dwindling hardcore niche and then requires significant discounting to move the rest.

Honestly my whole view on Take Two is on the verge of a major shift. The original investment thesis was basically that TTWO now had enough franchises that they could put out hits more frequently leading to consistent earnings growth, perhaps even $2+ EPS for two consecutive years.

However that was based on the 360, PS3 user bases remaining active over the span of those releases. With what I am seeing now I am beginning to seriously question that, and I am not convinced that the next generation of consoles will make up the difference. If that ends up being the case it seems increasingly likely we are back to the situation with one good year of profits when GTA V releases and then disappointment when almost everything else fails to live up to expectations. If my conviction grows that this is the case I may still go long before GTA V's release, but another option that only recently entered my mind is going short if TTWO rises significantly due to GTA V.

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darrens
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I'm not quite sure that

I'm not quite sure that anything has changed with regards to your first paragraph. Just about everything that has released this year has been a little bit mediocre: Prototype 2, Darkness 2, RE: Operation Raccoon City, UFC3 have all done badly to a greater or lesser extent but I think that may have been true any year.

Mass Effect 3 is the only real triple-A and that did, kind of, okay. It wasn't breakout but it wasn't a disaster. Probably sold around 3m-4m before any heavy discounting. I think if it has been released last year, or the year before, it would have sold quite a bit more so I am agreeing with the overall shift but I don't think things have got more binary. I just think everything is selling less.

Back to Take Two. They are probably one of the purest "traditional" video game plays. They're not really into casual, not into mobile, not into social, not into very much apart from the core gaming experience and there's no doubt that is under attack. So, I have some sympathies for your overall shift in position about Take Two.

However, while I buy the qualitative argument, I'm still not sure about the quantitative argument. Selling 4m Borderlands 2 rather than 5m Borderlands 2 may still be a far better business model than the alternatives (social, mobile, casual, etc) and having Max, Borderlands, Bioshock, NBA 2K (and GTAV?) all within 12 months of each other makes Take Two a far more attractive proposition than when it was one of those plus NBA2K.

That's why I think it's a bit early to say. We don't know what Max is going to achieve, and we don't know whether or not there's still enough of an appetite for triple-A games to drive profitability for publishers like Take Two. We know it's going to be "worse", but not how much worse.

On Take Two's track record they'll probably say nothing of note in the earnings and still leave everybody guessing or else lower guidance. The flip side would be to actually announce a GTAV release date but I don't think they've ever done that during an earnings release and I wouldn't expect it now either.

Perhaps that's why the share price has been so weak coming in to earnings. The balance of probabilities is that they'll say something to disappoint rather than delight.

tsanalysis
tsanalysis's picture
Fair enough. My argument is

Fair enough. My argument is more qualitative than quantitative at this point. My feeling was based mainly on my thoughts that Mass Effect 3 sales were kind of disappointing for such a highly rated, trilogy concluding game with EA's muscle behind it; my belief that Max Payne 3 sales are shaping up to be disappointing for a highly rated Rockstar game; and my thoughts that Ghost Recon Future Soldier appears to be following a similar disappointing trajectory to Max Payne 3. Those are the three highest profile console releases from the first half of the year, each from a top tier publisher, each highly rated or likely to be, and sales shaping up to be disappointing.

Ubisoft said break-even for Future Solider is around 2.5-3 million units, depending on how much had already been expensed instead of capitalized. I am guessing that for a high profile title from Rockstar like Max Payne 3 break-even could be around 4 million units. With those kinds of sales needed for break-even it doesn't look like Max Payne 3 is on a trajectory to add significantly to Take Two's bottom line. Depending on how it sells it could potentially be a drag on earnings. Perhaps part of what has been driving TTWO lower lately is the fear that slow Max Payne 3 sales may result in TTWO reporting a loss for the June quarter instead of the expected $0.14/share profit.

Although Take Two will be releasing more titles within 12 months than they have in the past, they will also have to record more capitalized costs. If each title they released in a 12 month span sold 4 million units but each had a break-even level of 4 million units, then that's great for the top line, not so much for the bottom line.

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darrens
darrens's picture
The 14c is something the

The 14c is something the analysts dreamed up so it's hard to know whether or not that's something Take Two have been forecasting. Given the very long time in development I never thought of Max as one of the big profit drivers, I thought of it more as (re-)establishing the franchise and providing a foundation for DLC and games to come.

Whether it's achieved that, I don't know.

And I also don't know how much the appetite for the blockbuster games has waned. It clearly has, I'm just not ready to draw any conclusions just yet as to the impact.

darrens
darrens's picture
Max Payne 3 beats Diablo 3 in

Max Payne 3 beats Diablo 3 in the UK charts. Of course, Diablo 3 will have been downloaded quite a lot so, given that it was only 8k units behind Max I'm sure Diablo 3 would have outsold it if you'd factored that in. Diablo 3 did have 6 days sales against Max 3 day sales.

Numbers aren't available but:
o it outsold Max Payne 2's 2003 launch 10:1.
o it didn't match Mass Effect 3 launch week

tsanalysis
tsanalysis's picture
XCOM announced for October

XCOM announced for October 9th. Does that lessen the chance of GTA V releasing this holiday? It would seem kind of crowded to have Borderlands 2 on Sept 19th, NBA 2k13 on Oct 2nd, XCOM on October 9th, and GTA V shortly after that, but I guess it is still possible. In particular with Borderlands 2 showing break-out potential, it doesn't seem like TTWO would want to kill that momentum by releasing GTA V shortly after.

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darrens
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I think it lessens the

I think it lessens the possibility but doesn't kill it. It wouldn't be outrageous for them to release GTAV early November (the week before COD?) or else end of March. It gives the (big) titles a clear 6-7 weeks of sales and it's hopefully going to be hard for them to find a window where there's no other game of their within that kind of time frame.

Let's see what they say later (if anything) and try and read between the lines.

darrens
darrens's picture
Having had a little bit of

Having had a little bit of time to think about the results I have to say that, despite an obvious relief that they haven't lowered forecasts, Take Two continue to make themselves very hard to love. Specifically:

1. A 60 to 75c loss in Q1 despite Max selling in 3m units. That seems a hefty loss and, compared to last quarter where they made 2c a share on a 4m units LA Noire sell in, it does seem an very high loss even allowing for the extraordinary loss of 18c/share. The 3m unit Max sell in is for the initial launch so it may get to nearer 3.5 to 4m units for Q1. Are they guiding very low or is something else going on?

2. The mysterious 18c/share one-time loss is unexplained and they say subject to a confidentiality agreement. I find it unacceptable from a corporate governance point of view that they have a material expense that they can't disclose to their shareholders.

3. Their stock based compensation for the current fiscal year is forecast to be 50c/share. That is a massive chunk of the 2.00-2.25/share forecast earnings and just gets me almost spitting mad. I haven't contrasted this with the other publishers but my initial reaction is that is far too heavy a cost for shareholders to bear. Looking at the 2012 financial year I see that out of the $108m GAAP loss, $33m of that is stock based compensation. Or to put it another way, they lost $75m and paid themselves $33m in stock as a bonus.

GGGGgggrrrrrr.

queeny2
TTWO hard to love

Darren, we've had that particular conversation ever since I've known you? I can't remember the price they turned down from ERTS, can you remind me?

darrens
darrens's picture
$26/share they turned down.

$26/share they turned down. However, they've diluted so much since then (because they keep awarding themselves shares) that iirc the equivalent is something like $20 today.

Like Chelsea, they are very hard to love.

clavranos
GTA5 this year release?

Hey all,

First time poster, so thanks for having me.

I thought I'd chime in with my thoughts on competing against Xcom Enemy unknown. That game will be geared towards the strategy/turn based pc crowd - I doubt very much TTWO will worry about cannibalizing its sales with a GTA5 release in the same quarter. I'd say they're more concerned about the impact GTA5 would have against Bioshock next year. I'm gonna take a leap and say that GTA will see its release for the christmas season 2012.

clavranos
GTA5 this year release?

What I'm having a hard time figuring out is where to pin my "get out" price of TTWO.I'd say looking at historical prices and forecast sales of GTA5 at around 14 million units (high by my guess) - I'd be well and truly happy selling at the $16 - $18 mark.

darrens
darrens's picture
Hi, Clavranos and welcome.

Hi, Clavranos and welcome.

I remember when Red Dead Redemption was really selling like hotcakces somebody used the phrase "sucked all the oxygen out of the industry" to describe the fact that all the titles, in whatever genre, that were around at the same time died as all the gaming dollars went to that.

If GTAV went up against Xcom then the only people buying xcom would be the coders' parents. I know they're different genres but the huge games (like GTA) just obliterate everything else apart from equally huge games (e.g. Assassin's Creed seems to be able to live next to Call of Duty).

Looking at the release schedule as we currently know it then I think they'd want to give their own titles a month or so which would mean either mid-November (in time for Thanksgiving in the US) or end of March (which enables them to massage the money between two financial years).

I guess it may come down to "when it's finished", i.e. it may not be ready for a Christmas release but I'd be torn between the two. In terms of maximising revenue then I think holiday 2012 is the winner. But in terms of smoothing revenues there is an argument that end of March gives them some financial flexibility.

Personally I don't pin "get out" prices because things may change when you get there. When it looks too expensive I tend to sell which may be lower or higher than what I bargained for. At the moment Take Two are too cheap but I'm having a hard time swallowing the size of the Q1 loss. I really thought that Take Two had got enough ip that they wouldn't be the "only profitable in a GTA year" company that they were. I could have swallowed a small loss because they've had to invest a lot in the Max ip to try and re-establish the franchise but a 60-75c eps loss for Q1 makes me slightly cooler to Take Two than I was.

We won't be seeing $26 again in the foreseeable future but I can imagine it getting to $20 IF the banking system doesn't collapse and IF the video game industry doesn't disappear :)

tsanalysis
tsanalysis's picture
Hi Clavranos.

Hi Clavranos.

I like to have exit strategies in mind before I buy a stock. Usually that is a set of catalysts or conditions which either play out like I expect them to or which do not. I also like to have a target price in mind when I buy a stock based on the information available to me at that time.

I think your $16-$18 price target is reasonable. This is how I arrive at that price target. I think you have to value TTWO on something like a 4 year average of past/future earnings (I chose 4 years because that seems to be roughly the cycle TTWO is on between peak earning years). So even if you think TTWO will earn $2/share for two consecutive years in the year they release GTA V and the year after, and then earn $1/share the next two years, that averages $1.5/share over those 4 years. I think TTWO deserves a PE ratio of around 10 because among the major US publishers they are the least aggressively pursuing mobile, social, free-to-play, etc. So slap that 10x multiple on $1.5/share average earnings and I arrive at around $15 price target.

If it were a different environment, one where overall sentiment towards the traditional console market were not so negative, then I might think that hype about GTAV could drive TTWO to a much higher multiple. But honestly I think big releases are now viewed more as opportunities for companies to fail and shorts to pounce on the stocks than opportunities for companies to succeed and surpass expectations. So that is another reason I think TTWO will only command a PE ratio around 10.

$15-$16 would still provide a nice return from current levels - around 50%, so definitely nothing to sneeze at. I am just opting for more clarity and security before going long and perhaps getting greedy as well. The lower TTWO goes the higher return I can make if it does reach that $15-$16 price target. Of course I will update that target as time goes by. If evidence mounts that TTWO can remain solidly profitable in off years, perhaps if some of their Asian MMOs take off or whatever, I will re-evaluate. But that is how I see it now.

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tsanalysis
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I will repeat the question

I will repeat the question asked in the very first post in this thread. Time to buy?

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darrens
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I was pretty close to buying

I was pretty close to buying some Take Two towards the end of the day but held off. Volumes haven't been all that high, the yahoo boards is full of bashers and I'm fairly confident that any worries about GTAV being delayed to the following financial year are unfounded.

However, its NPD tomorrow and it will be bad. It's also the first chance to see how well Max has been doing. Last year saw LA Noire do 900k and I'm expecting Max to do around 675k (based on a 3m ship in versus LA Noire 4m ship in). However, given some of the crazy analyst predictions I'm a bit wary of how the stock may react to not achieving the stupid targets that have been talked about. It seems that if the analysts give a stupid prediction, companies still get penalised rather than the analysts getting criticised.

It's also difficult to see Take Two rebounding hard. I can't see sentiment changing that quickly with what is happening in the world and in the video game industry and if Take Two does change direction it will be more oil-tanker than bounce imho.

Wish I hadn't bought so many higher up but relieved that I held back from going in deep.

clavranos
Went Long

At the last trade of 10.19 - I dove in deeper with TTWO. At a 52 week low; with GTA5 and a new bioshock on the horizon, at a positive EPS I remain confident in the stock's ability to break the $16 mark.

darrens
darrens's picture
Another big down day from

Another big down day from Take Two, worse than peers (except for COOL which was downgraded) and on hefty volume.

I can only guess it's in anticipation of weak NPD data and/or a big holder dumping.

To be honest, I never thought it would get down to these levels without something extraordinary happening and I can't actually see very much to justify it. Let's see what NPD brings.

tsanalysis
tsanalysis's picture
May 2010: Red Dead Redemption

May 2010: Red Dead Redemption - 1.5 million
May 2011: LA Noire - 900,000
May 2012: Max Payne 3 - less than 450,000

Ouch! Max Payne 3 less than half of LA Noire?! I don't think that can be called anything but a flop. If I had gone just by gut instinct I probably would have guessed that Max 3 would have sold about on par with LA Noire. Score one for Amazon rankings and Google Insights.

Next flop: Spec Ops The Line. At this point I think it is guilty until proven innocent, even for Borderlands 2, Bioshock Infinite, and even GTA V (relative to expectations).

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darrens
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Worse than I expected and I

Worse than I expected and I now understand why Take Two had such a big forecast for their Q1 loss. The only real debating point is whether it was because of Max or because of the industry. The former is bad but the latter could be catastrophic for Take Two.

Not sure I'm happy to score one to Amazon rankings - wouldn't Amazon rankings have had Ghost Recon outselling Max?

darrens
darrens's picture
Just to add to my thoughts

Just to add to my thoughts then thinking about what is selling and what isn't then I think Spec Ops is toast, NBA2k should be fine, Borderlands 2 I'm still optimistic about although I don't think they own the ip, and I'm a bit worried about Bioshock Infinite.

Put all together .... and they desperately need GTAV.

Take Two are arguably the most exposed to the current console generation and, whichever way you look at it, that isn't looking very clever at the moment. However, they are priced at 1/2 of forecast sales and about 4 1/2 times forecast earnings so it isn't as if the bad outlook isn't priced in.

Today could be bloody...but it's getting pretty close to a punt price.

darrens
darrens's picture
I wasn't expecting that

I wasn't expecting that opening. I still have $10 puts which I got before the results just to protect myself from a z-bomb and I was expecting them to be in the money for pretty much the whole day.

Odd.

tsanalysis
tsanalysis's picture
With Max 3's disappointing

With Max 3's disappointing showing, Spec Ops sure to flop, NBA 2K13 likely to be down yoy (just from where we are in the cycle and also the return of NBA Live this year), Borderlands 2 and Bioshock Infinite's sales potential now being called into question, and GTA V being potentially 9 months away still, the "story" for TTWO looks to be negative for quite awhile. I could see TTWO dropping to $8 before starting a run towards GTA V.

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darrens
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I'm not convinced NBA will be

I'm not convinced NBA will be down yoy.  Remember last year was the NBA strike so there wasn't a season.  I also think the sports game are less susceptible to the vagaries of the cycle.  Let's see how NBA Live turns out because if that's a cracker then it could be a threat but I think NBA will hold its own.

I also think Borderlands 2 will do very, very well.  Strong on PC, big (and recent) fanbase and lots of hype. 

Bioshock Infinite I'm less sure about.  Iirc the PS3 version didn't do that well and also Bioshock 2 was a bit of a disappointment relative to the reviews.  It feels like the kind of thing which could be soft.

However, I agree that there's very little to get excited about with Take Two in the short term...except the share price which I think does represent fantastic value for money if they make their forecasts (edit: although there has been around a $1 per share variance from their earnings forecasts for the past 3 years).

Financial Year Original Forecast
at prior year results
Q1 Update Q2 Update Q3 Update Actual Variance
2008 $1.50 $1.40 $1.75 2.10 $2.08 +$0.58
2009 $0.10 $0.10 $0.10 ($0.84) ($1.12) -$1.22
2010 ($0.50) ($0.50) ($0.15) $0.65 $0.67 +$1.17
2012 $0.23 $0.23 $0.23 ($0.67) ($0.71) -$0.94
tsanalysis
tsanalysis's picture
Forgot about the lockout when

Forgot about the lockout when writing that response, so good point NBA 2K13 might be even yoy. About Borderlands 2, I think it will do well also but I think the analysts are now going to lower their assumptions for it (which sets TTWO up to beat rather than disappoint) but until that is proven I think the lowered analyst estimates will weigh on TTWO.

Thanks for that table, very interesting. I still think with TTWO you have to value them on something like a four year average earnings. Fiscal '13 Max 3 has caused a big hole in Q1 that TTWO will have to dig out of the rest of the year so even with GTA V, I'll say only around $2 EPS for FY'13. For FY'14 I'll say around $1/share. For FY'15 maybe break-even. And FY'16 who knows but let's just say $1/share. So my forward average earnings for the next four years is $1/share. I still think TTWO deserves only a 10x PE ratio so $10 price target. So I think around fair value now. Thus I have lowered my target price at which I would go long to around $7, where I then think there would be around 50% upside with my $10 price target.

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darrens
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If it goes down to $7 you'll

If it goes down to $7 you'll lower your price target to $4 (only half joking).

I need to have a little think about whether or not I'm going to grab any more (at any price) or just let my current position ride. Lots of thoughts in my head but all a bit muddled at the moment.

Just out of interest, you're into technical analysis a bit, hammer bottom today?

tsanalysis
tsanalysis's picture
If the fundamentals

If the fundamentals deteriorated further, I just might! My $15 price target was based on 2 years of $2 earnings (and 2 years of $1 earnings). That seems increasingly unlikely with Max 3's poor performance and the implications that has for sales of TTWO's other games.

Candlestick charting is more advanced technical analysis than I'm into, so sorry I cannot be of help there. I usually don't look much beyond moving averages, support/resistance lines, and volume. Based on those it does not appear to me that a bottom can be called yet but TTWO does seem a bit overdue for a bounce with a rebound to the 20 day moving average around $11 possible.

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darrens
darrens's picture
I was being slightly

I was being slightly rhetorical about the hammer bottom because Friday was an absolute classic hammer bottom which is a strong indicator of a trend reversal. 

http://uk.advfn.com/p.php?pid=legacydaily&epic=N^TTWO&type=4&size=2&period=1&scheme=&delay_indices=1

However, and this is why I'm so sniffy about TA, the signal is only confirmed if the trend reverses into an uptrend.  If the trend continues then the signal is void.

In other words, it may start to go back up or it may continue to go down.  Useful, eh?

darrens
darrens's picture
Take Two up with the market

Take Two up with the market the last couple of days and on reasonable volume today. However, with weakening fundamentals and the calamity in Europe merely postponed rather than avoided I'm struggling to believe that the downward trend has been reversed.

But if that does turn out to be a hammer bottom I'm taking full credit. I think that comment is truly in the spirit of TA :)

tsanalysis
tsanalysis's picture
The downward trend still

The downward trend still looks intact to me. What also concerns me is that TTWO is still a fair bit above its lows of 2009 and 2010, so I think it may have to test those lows (around $7/$8) before heading back up.

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darrens
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I know that nobody expects

I know that nobody expects anything from this game but I saw the Spec Ops ad on TV tonight. I thought it was awful. Take Two could learn a lot from Ubisoft about how to make great ads/trailers for their games.

Reviews embargo lifts Tuesday but I think it will need to be a 90+ not to bomb at retail. All the signs are that it will be mediocre at best and sales of mediocre console games are non-existent.

Roll on Borderlands 2.

darrens
darrens's picture
Spec Ops reviews trickling

Spec Ops reviews trickling out and it looks like around 80%. Unfortunately it's short and the multi-player isn't a draw so difficult to see it having much in the way of legs.

Very low expectations for this game and it looks like they will be met.

Take Two itself continues to drift down on low volumes and it's really a case of "how low will it go?".

darrens
darrens's picture
With Take Two's share price

With Take Two's share price detached from the (forecast) fundamentals I thought it may be worth having a look at how they are doing against Q1 forecast.

Their Q1 forecast was for $225 - $275 revenue and eps of -75c to -60c. Last Q1 they did $334m and 2c eps. Their "big" earners last Q1 would have been LA Noire and, to a lesser extent, Duke Nukem Forever. They said they shipped in 4m units of LA Noire and didn't give a ship in for DNF.

This year they shipped in 3m units of Max Payne 3 and have also released Spec Ops and Civilization: Gods and Kings. If DNF and Spec Ops/Civ wash their face and taking the fact that Max shipped in 3/4 of LA Noire then a simple 3/4 of last year's $334 would give $250m which puts them slap bang in the middle of their revenue range.

I would really struggle to make an argument that it could go higher than that number.

It's probably easier to make an argument that they'll actually turn in a performance that's even lower. DNF (although dire) did have quite a bit of hype behind it so they may have got a bigger ship than Spec Ops. Civ V expansion is very low RRP and certainly isn't lighting up the Amazon charts. Although the Max ship was 3/4 of LA Noire, the actual sell through in the US was under half. Maybe the excess stock will just be left in the channel or maybe they'll have to fund retailer discounting to shift the stock. Also factor in that sales are generally well down which must affect the catalogue.

Put it all together and it would be easier to make an argument that they'll be below that $250m figure than above it.

Looking a bit further ahead. Q2 last year had nothing in it at all and only managed $107m. This year has Borderlands 2 so forecasts will be considerably higher.

So, I'd be expecting Q1 to be at the bottom of the forecast range, maybe even a miss, but Q2 to be strongly ahead. Perhaps after the Q1 results could be the time to buy since the news can only get better after that.

Alternatively, they could announce GTAV as a free2play game and the stock price would probably quadruple.

tsanalysis
tsanalysis's picture
I agree with everything you

I agree with everything you said in your last post and your ultimate conclusion that after Q1 results are announced (or if there is a negative pre-announcement before then) may be the time to go long.

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darrens
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Okay, Q1 pretty much as

Okay, Q1 pretty much as expected (i.e. bad) but even worse than expected for earnings. They've lowered guidance to 1.75-2.00 for the year but from here on in I expect things to get better. Ditto everything I said a couple of posts up.

It's difficult to know how the share price will react. It's a miss but then the share price is down heavily over the past few months so that miss may be priced in already. The big relief is that, clearly, GTAV is still for this financial year whereas a lot of people were questioning and some chance of a GTAV miss may be in the share price.

I think over the next week or two could be a good time to accumulate.

darrens
darrens's picture
Yesterday was another

Yesterday was another possible hammer bottom although this would need to get up and over around $9 to really break a very long term downtrend.

There's lots of things I don't like about Take Two at the moment but for all the reasons stated above I think Take Two could be on a run back up to the high teens albeit may take quite a few months to get back there.

darrens
darrens's picture
Up and over $9. Starting to

Up and over $9. Starting to think that really was a hammer bottom and the downtrend has finally been broken.

Time to buy?

darrens
darrens's picture
Chart starting to look good

Chart starting to look good on this one. Inverse head and shoulders (sort of)

tsanalysis
tsanalysis's picture
Rockstar has been showing off

Rockstar has been showing off more GTA V screens the past few days but it still seems unlikely to me that GTA V will release this year.

TTWO was due for a bounce at some point so it is hard to say if TTWO's recent price action is any more than that or perhaps a EA take-over speculation sympathy move. The shorter-term moving averages have yet to cross-over the longer-term averages.

The 360 version of Borderlands 2 is charting nicely on Amazon about a month prior to release so that is encouraging. However I would like to see the PS3 version charting higher too. Also, Borderlands 2 is not quite as high on Amazon's 'most wished for' list (which seems to be more of a cumulative indicator than the best-selling list) as I would have expected (for example it is currently below Dishonored which releases a couple of weeks later) so I am not convinced anymore that Borderlands 2 will be as much of a break-out hit as I originally thought.

So I have some reasons I am still on the sidelines with TTWO for now. Also my price target for TTWO remains much lower than your high teens expectation so I do not see an attractive enough risk/reward ratio yet to move TTWO ahead of the other positions I currently have.

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darrens
darrens's picture
Borderlands 2 is just the

Borderlands 2 is just the hors d'oeuvre but I see it doing 4m+ at "full" price. Unfortunately we'll never know the true picture because I think a reasonable proportion of sales will be on Steam but the vast majority will be on console. The real reason that I don't see this as hugely significant is because I think Gearbox get a big royalty from this. I'm not 100% sure but I think Gearbox own the ip for Borderlands so margins for Take Two are thinner than for other titles.

The big thing, of course, is GTA5 and I'm still expecting it March 2013 so it can straddle two financial years. Whether it's huge or mega-huge I don't know but I do think it will be this console generation's last hurrah.

And that's the real problem for Take Two. They prosper in a world of big events, big hits and bug bucks and I keep flip flopping as to whether that world will be possible. There's lots of mediocre triple-A titles which are failing but then you have a Diablo 3 and suddenly I'm reminded that all the f2p and mobile games are doing okay but raking in a tiny fraction of what the "old style" games could achieve. And it puts me straight back into thinking the mega-franchises will be where companies make their money. Assassin's Creed, Call of Duty, GTA, Halo and so on.

So, if only Take Two could get on a reasonable development cycle (it's scandalous the amount of time that Rockstar takes between iterations of their best selling ip) then I think they have a healthy future and my high teens prediction seems safe. Failing that, I'd say ride the GTA hype and then sell. Either way, I think Take Two are a good buy at these levels now that the downtrend seems to be well and truly broken.

tsanalysis
tsanalysis's picture
I am pretty sure that Gearbox

I am pretty sure that Gearbox owns the Borderlands IP, so I think you are correct it won't be as profitable as an owned IP. Back when TTWO did their most recent capital raise I thought it might have been in part to acquire Gearbox and the Borderlands IP (and Duke Nukem IP as well).

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Artheval_Pe
One of the reasons GTA is

One of the reasons GTA is doing so well every time it comes out is because it's a rare comodity, but also because GTAs are very rich games. Seing it come out every two or three years would probably result in a lot more gamer fatigue and a lot less interest for the franchise. Plus it's outright impossible to produce and especially to polish such wealthy games in a shorter time. If there is a T2 game that took way too much time in development, it would be more Max Payne 3 which was a straight third person shooter and didn't have that much of a commercial potential anyway.

Right now, I am seing a huge amount of interest for GTA V on gaming websites. Pageviews reach incredibly high levels at the simple mention of the name or whenever new screenshots come out. If the level of interest that I see on my end scales with the sales numbers, it's probably going to be a bigger hit than Battlefield 3.

Take Two may also have a sleeper hit. The quality of XCOM : Enemy Unknown is amazing. The only problem is that there isn't a lot of hype around it so the gamer interest I see for this game is rather low. But it could take its time and go big eventually, especially since the interface has been perfectly tailored for console controllers.

darrens
darrens's picture
If Battlefield 3 is your

If Battlefield 3 is your benchmark for GTAV then that's a disaster for Take Two! GTAV needs to be up there with things like COD and, er, GTA4 to justify the time, cost and levels of expectations associated with it.

It's been 4 years (and counting) since GTA4 and in that time there have been a couple of DLC packs but nothing else. Contrast that with GTA3 which had San Andreas and Vice City all within the same timeframe. I don't have any real issue with it being 4 or 5 years between major iterations of GTA but there should be fill-in titles like with GTA3 every couple of years or even 18 months.

I can't remember where I saw it but if you look at the sales of franchises over the past ten years then GTA is not high enough given the quality, cost and respect. Yes, there's always a chance of gamer fatigue but when you've got a COD, an Assassin's Creed every year then a GTA every couple of years isn't going to burn people out.

Imho.

As for XCOM then I have a fear that it's going to be a hit with the critics but a miss with the gaming public. It would certainly be a sleeper hit because there's precious little excitement about it at the moment.

I'm hoping that Borderlands 2 and NBA2k and Bioshock will provide the foundations and then GTAV will boost this even further but what about next year? Is there another Red Dead? Who knows - but with Rockstar's track record of taking their time then I'm not holding my breath.

Artheval_Pe
In 8 months, Battlefield 3

In 8 months, Battlefield 3 sold 15 million copies. GTA 4 took almost a year to reach 13 million, 2 years to reach 17 million (Battlefield 3 will probably reach that number before october) and more than 3 years to reach 22 million. So, being up there with Battlefield 3 wouldn't be that bad since Battlefield 3 sold faster than GTA 4. COD is at 22 million for MW2 and 25 for Black Ops 1, which are not unreachable numbers, both for Battlefield 3 and for GTA V eventually.

With the way Activision is handling things, CoD is going down the toilet eventually because the quality is rapidly decreasing and sooner or later, it is going to start having an impact on sales. My bet is that unless they surprise everybody and invest heavely in the engine for the next generation transition, in 3 years, CoD is going to be still popular, but nowhere near the levels we see right now.

The problem that T2 is facing is that making a game like San Andreas or Vice City costs now between 5 and 15 times more than when these titles were released. So unless they double the team and the budget, they are not going to be able to deliver on that. I don't think GTA V is taking so long because of a grand masterplan by T2 management to have it come out right at this time. It's taking so long because that's the time it takes to make a huge rich open world game like GTA. It takes a ton more man-hours to make an open world, a new engine and all new systems than it takes to create 20 single player maps + 16 multiplayer maps.

In FY 2014/2015, you can bet on the XCOM FPS, reworked and rebranded for cross generation. Maybe we will also get Agent (the open world spy game set in the cold war and initially announced as a PS3 exclusive) as a launch title for the PS4. We will probably see Mafia III at least announced. Perhaps some new IPs (or old resurrected IPs) from the Rockstar studios (especially Rockstar London and Rockstar New England who haven't recently done anything we know of).

darrens
darrens's picture
Battlefield 3 outsold GTA4?!

Battlefield 3 outsold GTA4?! I'm struggling to find evidence to contradict what you've said but I'm also struggling to believe that's true.

Anyway, putting aside BF3 sales, if we're talking about GTA5 doing 10m+ at full price then I agree.

GTA is the jewel in Take Two's crown and that should have been a priority for the entire company to not allow a 5 year gap between iterations. I know that an awful lot of content goes into a GTA game but that doesn't justify a 5 year gap. It's fairly obvious that Rockstar just need to organise themselves into two teams: a Red Dead Redemption team and a GTA team and let everything else go. That would be the best way to deliver shareholder value, i.e. profit, but it's probably the least fun and that's why it hasn't happened.

If they've got any spare capacity AFTER delivering those two games then, fine, have a go at some other stuff but those should be the #1 and #2 priority. I simply do not believe that they've been focused on bringing those two games to market. LA Noire, Max Payne (Agent?) should all have been sorted out after they'd resourced the teams on GTA and Red Dead (if there was any spare resource). Give me GTA5 a year ago rather than LA Noire and Max Payne 3 and I'd have been very happy.

Artheval_Pe
I was talking about GTA V

I was talking about GTA V doing around 15 to 20M in a year.

The way their teams are set up is they have Rockstar North doing GTA, and doing just that and Agent, and Rockstar San Diego does the engine and Red Dead Redemption. Plus they have a bunch of other Rockstar Studios doing Max Payne (Rockstar Vancouver), ports (Rockstar Toronto) and some others doing... well we really don't know what they are doing right now.

One thing to keep in mind is that Rockstar delivers not because it's just GTA, but because they always delivers quality and gamers ended up recognising that. But quality takes time and efforts, especially since it needs a lot of iteration during the development. You could try to solve the problem by throwing more ressources at it but it would only make it worse. Teams that become too large become less efficient and less manageable. Unless you are talking about simple content creation, or unless you can efficiently split different parts of the game between teams (something that Ubisoft does well), adding more people to a team can more often than not slow down a studio. If Take Two needs to do one thing to make the GTA franchise more profitable, it's probably to create another GTA team and make the two teams work in parallel. That might work. Plus it might give them the opportunity to broaden the GTA franchise by exploring more cities like London, Amsterdam, Paris, Rome, etc... Only problem is that it would require more money.

And as far as profitability goes, I don't think that reducing Rockstar to two teams would be a good bet. 3 years ago, who would have known that Red Dead Redemption was going to be the next big thing for T2? It was completely unpredictable and it still is. A sequel could flop for exemple. So it's a safe bet for the company to keep working on other projects that might go big eventually. They just need to be reasonnable about it. They struggled for way too long with Max Payne 3 for an end result that isn't even THAT good. They might have found real problems beyond the point of no return, but working for such a long time on a game with such a limited sales potential was one of their only mistakes.

As far as BF3 and GTA IV sales, here is one of the numerous news articles about T2 March 2009 financials, in which they announced 13 million for GTA 4 : http://news.teamxbox.com/xbox/19098/TakeTwo-Reports-Q1-Fiscal-2009-Finan...
You can find the 15 million number for BF3 in this interview : http://www.gamesindustry.biz/articles/2012-06-29-ea-looking-to-bring-bat...
BF3 didn't outsell GTA lifetime sales, but it sold faster.

darrens
darrens's picture
Okay, I think we're aligned

Okay, I think we're aligned on GTAV. 15-20m in a year but around 10m+ at full price (before heavy discounting).

I know that you can't do a 1,000 man day project by getting a 1,000 people to do it in one day so I understand there's a limit to throwing resource at a project both in terms of practicality and also in terms of quality. However, I'm sticking to my guns that it's my belief Rockstar and Take Two haven't made it enough of a priority to focus on their big winners.

From Rockstar's perspective I understand it. They want to be creative, original, not stressed by deadlines, and so on. But Take Two should be the opposite. I fear that the latest Rockstar contract gives so much power to Rockstar that the balance between publisher and developer has tipped too much the wrong way.

As you say, they should probably have two teams working on GTA and a third team working on Red Dead. You can't scale it up overnight but they've had a number of years to sort out a better arrangement than what is currently going on.

It probably sounds like I'm being very harsh on Take Two but it comes from a sense of enormous frustration that Take Two do seem able to snatch disaster from the jaws of victory time and time again. It doesn't help that the current Take Two management are getting incredibly rich by massively diluting their shareholders and, time and time again, it seems their personal motivation is at odds with increasing shareholder value.

There's always an element of that with public companies but Take Two seem worse than most. I do start to wonder if Activision or Ubisoft management would do a far better job of running Take Two than Zelnick and Co.

darrens
darrens's picture
First review score for

First review score for Borderlands 2 - 95% from UK mag Gamesmaster. For comparison, FIFA 13 scored 91% and Tekken Tag Tournament 2 82%.

Their summary was “Bigger. Ballsier. Bullet-ier. Borderlands 2 is the antidote to stuffy military shooters." I'm always a little bit wary of first reviews but if that sets the tone then this could really get Take Two moving.

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