Take-Two shares plummet on financials

Analysts remain unimpressed despite strong Red Dead Redemption sales

Shares in Take-Two Interactive have fallen by 7.7 per cent following the release of the company's financial results on Tuesday.

While the company saw strong sales for Red Dead Redemption, analysts remained unconvinced overall: "Despite the raised guidance, it is still a bit alarming that Take-Two can ship 5 million units of a game and still lose money in the quarter," wrote Signal Hill's Tood Greenwald in a note to investors.

"We believe that Red Dead is only marginally profitable at the 5 million unit level (4 million break-even), given the above-average development costs associated with it."

Meanwhile Wedbush Morgan's Michael Pachter pointed to the "risk" that underpins Take-Two's position as the company announced the delay of Max Payne 3 to the next fiscal year.

"The success of RDR shows the operating leverage from a major seller," he wrote, "although continuing delays of Max Payne 3 reflects the risk in Take-Two’s model, as the company's failure to deliver games on regular release schedules drives development costs higher."

Shares initially opened up yesterday morning, almost peaking at $11, before falling consistently throughout the day to end up at $9.71 - although after hours trading imply a subsequent rise of nearly 2 per cent to $9.89.

But long term stock forecasts remain average until the company lifts the lid on the next iteration of its killer franchise, says Greenwald.

"Stock likely to languish until a GTA V announcement comes," he wrote. "With the positive news out on Red Dead Redemption, we believe that investors are now likely to start clamouring for Rockstar to announce details on the next iteration of the GTA franchise.

"With the repeated reminders from Take-Two management that Rockstar will not be at E3 next week, its very unlikely that there will be any GTA V reveal there. We believe that GTA V will come in October 2011 at the earliest, and that an announcement may be several months off."

The company announced this week that GTA IV had now sold 17 million units in its lifetime - but maintaining financial momentum in non-GTA years has proven a challenge for the publisher; BioShock 2 has only sold a relatively disappointing 3 million units since its launch.

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Latest comments (10)

With Agent and La Noir, I don't expect to hear of GTA V anytime soon (That is if it even a squeal and not a side story/new city)

I think RDR will continue to sell well, it had a great marketing campaign and huge critical acclaim.
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Terence Gage Freelance writer 7 years ago
I'm not an investor and I know sod all about share prices, but surely RDR's excellent critical and commercial reception is incredibly good news for both the game itself and the franchise. Assuming it sells, say, 7 million in its lifetime, that's an incredible basis for DLC, Episodes-style offshoots and sequels. Not to mention the engine and framework is in place for subsequent iterations, so development of a follow-up should be far quicker and less costly.

It seems no matter what they do, T2's investors and share price are only happy on a full GTA release.
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Tough crowd! Terence is right, a 5-7 million strong fan base is worth having, but the investors might be right to be wary: GTA may have more or less run its course, and no game should have to sell 4 million units to break even, and be in only marginal profit for five. Still, as with cinema tickets, the game cost the same no matter how much it cost to develop, so the consumer wins.
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Jack Loftus Contributing Editor, Gizmodo7 years ago
Context people! How great is a 5 million strong fanbase when the game cost $100 million to produce?
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Terence Gage Freelance writer 7 years ago
But it's not just about short-term profitability - as I said above, they now have a very strong basis for building the franchise in a variety of ways, the designs and engine are in place and they already have a fanbase of millions, many of whom will no doubt be clamouring for a sequel.

I agree that $100 million (alleged) is a horrendous development cost for a game - particularly for a 'new' franchise - but they've laid excellent foundations to expand RDR, and 5 million fans is not something to be sniffed at. I just think it would be more open minded and sensible if investors and/or analysts could see the potential, rather than just looking at raw profit numbers.
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Games will therefore likely move to the movie model where the theatrical release is here to launch a franchise, profits come for other products. The question for games is, what are these?...
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Kevin Cameron Concept Artist/Illustrator 7 years ago
@Terrance: I don't think reframing the situation as a $100-million 'investment' for a franchise would sound any better. That makes it a $100-million 'risk' too.
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Private Industry 7 years ago
5 million in one month for a new franchise is more then positive. It might have cost 100 million, but it`s an investment for the future. Some good DLC with a user friendly prize point should bring in some additional money. Also the 100 million don`t come from anywhere, the game was for a very long time in production and 5 years is not a short time. Now they got the engine optimized for what requirements they have and things should go better and cheaper if Take Two decides to make another Red Dead Redemption.

And what Pachter calls "failure to deliver games on regular release schedules" is for me responsible game development in regards to trying to get the game out with a good overall quality and polished. After all many Take Two franchises are open world games and you can`t release them every 18 month like a Bioshook.
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Dan Sykes webmaster 7 years ago
I think not releasing pc version of red dead redemption is failure on rockstars part. Easily leaving money on the table with the rise of downloading popularity. Bioware is a good example of downloadable quality games such as mass effect 1 and 2. Also bad company2 is another successful pc version download. And with such a large budget on rdr that you would think they would try utilize many revenue sources as possible.

Edited 1 times. Last edit by Dan Sykes on 13th June 2010 4:37am

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James Crooke Web Applications Developer 7 years ago
If I had any money I'd buy shares in Take-Two
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