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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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Phil Elliott