Take-Two Interactive Software Inc. (Nasdaq: TTWO)
Take-Two Interactive Software Inc. (TTWO) publishes, develops and distributes interactive entertainment software, hardware and accessories worldwide. The Company’s product offerings include titles for various platforms, including PLAYSTATION3 and PlayStation2 computer entertainment systems, PlayStationPortable system, Xbox 360 video game and entertainment system from Microsoft, Wii, and Nintendo DS, as well as for the personal computer. It publishes and develops products through its wholly owned labels Rockstar Games and 2K, which publish titles under 2K Games, 2K Sports and 2K Play.
The Company, through its subsidiary, Jack of All Games, also distributes software, hardware and accessories in North America. TTWO’s customers include mass merchandisers, specialty retailers, video stores, electronics stores, toy stores, national and regional drugstores, and supermarket and discount store chains.
The Company’s portfolio of proprietary brands include: BioShock, Bully, Carnival Games, Grand Theft Auto, Mafia, Manhunt, Max Payne, Midnight Club, Railroad Tycoon, Red Dead Revolver, Rockstar Games Presents Table Tennis, Sid Meier’s Civilization, Sid Meier’s Pirates!, Sid Meier’s Railroads!, Smuggler’s Run, Spec Ops, The BIGS, The Darkness, and Top Spin. TTWO has internal development studios located in the United States, Canada, the United Kingdom, Czech Republic, Australia and China. The Company is included in the S&P 600 SmallCap Index and the S&P 1500 Super Comp Index.
TTWO was founded in 1993 and is headquartered in New York, New York.
|
Share Statistics Sep-08-09 |
|
FY 2007 |
FY 2008 |
%Chg |
Q3 FY2008 |
Q3 FY2009 |
% Chg |
|
|
Symbol |
Revenue, Mn |
981.8 |
1,538 |
56.6% |
433.8 |
138.6 |
-68.0% |
|
|
Current price |
$10.72 |
Gross margin |
25.1% |
35.7% |
1,060 b.p. |
40.2% |
17.1% |
-2,310 b.p. |
|
52wk Range: |
$5.56-$25.44 |
Oper. margin |
-13.0% |
7.5% |
n/m |
13.9% |
-35.8% |
n/m |
|
Avg Vol (3m): |
5,248,239 |
Net margin |
-14.1% |
6.3% |
n/m |
11.9% |
-40.0% |
n/m |
|
Market Cap. |
$878.4M |
|
|
|
|
|
|
|
|
Dil. Shares Outst. |
80.2M |
EPS, $ |
-1.93 |
1.28 |
n/m |
0.67 |
-0.72 |
n/m |
Financial Summary
Net revenue for the third fiscal quarter ended July 31, 2009, was $138.6 million, compared to $433.8 million for the same quarter of fiscal 2008. The quarterly results benefited from the post-launch performance of Grand Theft Auto IV, the blockbuster title that surpassed all-time records for the launch of an entertainment property. GTA IV along with The Bigs 2 and Major League Baseball 2K9 led third-quarter sales. For the first nine months of the fiscal year 2009, sales totaled $625.1 million, compared to $1,214.1 billion during the same period a year earlier. Net loss for the first nine months of fiscal 2009 was $115.9 million or $1.51 per share compared to net income of $112.1 million or $1.48 per share for the 2008 period.
The Company ended the third quarter with $175 million in cash. Accounts receivable reserve was about $44 million at the end of the quarter, or approximately 39% of gross receivables, about the same as the third quarter last year. Inventory at July 31 was approximately $64 million, down significantly from year-end due to seasonality.
TTWO expects revenue of $350 million-$375 million and non-GAAP EPS of $0.30-$0.35 for the fourth quarter of 2009. For fiscal 2009, it expects revenue of $0.975-$1.0 billion and non-GAAP loss per share of $0.81-$0.87. According to Reuters Estimates, analysts are expecting the Company to report revenue of $370 million and EPS of $0.35 for the fourth quarter of 2009; revenue of $984 million and a loss per share of $0.88 for fiscal 2009; revenue of $984 million and a loss per share of $0.88 for fiscal 2010.
|
|
# of Estimates |
Mean |
High |
Low |
1 Year |
|
SALES (in millions) |
|||||
|
Quarter Ending Oct-09 |
11 |
369.38 |
380.00 |
347.50 |
399.33 |
|
Quarter Ending Jan-10 |
5 |
282.68 |
337.00 |
235.00 |
– |
|
Year Ending Oct-09 |
11 |
983.70 |
991.50 |
965.00 |
1,444.79 |
|
Year Ending Oct-10 |
11 |
1,255.15 |
1,550.00 |
1,115.40 |
1,671.28 |
|
Earnings (per share) |
|||||
|
Quarter Ending Oct-09 |
12 |
0.34 |
0.40 |
0.30 |
0.43 |
|
Quarter Ending Jan-10 |
4 |
-0.23 |
-0.16 |
-0.33 |
– |
|
Year Ending Oct-09 |
12 |
-0.88 |
-0.80 |
-0.94 |
1.43 |
|
Year Ending Oct-10 |
13 |
0.62 |
2.10 |
0.12 |
1.97 |
|
LT Growth Rate (%) |
6 |
12.85 |
20.00 |
6.00 |
13.67 |
Source: Yahoo! Finance, SEC Filings.
The Company showed a smaller-than-expected quarterly loss and its shares have been rising steadily sporting a gain of 79 cents, or 7.7%, to $10.95. The stock has traded between $5.56 and $25.34 over the last 52 weeks.
Analyst Consensus
Analysts polled by Thomson Reuters expect TTWO to “Outperform,” with five analysts recommending the stock a “Buy,” up from four analysts three months ago; one analysts expecting the stock to “Outperform,” the same number as three months ago; and seven analysts rating the stock a “Hold,” the same number as three months ago.
Investment Highlights
TTWO currently has 37 titles in various stages of development. The Company has a number of potential hits on tap this year, primarily from its Rockstar Games subsidiary. In September, Rockstar will debut Beaterator on the PSP and iPhone, while October will see the release of GTA IV: The Ballad of Gay Tony and Episodes from Liberty City on the Xbox 360 and GTA: Chinatown Wars for the PSP and iPhone/iPod Touch. The Company’s fourth-quarter slate also includes NHL 2K10, NBA 2K10 and Borderlands. Other key titles, such as BioShock 2, Mafia II, Max Payne 3 and Red Dead Redemption, were bumped into the first half of calendar 2010. The Company also has other new titles planned for the remainder of 2010.
During Sony’s E3 presentation, the Company announced a new game – Agent. Developed by the people behind Grand Theft Auto, Rockstar North, Agent will be available exclusively for the PLAYSTATION®3 computer entertainment system. Agent takes players on a paranoid journey into the world of counter-intelligence, espionage and political assassinations during the height of the Cold War at the end of the 1970s. According to TTWO CEO Ben Feder, Agent is “going to push the edge. It is going to be genre-defining and it is going to be a whole new way of experiencing videogames.” Sony president and CEO, Jack Tretton, believes the title will have the same impact as Grand Theft Auto. The game development is being overseen by Rockstar Games founders Sam and Dan Houser and it is scheduled to be launched in 2010.
2K Sports expanded on its relationship with the NBA by securing a multi-year license to develop an online basketball simulation game in China, Taiwan, South Korea and Southeast Asia. Currently, 2K Sports partners with Tencent Holdings Limited, one of China’s largest online videogame operators, to co-develop the online version of NBA 2K and distribute it to China and other key markets. 2K Sports has secured a multi-year license to develop the online simulation game, which will include all of the NBA teams, as well as current and retired NBA players. China and Korea continue to enjoy exponential year-over-year growth in the online interactive entertainment category, and analysts have predicted that the market could exceed $5 billion by 2012.
In the third quarter, 2K Games and one of the gaming industry’s leading strategy developer, Firaxis Games, introduced the award-winning Civilization® franchise to iPhone and iPod touch. Sid Meier’s Civilization Revolution for iPhone and iPod touch brings Civilization Revolution’s renowned gameplay, featuring new graphics and an entirely new gesture-based interface that takes advantage of the power of the platform. The game launched on August 10 and quickly became a number one selling game on Apple’s app store. It has since remained among the top 25 selling titles across all applications in most territories. As one of the most respected franchises in the gaming industry, the prior Civilization series has sold more than 9 million units worldwide.
Considered by some as a curiosity in the mid-1970s, the computer and video gaming industries have grown from niche markets to mainstream. According to the latest research from NPD, combined video game software unit sales across the world’s three largest games markets – the United States, the United Kingdom and Japan – grew 11% in 2008. U.S. computer and video game software sales reached $11.5 billion—more than tripling industry software sales since 1996. PwC estimates that the global video game industry is expected to grow from $48.3 billion in global sales in 2008 to $68.3 billion in 2012, a CAGR of approximately 10.3%. The largest category is console games, which is expected to grow from $27.8 billion in 2008 to $34.7 billion in 2012.
Overall video game sales seem to be holding up relatively well in a difficult economy. In 2009, even as demand in other industries has plunged, video games have shown resilience. The global video game software market is expected to continue double-digit growth in the next years, as the audience for entertainment is expanding as games have become an integral part of leisure time. Some of most anticipated titles for 2009 are Dragon Quest IX, Gran Turismo 5, Call of Duty Modern Warfare 2, Scribblenauts, Uncharted 2, GTA: Chinatown Wars, Assassin’s Creed II and NFS Shift.
In May-June 2009, TTWO completed a $138 million debt offering. The convertible senior notes will pay interest semi annually at a rate of 4.375% per annum and will mature on June 1, 2014. The notes will be convertible under certain circumstances and during certain periods at an initial conversion rate of 93.6768 shares of the Company’s common stock per $1,000 principal amount of notes. The Company may redeem some or all of the notes for cash under certain circumstances on or after June 5, 2012. The closing of the convertible senior notes offering is expected to occur on June 3, 2009.
Technical Analysis
Source: http://stockcharts.com/h-sc/ui
TTWO is trading above its 13-day moving average. This is generally considered an indication of a bullish trend. The MACD for the Company currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0, which implies that the underlying moving averages are trending higher.
The Company is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.
Comparative Analysis
The Company competes with Activision Blizzard, Electronic Arts, Midway Games, THQ, Capcom, Eidos, Konami, Namco-Bandai, SEGA, Ubisoft, Sony, Microsoft and Nintendo. Take-Two is traded with discount to peer P/S multiples, but with premium to peer 2010 P/E multiples.
TTWO has a lot of titles under development for next year that should appeal to both hard-core and casual gamers. With the success of Carnival Games (more than 4 million sold), BioShock (more than 3 million units sold), and the pending release of titles such as Agent, Borderlands, Red Dead Redemption, BioShock 2, Mafia II, and Max Payne 3, TTWO has a solid money making potential over the next two years.
|
Company Name |
Ticker |
Price per |
Mrkt. Cap. |
P/E |
P/S |
||
|
Sep-08-2009 |
symbol |
Share, $ |
$ Mn |
2009 |
2010 |
2009 |
2010 |
|
Activision Blizzard |
ATVI |
11.71 |
14,800 |
17.91 |
14.92 |
3.25 |
2.90 |
|
Electronic Arts Inc. |
ERTS |
18.51 |
5,890 |
18.77 |
14.23 |
1.37 |
1.31 |
|
THQ Inc. |
THQI |
5.55 |
360.9 |
38.21 |
15.29 |
0.42 |
0.40 |
|
Microsoft Corp. |
MSFT |
24.62 |
212,610 |
14.04 |
12.36 |
3.58 |
3.37 |
|
Viacom Inc. |
VIA |
26.39 |
14,690 |
12.39 |
11.23 |
1.09 |
1.05 |
|
The Walt Disney Company |
DIS |
25.90 |
47,210 |
14.43 |
13.66 |
1.33 |
1.30 |
|
Median |
16.17 |
13.94 |
1.35 |
1.30 |
|||
|
Take-Two Interactive Software Inc. |
10.72 |
878.4 |
n/m |
17.66 |
0.89 |
0.70 |
|
Source: Thomson Financial, Yahoo! Finance, Analyst estimates.
Insider Trading Activity
Net Share Purchase Activity
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Data provided by Thomson Financial |
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