Since January 11th, shares of TTWO have tumbled 25%. Our skepticism at the time was warranted. As of today, we're reiterating our sell recommendation, as well as lowering our price target to $8.
Over the weekend, Banc of America issued a grim note in which they cited:
Damaging near-term, intermediate-term and longer-term risks...potential SEC investigations, and potential accounting restatements. Meanwhile, the company is burning cash at an alarming rate, and we think cash levels will approach $75 million by spring. We expect more title delays, key employee departures and corporate governance issues.
Long-term risks include overdependence on one brand and an unprofitable diversification strategy. We think the company runs the risk of degrading its Grand Theft Auto (GTA) franchise by porting GTA: Liberty City Stories to the PlayStation 2 just five or six months after its release on the PlayStation Portable. We believe a formal SEC investigation is an increasingly real possibility supported by the company's inability to file its 10-K annual report and insider sales.
We believe that Take Two's shares will see much more pain.
Potenially cannibalized/sluggish sales, further management erosion, and a staid gaming environment all spell one thing for Take Two: a mess bloodier than its games.
TTWO 1-yr Chart