Take-Two Shares Look Attractive Once Again At New 3-Year Low Prices

Aug. 7.12 | About: Take-Two Interactive (TTWO)

After seeing Take-Two (NASDAQ:TTWO) shares fall to new 52-week lows, I think it's time to look at the company's pipeline and recent earnings. I recommended buying shares of Take Two previously based on their Grand Theft Auto V and Bioshock Infinite games being released in the second half of the year. As anyone who invests in video games knows, it's usually future releases that determine the share price. I think there is extreme value in Take-Two shares now with prices last seen in 2009 and the company's strongest lineup in recent history.

Revenue in the first quarter was $226.1 million, a decline from the previous year. The company posted negative net income of $98.8 million (non-GAAP). Earnings per share in the quarter were negative $1.16. Last year's first quarter saw positive net income of $2 million, resulting in positive earnings per share of $0.02. The company's quarter was powered by sales from May Payne 3, Spec Ops, NBA 2K12, and other catalog titles.

Catalog sales were up 50% from the previous year for Take-Two. Digital sales remained a strong point for Take-Two. The company saw a 33% increase in the quarter's digital sales. Digital sales also made up 14% of revenue. The strong results were led by Civilization, Grand Theft Auto, Max Payne, NBA 2K12, and Red Dead Redemption. Digital sales remain the long term focus of Take Two Interactive.

By gaming platform, Take-Two's first quarter sales:

  • XBOX 360: 42%
  • Playstation 3: 40%
  • PC & Other: 14%
  • PSP: 1%
  • Nintendo Wii: 1%
  • Nintendo DS: 1%
  • Playstation 2: 1%

NBA 2K12 was launched in open beta testing in China recently. The NBA games remain a strong digital growth driver overseas. Take-Two launched NBA 2K All Stars for mobile in Japan. The company also launched Max Payne across mobile platforms. Take-Two launched its first domestic mobile social game during the first quarter. The game launched was Comedy Central's Indecision game.

Other game highlights from the first quarter include:

  • Max Payne 3 launching downloadable content packs to capture additional revenue
  • Launched expansion pack for Civilization V
  • Entered into a partnership with Japanese gaming company Gree to partner on additional global games

Take-Two did see lower-than-anticipated sales of Spec Ops and Max Payne 3. Here is a look at the games sales from VG Chartz:

  • Max Payne 3 XBOX 360: 0.58 million North America, 0.98 million Total Sales
  • May Payne 3 Playstation 3: 0.31 million North America, 0.82 million Total Sales
  • Max Payne 3 PC: 0.06 million North America, 0.15 million Total Sales
  • Spec Ops: The Line XBOX 360: 0.12 million North America, 0.21 million Total Sales
  • Spec Ops: The Line Playstation 3: 0.10 million North America, 0.20 million Total Sales
  • Spec Ops: The Line PC: 0.02 million North America, 0.04 million Total Sales

The company did remain bullish on the earnings call about upcoming releases. Strong releases from Take-Two include Borderlands 2, NBA 2K13, and Bioshock Infinite. Take-Two thinks 2013 will be one of the best years in the company's history. I wrote recently about how 2013 would be a huge opportunity to buy shares of Take-Two as it releases Bioshock Infinite and potentially Grand Theft Auto V.

Here is a look at Take Two's lineup of games to be released:

  • August 9: Max Payne 3 Downloadable Map Pack (PC)
  • August TBA: Max Payne Crime Pack Downloadable Content (XBOX, PS3, PC)
  • Summer TBA: House Pest (Mobile)
  • Summer TBA: GridBlock (Mobile)
  • Summer TBA: Herd, Herd, Herd (Mobile)
  • Summer TBA: Carnival Games MiniGolf (Mobile)
  • September 18: Borderlands 2 (XBOX, PS3, PC)
  • September TBA: Max Payne 3 Hostage Map Pack (XBOX, PS3, PC)
  • October 2: NBA 2K13 (XBOX, PS3, Wii, PSP, PC)
  • October 9: XCOM: Enemy Unknown (XBOX, PS3, PC)
  • October TBA: Max Payne Map Pack (XBOX, PS3, PC)
  • October TBA: Max Payne Downloadable Content (XBOX, PS3, PC)
  • November TBA: Nickelodeon Dance 2 (TBA)
  • November TBA: Bubble Guppies (DS)
  • November TBA: Dora & Team Umizoomi's Fantastic Flight (DS)
  • Holiday TBA: NBA 2K12 (WiiU)
  • February 26: Bioshock Infinite (XBOX, PS3, PC)
  • TBA: Grand Theft Auto V (TBA)
  • TBA 2014 Fiscal Year: XCOM (XBOX, PS3, PC)

A look at VGChartz preorders list helps show what is expected in the future. Here are upcoming releases on the website:

  • #4 Borderlands 2 XBOX 360: 248,913
  • #9 Bioshock Infinite XBOX 360: 125,115
  • #11 Borderlands 2 Playstation 3: 121,391
  • #19 Bioshock Infinite Playstation 3: 72,394
  • #21 Borderlands 2 PC: Not available

Borderlands 2 is eight weeks away from its release and saw strong additions last week, adding 20,319 (XBOX 360). A look at Amazon's Top 100 video games sees:

  • #22 Borderlands 2 (XBOX 360), 69 days in the Top 100
  • #75 Borderlands 2 (Playstation 3), 10 days in the Top 100

Take-Two provided an outlook for its second quarter, ending September 30. The company sees revenue of $200 million to $250 million. The company sees negative earnings per share of -$0.15 to -$0.30. For the fiscal 2012 year, Take-Two is guiding for revenue of $1.7 to $1.8 billion. Earnings per share are projected to be $1.75 to $1.80 for the full fiscal year. Analysts on Yahoo expect $0.09 in earnings per share in the next quarter on $234 million. For the full year, analysts are predicting earnings of $2.25 on revenue of $1.78 billion.

Shares of Take-Two trade below $8 and are right around the company's 52-week low share price. Take-Two shares are down over 40% for the calendar year. Prior to this past week, shares had not traded below $8 since December 2009. In articles I have written about Take-Two, I have been very bullish setting price targets over $16. If the company can earn $1.70, shares are currently trading at less than five times this year's earnings.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TTWO over the next 72 hours.

Additional disclosure: I do own shares of other video game companies that compete directly with Take Two. These include Majesco (NASDAQ:COOL), THQ Inc. (THQI), and Activision Blizzard (NASDAQ:ATVI).