Briefing.com - Trader's Edge: Take-Two Interactive Software (TTWO)
19-Jan-01 00:03 ET
[BRIEFING.COM - Patrick J. O'Hare] The October debut of Sony's PlayStation 2 in
North America was both a boom and a bust. It was a boom in the sense that the new
gaming platform flew off the shelves, yet it was a bust, too, since production problems
kept Sony from shipping as many PS2 consoles as it had forecasted for its launch date.
Subsequently, Take-Two's (TTWO 11 13/16) stock price took a hit when earnings
concerns surfaced and the media buzz surrounding PS2 subsided. At current levels,
though, Briefing.com thinks Take-Two deserves a second look...
Trading Points
In FY00, TTWO's earnings were up 16% to $0.88 per share on a 27% jump in net
sales to $387.01 mln... Most of its growth was internally generated for the first time in
the company's history, and TTWO noted that it was well positioned to see positive
operating cash flows in 1Q01 and to surpass $500 mln in net sales in FY01.
Although the buzz surrounding PS2 has subsided, demand for the product hasn't... As
Sony's production problems get solved, the increased unit shipments will foster
continuous demand for PS2 titles... At the launch date, TTWO had four PS2 titles
available for sale... It is expected to release the PS2 title, Oni, this month and will
release ten additional PS2 titles in FY01, ending in October... A total of 15 PS2 titles
are currently in development.
Sony has said it hopes to ship 10 million PS2 units worldwide by March... It will be
confronted later in the year, though, with competitive offerings from Nintendo
(GameCube) and Microsoft (Xbox)-- all of which should be a boon for the interactive
entertainment software industry's sales and earnings prospects.
TTWO's Midnight Club: Street Racing and Smuggler's Run games continue to rank
among the top ten selling PS2 games at retail domestically... TTWO has acknowledged
that the sell through of its PS2 titles has been as strong in Europe as it has been in the
U.S. (PS2 launched in Europe on November 23).
Company insiders, including President, Paul Eibler, and CFO, James David, purchased
approximately 80,000 shares of TTWO common stock in the open market at the end
of November when the stock was trading under $10 per share.
Last Friday, TTWO traded through its 200-day moving average on an upside move
that was accompanied by nearly 3x the stock's 3-month daily average volume... On
Tuesday, TTWO tacked on another 5% on volume that was 4.3x the daily average.
Presently, TTWO trades at 11.4x est. FY01 earnings and has a projected long-term
growth rate of 25%... TTWO is expected to grow its earnings by 25% in FY02...
Corresponding PEG (p/e to LT growth rate) of 0.46 among the lowest in the interactive
entertainment software industry as is its P/S ratio of 0.95.
Of the seven analysts following TTWO, five have BUY ratings, one has a STRONG
BUY rating, and one has an OUTPERFORM rating... Last week, Wedbush Morgan
initiated coverage with a BUY recommendation, and on December 19, Janney
Montgomery Scott also started coverage with a BUY.
Given the stock's strong run of late (+35% since 12/21/00 intra-day low), a re-test of
the 200-day moving average (11.47) would not be out of the question; however, the
improved tone in the tech sector combined with TTWO's favorable sales prospects and
attractive valuations should limit additional downside... Briefing.com's 9-12 month price
target is 16.
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