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Technology Stocks : Take Two Interactive Software (TTWO: Nasdaq) taking off! -- Ignore unavailable to you. Want to Upgrade?

To: Grandk who wrote (59)	4/18/2000 9:28:00 AM
From: Grandk	Read Replies (1) \| Respond to of 191

Individual Investor Take-Two Showing Strength in Face of Sector Weakness Analyst: Will Frankenhoff (4/18/00) It's been a tough season for video-game stocks. Stocks in general have sold off sharply, and key players in the sector didn't help much by pre-announcing profit woes: Both Activision (Nasdaq: ATVI - news) and Midway Games (NYSE: MWY - news) announced profit warnings. Activision, which is currently in the fourth quarter of fiscal 2000, announced that fiscal 2001 earnings would be flat with estimated fiscal 2000 earnings of $0.79 per share. The video game maker plans to take a $66 million charge to focus on developing games for the Internet and new consoles. Similarly, Midway announced that it would be posting losses for the first half of 2000 due to sluggish sales. Both companies attributed these problems to delayed consumer purchases ahead of an anticipated switch over to new game platforms set for introduction later this year. Sony's PlayStation 2, already released in Japan to wild success (1 million units sold over the first weekend), was expected to be introduced in the U.S. and Europe in the fall while Nintendo has stated that it will begin shipping its Dolphin console early in 2001. Microsoft has also announced plans to introduce its X-box console by the end of 2001. These announcements sparked a sell-off of video game companies. Since April 6, THQ Inc. (Nasdaq: THQI - news) has fallen 27%, Electronic Arts (Nasdaq: ERTS - news) has fallen 18%, and Take-Two Interactive (NASDAQ:TTWO - news) has fallen 34%. Take Two's sell-off is especially surprising since management recently reiterated a comfort level with current First Call estimates of $0.12 for the second fiscal quarter ending April 30, 2000. That would represent a 50% increase over the $0.08 per share earned in last year's quarter. We believe that investors have mistakenly lumped Take-Two in with companies with less diversity both in terms of product line and geographic reach. Take-Two has stated that it continues to see sales strength from its Jack of All Games value added distribution business, especially since the company now markets lower-priced video games to over 15,000 supermarkets, drugstores, price clubs and low-end department stores domestically. While the strength of its distribution business separates itself from competitors, the fact that Take-Two expects to derive 50% of its publishing sales from its PC-lineup during the year makes it less vulnerable to the delays in new console shipping currently affecting its competitors. In fact, current analyst estimates do not take into account the shipment of any Playstation 2 products during the current year. A somewhat fortunate circumstance considering reports released on Monday that PlayStation 2 game consoles exports might be restricted. These reports, filed by a number of Japanese newspapers, said that the game console might face export restrictions due to the fact that its graphics processing capability is fast enough to be used to guide missiles. As we stated earlier in our update, Take-Two will be better protected than its competitors if these restrictions actually take place. In fact, since the company is expecting that international sales will account for more than 40% of total revenue during fiscal 2000 (with a fair amount coming from Japan), Take-Two might be in a stronger competitive position vis-…-vis less fortunate companies. We are not saying an export restriction on the PlayStation 2 wouldn't hurt Take-Two, it would just hurt the company less. These factors, combined with Take-Two's decision to enter the online gaming market through the formation of Broadband Studios, makes the stock our favorite pick in the sector. We reiterate our buy rating with a $20 target price. Updated April 18, 2000 with TTWO trading at $8.75 Recommended 12/10/99 at $11.25 (Magic 25 is a diversified portfolio of stocks that Individual; Investor believes will outperform the market over the course of the year. In 1999, the Magic 25 portfolio was up 79.3%. On average, the portfolio has risen 31.6% annually.) For more in-house professional stock analysis and commentary, visit us at Individual Investor Online.