Take-Two Needs a Third Act

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Take-Two Interactive (NAS: TTWO) isn't where it wants to be, but things could be worse.

Shares of the game developer and publisher opened slightly higher this morning, despite the company posting uninspiring quarterly results yesterday.

  • Revenue slipped 29% to $236.3 million, given a weaker slate of games offered this time around relative to the prior year's holiday quarter.
  • Adjusted earnings were nearly cut in half to $0.27 a share.
  • The previously announced delay of Max Payne 3 finds Take-Two hosing down its guidance for its fiscal year ending next month.

Just three months ago, Take-Two was targeting a small profit on as much as $1.1 billion in revenue here in fiscal 2012. Now the company is eyeing a loss between $0.60 a share and $0.75 a share on no more than $840 million in revenue. Gee, that's a big difference just because Max Payne 3 is rolling out two months late.

Max pain, indeed.

Making matters worse, Take-Two still doesn't have a release date for Grand Theft Auto V, the long-awaited follow-up to 2008's then-record-breakingGrand Theft Auto IV. All we know is that the game is in full development.

This all sounds pretty bad. Why isn't the stock getting crushed today, the way that smaller rival THQ was when it disappointed investors earlier this week?

Well, for starters, it's all about expectations. Analysts were only banking on a profit of $0.23 a share out of Take-Two. Larger rival Electronic Arts (NAS: EA) also posted better than expected results this week, encouraging investors into believing that Wall Street has underestimated this sector. THQ is a troubled outlier. If EA and Take-Two are blowing past analyst profit estimates, market leader Activision Blizzard (NAS: ATVI) is probably heading toward a Wall Street beat when it reports next Thursday.

However, the better explanation for Take-Two opening 6% higher this morning comes from the company's cheery outlook for fiscal 2013.

"Fiscal 2013 is expected to be one of our best years ever, with substantial revenue growth and Non-GAAP net income in excess of $2.00 per diluted share," CEO Strauss Zelnick is quoted as saying in last night's earnings release.

In other words, forget about this crummy fiscal year that ends in a matter of weeks. Take-Two is now fetching just eight times Zelnick's bottom-line target for the fiscal year ahead that begins in April.

Is that really the power of Max Payne 3? No. Given the sparse slate of titles officially announced so far, projecting more than $2 a share in adjusted profitability for the upcoming fiscal year implies that Grand Theft Auto V will be released in fiscal 2013.

Then again, given Take-Two's history of jarring outlook revisions, let's see if Zelnick is still as upbeat three months from now.  

A new special report singles outthree winners in the iPhone, iPad, and Android revolution. It's something that Take-Two investors should be watching given its recent gains in downloadable content. The report is free, but it won't be around forever socheck it out now.

At the time this article was published Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Motley Fool owns shares of Take-Two Interactive Software and Activision Blizzard. The Fool owns shares of and has written calls on Activision Blizzard.Motley Fool newsletter serviceshave recommended buying shares of Activision Blizzard and Take-Two Interactive Software.Motley Fool newsletter serviceshave recommended creating a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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