Take-Two shareholders face prisoner's dilemma - analyst

Leading analyst firm Wedbush Morgan has reiterated its warning over the profitability of Take-Two following today's financial results, stating that shareholder's face a prisoner's dilemma - do they stay the course and hope the company picks up in 2008, or count their losses and sell their stock?

Wedbush believes Take-Two's sports franchises will struggle to hit profitability over the coming years, and even its flagship Grand Theft Auto series might not sell as well as expected when released later this year.

"In our view, Take-Two shareholders face a prisoner's dilemma — choosing to stay the course and hope for a return to profitability in '08, or sell their shares," said analyst Michael Pachter.

"Shareholders gain if everyone chooses to cooperate, but if any large shareholders choose to sell, the remaining shareholders will likely lose. We continue to believe that the company is over-valued on its fundamentals, and advise shareholders to sell," he commented.

And although Take-Two has stated it believes the company will experience a turn-around during the fourth quarter of 2007, Pachter warned of the publisher's poor record of forecasting results, and that the comments were similar to those made in March last year.

"Thus, we must take management guidance with a grain of salt," stated Pachter.

However, the analyst does sees strong titles due for release in the future, which could help Take-Two's bottom line. It also believes company is working hard to stem losses made from poor publishing decisions in the past.

"We think that in addition to GTA, games like Manhunt 2, Bioshock and The Darkness will perform well," detailed Pachter.

"We genuinely believe that the management is making a sincere effort to turn the company's cost structure around, and to limit the number of money-losing games."

"We do not think that its obstacles are insurmountable, but in order to turn things around, we believe that the company must abandon its Quixotic pursuit of sports dominance, limits its offering of movie-based titles, and significantly cut its overheads," concluded Pachter.