Take-Two shares fall ahead of financials

Shares in Take-Two were traded heavily yesterday, with the price falling across the day by 5.6 per cent, ahead of the company's Q3 financial results later today.

While the stock began the day at USD 24.54, it dipped at one point to USD 21.68, before recovering to end the day on USD 23.17 - interestingly below the price that EA is offering in its publicly-announced bid of USD 25.74 per share.

According to Wedbush Morgan's Michael Pachter the company will report "revenue of USD 365 million and pro forma EPS of USD 0.55 and consensus for revenue of USD 386 million and EPS of USD 0.55".

In an investor note, he goes on to say that "the revenue story will be defined by shipments of Grand Theft Auto IV [which] sold approximately 7 million units in Q2, and we estimate it shipped 4 million units in Q3.

"In its last earnings release, Take-Two announced that it shipped approximately 11 million units globally as of May 31, with only 8.5 million units sold through. This suggests to us that reorders of the game after May 31 were inconsequential, so Q3 revenue upside will likely be limited.

"The game's early penetration rate (around 30 per cent of the PlayStation 3 and Xbox 360 installed base) is likely to limit future sales to a similar percentage of steady (though lacklustre) PS3 and Xbox 360 hardware sales.

"We note that as of May 31, 2.5 million units of GTA remained at retail inventory, suggesting that reorders will occur in November, after 7.5–8 million more hardware units have been sold."

Take-Two is set to give a behind-closed-doors presentation to the EA top team in order to persuade them that the company is worth more than the USD 2 billion original offer.

And Pachter believes that ultimately "Take-Two remains a takeover story rather than a fundamental one," and that "EA may offer as much as USD 2 per share more, provided that Take-Two facilitates an expedient and seamless close".