The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
On Wednesday, Take-Two (NASDAQ:TTWO) announced record-setting first day retail sales of Grand Theft Auto V that exceeded our bullish expectations. Sell-through for the September 17th release exceeded $800 million worldwide, not including upcoming launches in Brazil and Japan, setting new records for Take-Two and the series. The retail figure translates to roughly $640 million wholesale, or around 12 million units, given higher foreign prices.
First-day sales may be an all-time record. First-day sales exceeded GTA IV sales (roughly $310 million) due in part to a much larger current console installed base, and topped Activision Blizzard’s (NASDAQ:ATVI) recent Call of Duty games (last year’s Black Ops 2 sold over $500 million, while Modern Warfare 3 sold over $400 million in North America and the UK). Given strong initial demand and solid review scores, we believe there could be upside to our estimates for sell-in of 20 million units in FY:14 and 24 million units lifetime. We will not adjust longer-term estimates until we have more data about sell-through in the coming months.
Raising our Q2:14 estimates to reflect stronger initial GTA V sales. We now estimate revenue of $875 million and EPS of $1.50, up from $850 million and $1.40 previously, compared with consensus of $794 million and $1.38 and guidance of $750-800 million and $1.20-1.35. Our Q2 GTA V sell-in estimate rises to 16 million units from 14 million previously, and above the 12 million units implied by guidance. Some of the upside from GTA V may have been offset by catalog weakness. We are leaving longer-term estimates unchanged due to the console transition, as it is difficult to assess whether sales may slow once the next-generation consoles launch. GTA V’s strength bodes well for GameStop (NYSE:GME), which had 48 percent market share of Xbox 360 and PS3 software in the April quarter, and a 290 basis point increase of new software market share in the July quarter.
Maintaining our OUTPERFORM rating and 12-month price target of $19. Our price target reflects a forward multiple of roughly 16x estimated sustainable EPS of $1.20 (fully taxed). This multiple is in line with industry peers, and reflects an improving outlook for publishers ahead of the launches of the next-gen consoles.
Michael Pachter is an analyst at Wedbush Securities.