Analyst: Your Take-Two Interactive Earnings Breakdown

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

Take-Two Interactive (NASDAQ:TTWO) Q3 beat led by strong new releases, digital, catalog, and cost control. Revenue was $405 million, compared with our estimate of $375 million, consensusof $365 million, and guidance of $325 – 375 million. Revenue upside came fromnew releases NBA 2K13 and XCOM: Enemy Unknown, Borderlands 2, digital (23% of revenue), and catalog sales (22%). EPS was $0.67, compared with our estimate of $0.60, consensus of $0.55, and guidance of $0.45 – 0.60. Key drivers of the EPS beat were better-than-expected top-line growth and cost control.

Revised FY:13 guidance did not pass through the Q3 upside. FY:13 guidance for revenue went to $1.15 – 1.20 billion from $1.10 – 1.20 billion and for EPS to $0.05 – 0.20 from $0.00 – 0.20. We believe management did not fully pass through Q3 upside, as conservative Q4 expectations reflect lower initial sell-in of BioShock

Your 1 Feature Stock Pick for February is hot off the press. Click here to discover it now!

Infinite and higher opex levels. Management is likely setting low expectations for Q4 in order to deliver another beat.

Revising our FY:13 estimates to reflect Q3 and guidance. Maintaining our FY:13 revenue estimate of $1.21 billion, lowering our…

EPS estimate to $0.24 from $0.30. Maintaining our FY:14 estimates for revenue of $2.10 billion, EPS of $3.00.

Grand Theft Auto V is (hopefully) coming in Q2:14. GTA V was finally dated last week with an expected release date of September 17, 2013. We expect the game to sell 20 million units in FY:14 and 24 million lifetime assuming an attach rate of 20% of the expected Xbox 360 and PS3 installed base at the end of June 2013. However, the constant slippage of titles decreases investor confidence.

Take-Two (NASDAQ:TTWO) shares will likely remain range-bound until the company regularly delivers on promised release dates. Slips of GTA V and BioShock Infinite have weakened investor confidence, and the company must show that it can hit promised release dates in order to drive the share price higher.

Maintaining our OUTPERFORM rating and our 12-month price target of $15.50, which reflects a forward multiple of 12x estimated sustainable EPS of $1.20 (fully taxed) plus an estimated $1/share in net cash. Our multiple is in line with the historical range, and reflects improving execution.

Michael Pachter is an analyst at Wedbush Morgan.

Don’t Miss: Is Take-Two Still a Bargain?