Take-Two’s Analyst Earnings Preview

Take-Two (NASDAQ:TTWO) will report fiscal Q2:12 (September) results after market close on Tuesday, November 8, and host a call at 1:30pm PT (877-407-0984 or at http://ir.take2games.com). The company changed its fiscal year from October to March, so this is its first time reporting September results using new fiscal quarters.

We expect Q2 results in-line with our estimates for revenue of $85 million and pro forma EPS of $(0.55), compared with consensus for revenue of $83 million and EPS of $(0.57), and guidance for revenue of $70 – 85 million and EPS of $(0.65) – (0.55). According to NPD, Take-Two’s U.S. retail sales for Q2:12 were down over 50% y-o-y due to Red Dead Redemption and Mafia II last year.

We expect the company to maintain FY:12 guidance for revenue of $1.0 – 1.1 billion and EPS of $0.10 – 0.35, and for FY:13 EPS in excess of $2.00. However, the NBA lockout will likely impact sales of Take-Two’s NBA game, and we expect December guidance below consensus.

Grand Theft Auto V is likely to launch in FY:13. FY:13 non-GAAP EPS guidance “in excess of $2.00” implies GTA V would be released next year. Take-Two formally announced GTA V on November 3, although no release date was provided. We think this implies a May / June 2012 release, and will adjust our model once additional detail is provided. We think that GTA could add $2.65 or more to EPS.

Take-Two’s (NASDAQ:TTWO) commitment to quality allowed it to be profitable in FY:11 and likely profitable in FY:12 without GTA. Profitability improves once MLB contract ends in March, and should improve further with a solid FY:13 lineup, including GTA.

Unparalleled upcoming release slate to drive Q4:12 and FY:13 results. In addition to GTA V, future AAA releases will include The Darkness II, Max Payne 3, XCOM, Spec Ops: The Line, Borderlands 2, and BioShock Infinite.

Maintaining our OUTPERFORM rating and our 12-month price target of $19, which reflects a forward multiple of 15x 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.