Recent comments from Take-Two management suggest that the publisher has no intention of turning GTA into an annual franchise. That said, the lack of visibility around the franchise's release schedule is not helping matters. Analyst Michael Pachter of Wedbush Morgan Securities believes Take-Two needs to be honest with shareholders about when GTA will ship.
"...we believe that management has been overly ambitious about the company’s development schedule. Game quality is substantially improved, but release dates have been quite unpredictable, with many delays of key games. We think it is important to note that GTA, which came out in October 2001, October 2002 and October 2004, required 3 1/2 years of development for the current generation version (released in April 2008), and the next installment is as yet to be announced. Dan Houser, one of the three key employees behind the franchise (along with brother Sam and producer Les Benzies) said in a recent interview that the trio hadn’t even thought of the locale for the next installment, let alone the plot. While we find this unfathomable, if it is true, it suggests that there will not be another installment of GTA until late 2011 at the earliest, putting the game on a 3 1/2 year release cycle," Pachter commented. "We think that the lack of visibility around the GTA franchise is an impediment to attracting investors to the Take-Two story, and reflects poorly on management. In our view, if the company’s most important franchise is on a 3 1/2 year schedule, management owes its shareholders the obligation of informing them of this fact. With no visibility into the timing of the next installment of GTA, we think that many investors will remain skeptical of the Take-Two story."
The bigger problem, besides lack of visibility, is that Take-Two still doesn't profit in non-GTA years. Pachter added, "Perhaps most disconcerting is that Take-Two management does not believe that the company can turn a profit at the $1.2 billion revenue level. The company they inherited had earned a profit on exactly that revenue level in FY:05, and yet management appears reconciled to the fact that this cycle is more costly, and that it cannot turn a profit from its quite impressive lineup. We think that this is probably true, and wonder when the company expects to have a sufficiently deep lineup to permit revenue growth to a profitable level without an installment of GTA."
Despite the big question marks around the publisher, Pachter remains somewhat confident in Take-Two because of its other strong IP. "With no profitability in sight, investors may again conclude that Take-Two is a 'one-hit wonder' with GTA and little else. We disagree, and think that the company has at least eight bona fide franchises, with the potential for 10 or 12. We perceive the problem to be an overly ambitious development schedule, with high expectations and high quality standards leading to inevitable delays. ...if Take-Two can deliver its franchises on a more compressed schedule, its earnings power would essentially double, and the stock would command a much higher price," he concluded.
