Take-Two Tops Estimates

Video game publisher Take-Two Interactive ( TTWO) stole, slashed and mugged its way to better-than-expected earnings in the fourth quarter. The company, behind the hard-hitting Grand Theft Auto franchise, also raised financial guidance for next year, helping ease fears of a video game sales drought in the crucial holiday shopping season and coming year.

The nation's third-largest game sector stock by market capitalization posted net income of $22.3 million, or 54 cents a share, in the latest quarter compared with a loss of $4.7 million, or 13 cents a share, last year.

The shares added about 5% to $26 on the Instinet premarket session.

Sales jumped 79% to $218.3 million from $121.7 million last year.

For the full fiscal year 2002, ending Oct. 31, the company earned $71.6 million, or $1.81 a diluted share, compared to a loss of $8.6 million, or 25 cents loss per diluted share. Net revenue increased 77% to $794 million from $448 million last year.

Wall Street expected the company to earn 47 cents, on revenue of $184 million in the fourth quarter, and $1.77 on revenue of $760.69 million for the full fiscal year, according to Thomson Financial/First Call.

In recent weeks, tepid industry sales figures fueled a rash of Wall Street downgrades in a sector once believed to be among the strongest in the technology arena.

But several analysts remained upbeat on Take-Two, citing the phenomenal sales performance of the third installation of Grand Theft Auto. Sales of nearly 3 million units within the first 33 days of release led Wedbush Morgan Securities and Gerard Klauer Mattison to raise earnings estimates ahead of the financial announcements this morning.

Lehman Brothers leisure analyst Felicia Rae Kantor also kept a positive spin on the stock ahead of Take-Two earnings, even as she declared that the bloom is finally off the game industry rose. "We believe the company possesses the most catalysts of the small-cap interactive entertainment stocks," wrote Kantor, who rates the company 2-equal weight. "Given our calendar year '03 earnings per share of $2, TTWO currently trades at an '03 P/E of 11.7 or a 18.2% discount to its estimated 14.3% calendar EPS growth. Because of the power of the company's brand, we do not believe such a discount is warranted."

Looking ahead, Take-Two raised its guidance for fiscal 2003. It expects earnings to reach $2.20 a share on revenue of $950 million. For the first quarter, it expects to earn $1.14 a share on revenue of $355 million. The company backed prior second-quarter estimates of earnings of 34 cents a share on revenue of $190 million.

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