Take-Two: Analysts' Estimates Too High

Take-Two Interactive ( TTWO) warned Thursday that its bottom line for its fiscal third and fourth quarters will likely fall short of analysts' targets.

Because of its ongoing probe into its past stock-options grants, Take-Two gave scant details on its performance in its third quarter, which ended July 31. But what it did say wasn't terribly encouraging.

Not only did the company forecast disappointing earnings, but it also slightly missed analysts' revenue targets for the third quarter and is again delaying a title from its Rockstar studio, which will affect fourth-quarter sales.

What's more, the company warned that it has been hit with grand jury subpoenas related to its past options practices, and that it doesn't expect to file its quarterly report in time to meet regulatory requirements.

"While the Company is addressing various regulatory matters, we continue to focus on creating content to well position ourselves for the improved industry conditions we anticipate in 2007," Take-Two CEO Paul Eibeler said in a statement.

But investors weren't buying Eibeler's optimism. In after-hours trading, shares of Take-Two were off 84 cents, or 7%, to $11.35.

In the third quarter, Take-Two posted about $240 million in sales, up 41% from the same period last year. But sales last year were held down in part by the company's recall of its flagship title Grand Theft Auto: San Andreas, after the discovery of explicit sex scenes within the game that could be accessed with a downloadable program.

The company did not give any precise numbers on its expenses or its bottom line, saying only that " independent of any potential financial impact that may result from the company's internal investigation of option grants, the current analyst consensus EPS estimates for its third quarter, and revenue and EPS estimates for its fourth quarter are too high."

On average, analysts polled by Thomson First Call were expecting the company to lose 21 cents a share in the just-completed quarter on $241.6 million in sales. In the company's previous quarterly report in June, Take-Two officials declined to provide an outlook for this quarter, citing a tough market environment.

Other than its warning about fourth-quarter sales and earnings, Take-Two did not give any specific guidance. The Street had predicted that the company would earn 38 cents a share on sales of $394.1 million in the quarter.

Take-Two did not specify what title it was postponing, only that it was a Rockstar title for Sony's ( SNE) PlayStation Portable "based on a premier brand."

Take-Two did say that it still plans to release the Grand Theft Auto: Vice City Stories for the PSP in late October, toward the end of its fiscal year.

On the regulatory front, Take-Two said that the district attorney for the County of New York has subpoenaed the company for documents related to its options grants from November 2001 to the present, as well as other internal and regulatory documents.

Late in June, the district attorney's office had subpoenaed Take-Two for documents related to the explicit Grand Theft Auto sex scenes.

Additionally, the company is the target of a probe by the Securities and Exchange Commission over various matters including its options grants.

Take-Two has been in and out of trouble with regulatory authorities for years. Two weeks prior to the district attorney's June subpoena, the company settled a complaint by the Federal Trade Commission over the Grand Theft Auto sex scene.

Last year, the company settled a prior complaint by the SEC that charged the company with boosting its reported sales by flooding its distribution network with products that were later returned.

Take-Two's stock closed regular trading up 11 cents, or 0.9%, to $12.20.

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