Jim Cramer on Take-Two Interactive (TTWO): Should Trade on Par With EA, Activision Blizzard

NEW YORK (TheStreet) -- Shares of video game maker Take-Two Interactive  (TTWO) rose 0.76% to $27.86 in early morning trading Thursday after CEO Strauss Zelnick appeared on Jim Cramer's Mad Money show on CNBC.

Take-Two delivered earnings of 49 cents a share on Tuesday, which beat the consensus estimate of 27 cents a share by 22 cents. The company also issued earnings guidance of 25 cents to 35 cents a share for the current quarter, which smashed analysts' expectations of a loss of 2 cents a share.

Zelnick told Cramer that Take-Two is not just a drive by its hits. It's a profitable company with a diverse lineup of games that it wants to build into permanent franchises. For this reason, Take-Two does not release new versions of its games each year, with the exception of sports games. Instead, the company takes the time to craft the next installments in its series with engaging stories and interactivity.

Cramer asked Zelnick about Asian markets, and the CEO replied that the area has become a big contributor to Take-Two's growth targets after the company entered the markets just a few years ago.

Cramer said investors should keep an eye on this company as Take-Two continues to be at the forefront of interactive entertainment.

"Strauss Zelnick's putting together 10 franchises of five million units or more," Cramer said Thursday morning. "It deserves to trade on parity with Electronic Arts  (EA) and Activision Blizzard  (ATVI) and is too cheap. This is not just Grand Theft Auto!"

Separately, TheStreet Ratings team rates TAKE-TWO INTERACTIVE SFTWR as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate TAKE-TWO INTERACTIVE SFTWR (TTWO) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • TTWO's very impressive revenue growth greatly exceeded the industry average of 1.6%. Since the same quarter one year prior, revenues leaped by 53.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, TTWO's share price has jumped by 26.76%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • TTWO's debt-to-equity ratio of 0.85 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that TTWO's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.54 is high and demonstrates strong liquidity.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 688.6% when compared to the same quarter one year ago, falling from -$30.79 million to -$242.79 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Software industry and the overall market, TAKE-TWO INTERACTIVE SFTWR's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: TTWO Ratings Report

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