Take-Two Interactive Analyst Recap

Take-Two Interactive (NASDAQ:TTWO) Q2 beat from better-than-expected revenue (catalog and digital) and cost control. Revenue was $107 million, compared with our estimate of $85 million, consensus of $83 million, and guidance of $70 – 85 million.

Non-GAAP EPS was $(0.47) compared with our estimate of $(0.55), consensus of $(0.57), and guidance of $(0.65) – (0.55). The EPS beat was due in part to strong cost control.

Maintained FY:12 guidance for revenue of $1.0 – 1.1 billion and EPS of $0.10 – 0.35. Initial Q3 guidance is for revenue of $225 – 275 million and EPS of $0.20 – 0.30. Implied Q4 guidance is for revenue of $284 – 434 million and EPS of $0.25 – 0.60. The company maintained FY:13 guidance for EPS “in excess” of $2.00.

Lowering our FY:12 estimate for revenue to $1.07 billion from $1.10 billion to reflect lower expectations for NBA 2K12 and the shift of XCOM into FY:13, and lowering our EPS estimate to $0.38 from $0.40 to reflect the earnings beat and shift of XCOM. Increasing our FY:13 estimates for revenue to $1.75 billion from $1.70 billion, and for EPS to $3.00 from $2.50.

Grand Theft Auto V is likely to launch in FY:13. We expect the next Grand Theft Auto to sell at least 18 million units. At this level, we estimate that Grand Theft Auto will generate at least $2.65/share in incremental EPS, making Take-Two’s forecast of “in excess” of $2.00 per share in earnings during FY:13 easily attainable.

Weak guidance for Q3:12. As we expected, Take-Two provided Q3:12 revenue and EPS guidance below consensus due to the performance of NBA 2K12, which has been negatively impacted by the NBA lockout. We believe that Take-Two can salvage sales if a resolution to the lockout is reached a few days before Thanksgiving, helping Black Friday and holiday sales.

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.