Nico Bellic stars in Take-Two Interactive's Expectation Beating Q2

While it may seem like eons ago now, that Grand Theft Auto 4 (GTA IV) was on the minds and in the hearts of every entertainment writer, blogger, Guiness World Record Book updater and most importantly gamer, the title is still on the books of Take-Two. PS3 and Xbox 360 owners the world over platooned into stores to own what would become the biggest video game launch in history.

With first day sales of $310Million, Take-Two Interactive (TTWO) shattered previous records for a video game launch. Almost 6Million copies sold virtually immediately and by the end of May the tally stood at 8.5Million units. The game's big star, the brash and vengeful European Nico Bellic has become a household name among that critical 18-29 demographic and Take-Two stands at the base of the mountain of its own Liberty City.

The success of the game pushed earnings beyond expectations (adjusted $1.52/share & real $1.29/share vs. $1.12/share expected) and sent Revenue skyrocketing on a year over year basis. Revenue jumped to $540Million from $205Million a year ago. The top line number handily beat analyst estimate averages of $499Million.

And all this while battling a takeover offer from Electronic Arts (ERTS). The EA offer stands at $25.74 a share, currently, with Take-Two stock closing Thursday's trading at $27.65. Clearly there's a gap there and TTWO shareholders are waiting for one of two things. EA to raise its offer by $2 or $3 a share, or to pull the offer of the table completely. When EA initially launched its bid it was valued at approximately $2Billion, and with Take-Two's market stance at a now lofty $2.13Billion, something has to give.

I know what Nico Bellic would do in this situation, but that's neither here nor there. What is clear however, is Take-Two has an absolutely bombshell on its hands and the franchise will only expand as GTA V and GTA VI eventually come through the pipeline. Take-Two has the clout these days to demand much more from EA, but in fact it would be better off to do it alone.

Holding the title of "smaller game studio" underdog is revered in the world of gaming and nothing spells doom for hardcore gaming enthusiasts like their favourite 'chic' development houses getting swallowed by conglomerates. The worst thing that could happen to the golden franchise of GTA is to have it being developed on a yearly basis with small tweaks and thrown on shelves alongside the latest iteration of Madden.

Nevertheless, the ball's in Take-Two's court, and as next quarter's expectations reveal, the company has plenty to keep smiling about. It forecast earnings of $0.45 to $0.55/share for its next quarter, which was a big step up from analysts which centered around $0.32/share.

Now all that sounds rosy, but here's where it gets a little dicey and strange for Investors. Q4 expectations from the company came out at $0.10 to $0.20/share versus analyst estimates of $0.46/share. With revenue numbers falling right in range of the averages for both quarters, the question has to be asked, where are the earnings going later in the year? That's a solid conference call question if I've ever heard one. Nevertheless full year profits of $1.65 to $1.85 per share, bested previous estimates of $1.35 to $1.65.

It's clear the EA offer is still too low and Take-Two has every right to holdout for much more. EA itself sports a healthy Forward P/E ratio of 53! Applying even a 30 forward P/E for the now uber-growth Take-Two gives it a price of $55/share, twice the current offer price. Scaling things back to only a 20 forward P/E for Take-Two sets a price of $37/share.

Shareholders should revolt against the EA offer till it is somewhere in the $30s, then management should start to listen to what EA has to say. With the success of GTA and the impending movie development deal for its BioShock property Take-Two has the swagger, the clout, and the results to demand more, much more. It's in the game!

Disclosure: Author holds no position in TTWO or ERTS

Entertainment in the spotlight post Fed with Take-Two and Marvel

While the market initially sold off moderately after the Federal Reserve Interest Rate cut the euphoria was back in full effect Thursday with substantial gains. The buying couldn't hold early Friday though, as American benchmarks drifted lower through mid-day. On the heels of a bullish Thursday, which saw the Nasdaq led gains with over 2% in the green, markets lulled going into the weekend.

It was a week where Entertainment was given the spotlight. One of the biggest video game franchises released its fourth installment, as the global phenomenon known as Grand Theft Auto, went back to its roots of "fake New York" Liberty City and released what is sure to be the biggest video game of all time, in terms of sales of course. Rockstar Games, which is a division of Take-Two Interactive Software (TTWO), saw this release also as the biggest in its tenure as a Video Games Maker. Shares of Take-Two are up substantially over recent months due to a buyout offer by Electronic Arts (ERTS). Take-Two has thus far been holding out for..... You guessed it, More Money! But as the first week and month results of GTA IV sales come back, Investors are expecting big things for the company and that franchise going forward.

Shifting entertainment forms now, from Video Games to Films, and its clear it'll be another Comic Book Summer. With no less that 3 major blockbuster films scheduled from now till mid summer based on popular comic book characters. The twist here is that Marvel Entertainment (MVL), after years of seeing the movie business capitalize and profit substantially on successful comic adaptations, isn't standing on the sidelines anymore. Now instead of licensing popular characters to the major movie studios and watching them collect profits from ever rising ticket prices, DVD sales, Rentals, iTunes revenue etc. Marvel put it's hand in the cookie jar and decided to start financing its own movies. And Marvel studios was born. With the first creation being the expected successful movie career of Iron Man.

The company's bold business model change years ago is bound to pay substantial dividends down the road as the worldwide box-office presents Marvel with a untapped resource of revenue. Their attention to the history of their own character creations will likely provide a movie platform that the outside studios could not and should provide years of additional story and movie script ideas. Marvel is set this summer with Iron Man and its second film The Incredible Hulk and if these prove to be as successful as most expect, then Marvel Studios will certainly expand and become a major player in the land of Hollywood.

Disclosure: Author holds no position in any aforementioned companies.