Take-Two Hits Pause

The video game industry is hot, but that doesn't necessarily mean everybody's taking part in the good times. For example, Take-Two Interactive (NASDAQ:TTWO), the name behind the notorious Grand Theft Auto franchise, cut its earnings outlook for fiscal 2005 and 2006 late Monday -- and judging by the stock's fall on Tuesday, many investors apparently wondered whether this stock's got game.

Take-Two said it had to decrease its guidance for this year and next because of issues including product delays. The company now says that it expects earnings for fiscal 2005 of between $0.53 and $0.56 per share, and sales between $1.18 billion and $1.19 billion. That's a far cry from the $0.86 per share in profit and $1.25 billion in sales that analysts had anticipated.

The company blamed a delay in shipments of Grand Theft Auto: Liberty City Stories for Sony's (NYSE:SNE) PlayStation Portable device in some European territories. The game won't hit the shelves in those areas until the first quarter of fiscal 2006, rather than the fourth quarter of FY 2005.

Meanwhile, citing "expectations of a continued cautious U.S. retail environment through the holiday season, and the inherent uncertainty in forecasting the pace of manufacturer shipments and consumer adoption of new hardware platforms," Take-Two dragged down its guidance for FY 2006. This is the third time that Take-Two has reduced expectations recently.

Much has been made about the video game industry's promising times to come, and the optimistic outlook has bolstered companies like Motley Fool Stock Advisor picks Electronic Arts (NASDAQ:ERTS) and Activision (NASDAQ:ATVI). Not only does the mainstream public seem to be increasingly embracing video games as an entertaining pastime, but also the major console makers like Microsoft (NASDAQ:MSFT) and Sony will be releasing their next-generation consoles soon. That generally works to the benefit of video game creators.

It doesn't sound as though Take-Two feels too optimistic about the strong trends, though, and for that reason, it's no surprise that investors have taken the news hard. Meanwhile, Take-Two's recent past is fraught with bad publicity (although one Fool thought otherwise). Its major video game franchise, Grand Theft Auto, was very recently the center of a major debate that shook the industry. Back in September, it was clear that Take-Two was having some issues.

It's understandable that investors would take a negative view of Take-Two's admission of its bleak outlook for such an extended period of time. Investors who are interested in video game stocks might want to take a pass on this company, which seems full of uncertainty.

Want more on Take-Two and other video game companies? See the following Foolish content:

• Fools dueled over video game giant Electronic Arts -- here's the bull case, and here's the bear case.
• Take-Two recently geared up for a "Grand" return.
• On the other hand, Take-Two sat on the bench recently, too.

Electronic Arts and Activision are both Motley Fool Stock Advisor selections. To find out what other companies David and Tom Gardner have highlighted as winners for your portfolio, take a 30-day free trial today.

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Alyce Lomax does not own shares of any of the companies mentioned.