Foolish Forecast: Take-Two Is Getting Married

Take-Two Interactive (Nasdaq: TTWO) is getting chased around the video game sector by a would-be groom, well-muscled and confident. This week, that soap-opera drama will have to wait as the Grand Theft Auto developer reports third-quarter earnings Thursday night. Can the blushing bride demand a bigger dowry? I think so, and here's why.

What Fools say:
Here's how Take-Two's CAPS rating stacks up against some of its peers and competitors:

	Market Cap (billions)	Trailing P/E Ratio	CAPS Rating
Activision Blizzard (Nasdaq: ATVI)	$21.6	28.1	*****
Electronic Arts (Nasdaq: ERTS)	$15.6	N/A	***
Konami (NYSE: KNM)	$4.0	25.4	***
Take-Two	$1.9	N/A	***
THQ (Nasdaq: THQI)	$1.0	N/A	**

Data from Motley Fool CAPS and Yahoo! Finance as of 09/02/2008.

The CAPS community's darling game guru is Activision Blizzard, but EA is hoping to catch up by adding Take-Two to its stable of brands. CAPS player FoolNewb thinks that EA will have to increase its bid, while jchrisos says that Take-Two's stock is "overinflated because of the EA offer" and will "dip once this falls through." Each of these extreme positions represents a rather large portion of the CAPS commentaries on the matter.

What management does:
The trailing-12-month nature of these figures masks the Grand Theft Auto 4 effect a bit -- second-quarter sales clocked in a full 163% above 2007 levels and the company immediately erased nearly three quarters of red ink from the bottom line. The most amazing part of that is that the carjacking game was released April 29, one day before the company closed its books for the quarter.

Margins	1/2007	4/2007	7/2007	10/2007	1/2008	4/2008
Gross	23.9%	26.8%	26.1%	26.1%	25.7%	31.9%
Operating	(11%)	(10%)	(11.7%)	(10.1%)	(11.1%)	2.2%
Net	(16.9%)	(18%)	(15.2%)	(14.1%)	(16.4%)	(0.4%)
FCF/Revenue	(1%)	(3.9%)	(14.3%)	(8.7%)	(13.8%)	(6%)

Growth (YOY)	1/2007	4/2007	7/2007	10/2007	1/2008	4/2008
Revenue	9%	(1.6%)	(11.3%)	(5.4%)	(10%)	29.2%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The record-breaking launch day was impressive, but the latest GTA installment will make a big impact on this third quarter, too. Analyst earnings estimates range from about $37 million to $56 million, leaving plenty of room for a surprise either way.

GTA4 dominated the sales charts for a long time, selling 6.3 million copies by Aug. 1, in the U.S. and U.K. alone. That makes it the biggest-selling video game of the year, ahead of a couple of Nintendo (OTCBB: NTDOY.PK) titles and Activision's Guitar Hero III. Against that backdrop, I'd expect the final tally to come in at the upper end of the expectations spectrum -- perhaps forcing EA's hand to pull a few more bills out of its billfold. I think the deal will still happen, what with all the cozy snuggling the twosome is doing, just at a more generous price.