Take-Two shares tumble on weak 2009 outlook

Take-Two Interactive Software Inc. took a big hit Thursday _ its shares losing a quarter of their value _ after the video game publisher gave a disappointing forecast for fiscal 2009 because of the economy.

The company, best known for the "Grand Theft Auto" games that bring in the bulk of its revenue, called its forecast a "prudent response" to difficult market conditions. It guided for a hefty first-quarter loss when analysts were expecting a profit.

For the full year, Take-Two expects results between a breakeven and a profit of 20 cents per share _ far below average analyst estimates of $1.26 per share, as polled by Thomson Reuters.

The company launched the latest installment of "Grand Theft Auto" in April, when it raked in more than $500 million in its first week in stores. But sales of the game have tapered off since. UBS analyst Benjamin Schachter said while the company's outlook may prove conservative, it will "likely reignite concerns" that Take-Two can't make money in a year without a major "Grand Theft Auto" release.

In fiscal 2008, the GTA franchise accounted for 70 percent of Take-Two's publishing revenue, according to Schachter.

In an important piece of news, New York-based Take-Two also announced it re-signed employment contracts with key members of Rockstar Games, the studio behind "Grand Theft Auto." Some analysts had worried that Take-Two wouldn't be able to keep Rockstar's leadership after their previous contract expired.

Schachter said while the headline of the re-signed deal should be positive, he thinks investors will focus on the newly formed company, controlled by the Rockstar team with development paid for by Take-Two.

"While (Take-Two) retains the Rockstar talent, those same folks will be free to develop their best new ideas at the company's expense while Rockstar maintains ownership of the intellectual property," wrote the analyst, who has a "Neutral." rating on Take-Two.

The new contract, which is good through 2012, also switches from a revenue-sharing to a profit-sharing model between Take-Two and key Rockstar talent.

The new model "is not necessarily unexpected or a negative, but given the team's past success, we can only assume that the margin for Take-Two on the related titles will be lower than in the past," Schachter wrote.

Take-Two's shares fell $2.98, or 25 percent, to $9.09. Earlier, the stock hit $8.65, a multiyear low. The company's shares have been very volatile this year. At their highest, they were nearing $28. But this was before the company rejected a buyout offer from larger rival Electronic Arts Inc., for $2 billion, or $25.74 a share, calling it too low. EA later withdrew the bid.