Take-Two's Fault Line

Even with an abridged trading week, the market will still be buzzing as significant players like National Semiconductor (NYSE:NSM) and Comverse Technology (NASDAQ:CMVT) step up to announce their quarterly results.

However, the video game buff in me is anticipating Take-Two Interactive's (NASDAQ:TTWO) fiscal third-quarter result come Thursday. In theory, the actual report shouldn't amount to much. Three months ago, the company told investors to expect a loss between $0.28 and $0.33 a share for the July quarter. A slow season and a tweaked release schedule will do that to a software specialist.

No, what matters here is that Grand Theft Auto: San Andreas is set to hit game stores next month. The franchise has been the cornerstone of Take-Two's success, and the latest installment is a no-brainer to sell strongly into the peak holiday shopping season.

How important is Grand Theft Auto to the company? While the stock is trading lower over the past year, it is still claiming a fivefold advance in just three years. Sporting nearly $6 a share in cash, the company's balance sheet is also solid.

But Take-Two isn't perfect. Despite the heady gains, the company has a troubling history of financial restatements and corporate shuffles. The company would also welcome another monster franchise. Yes, Max Payne and Midnight Club have served Take-Two well, but the prolific software houses like Electronic Arts (NASDAQ:ERTS) and Activision (NASDAQ:ATVI) that were singled out as stock recommendations in Motley Fool Stock Advisor last year have made their mark by hitting it out of the park more than once.

In that sense, it'll be interesting to hear how its ESPN football game is faring. Co-publishing the title with Sega, the companies are hoping that Disney's (NYSE:DIS) popular sports programming brand will be enough to make it a hit. As Electronic Arts' Madden Football has proven, if you penetrate enough homes, you'll have an audience of willing gamers willing to buy in every year to get updated NFL rosters.

Selling at a fraction of Madden, at least Take-Two recognizes that you have to aim low if you want to make it up in volume. Now let's see if it can aim higher financially for fiscal 2005.

Longtime Fool contributor Rick Munarriz thought ESPN NFL 2K5 had potential. He enjoyed the commentary flow and the graphics, but he found the game play sorely lacking. Better luck, 2K6. He owns shares in Disney, but not in any other company mentioned in this story.