Electronic Arts is still banned from Liberty City.
Take-Two Interactive bought itself some time with some solid earnings yesterday that beat earnings expectations. That gave a boost to its stock price and it suggests that Electronic Arts is going to have to raise its bid in order to acquire its game publishing rival.
Take-Two reported yesterday its revenue for the second fiscal quarter was $539.8 million and net income was $98.2 million, thanks to the April 29 launch of Grand Theft Auto IV. A year ago, revenues were only $205.4 million and the company had a loss of $51.2 million. Today, the stock fell slightly, down 29 cents to $27.36 a share. But it remains above EA’s offer of $25.74 a share.
The company threw a damper on things when it said yesterday that it did not expect its sports game business to be profitable in the current fiscal year. Take-Two said it is formal discussions with others but those aren’t necessarily negotiations that would trigger a filing. EA says its offer is based on long-term value, not one quarter’s results, and is therefore “full and fair.”
Now EA has to think about raising its bid or withdrawing it. Investors are telling the company that the stock is worth at least a little more. EA’s previous bid only snared 8 percent of the shares outstanding. Its next tender-offer deadline in June 16.
EA had said the GTA IV success had been baked into its offer price. But analysts have consistently been surprised by the strength of GTA IV sales. Yesterday, Take-Two expanded its fiscal year revenue guidance to $1.4 billion to $1.5 billion, up from $1.25 billion to $1.4 billion. But they’ve been cautious about saying EA has to pay more for Take-Two. Michael Pachter, an analyst at Wedbush Morgan Securities, said that Take-Two will likely sell no more than 12 million GTA IV copies during the fiscal year and he has a hold Take-Two stock.
“We believe that Take-Two remains a takeover story rather than a fundamental one,” Pachter said.
Ben Schachter of UBS wrote that he expects GTA to sell more than 14 million copies this year and that could be low, given that 11 million copies have alrady shipped. He thinks that EA will either hold or raise its offer to no more than $30 a share. He also says that Take-Two is more than a one-trick pony, given the appeal of franchises such as BioShock, Mafia and Carnival.