Why Take-Two's Initial Slide Didn't Make Sense

Shares of Take Two Interactive Software Inc TTWO were trading lower by around 10 percent after the company announced a delay in a game release Monday. But the stock erased all of the losses and were trading higher by more than 8 percent after Tuesday's opening bell when the company announced fourth-quarter earnings. The stock hit a new all-time high of $76.70 early Tuesday.

Initial Decline Explained

Jefferies' Timothy O'Shea commented in a research report that Take-Two's initial decline is due to the company postponing its "Red Dead" video game from fall 2017 to spring of 2018. The analyst doesn't believe the delay is due to a low-quality game but merely "a fact of life in this industry."

O'Shea noted that a similar event occurred years ago when "Grand Theft Auto V" was delayed by six months back in January 2013. Since then the game sold more than 75 million units, which helped contribute to the stock more than quintupling in value.

O'Shea continued that the math behind the delay is $25 million by assuming a net present value on $500 million in revenue slipping six months at a 10 percent discount rate. The analyst is also assuming development costs will increase by around $20 million. As such, the rough estimates imply the stock should have seen a reaction to the downside of less than 1 percent.

Jefferies maintains its Buy ratings and price target at $65.00.

Related Links:

Not Playing Around: Video Game ETF Is On A Tear

Shifting To Digital Has Been Good To Electronic Arts ________ Image Credit: By meristation [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
Date
ticker
name
Actual EPS
EPS Surprise
Actual Rev
Rev Surprise
Posted In: Analyst ColorEarningsLong IdeasNewsGuidanceReiterationAnalyst RatingsMoversTechTrading IdeasJefferiesRed Deadtake twoTimothy OSheavideo games
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!