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Company: Take-Two Interactive Software (TTWO)
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  Nico Bellic stars in Take-Two Interactive's Expectation Beating Q2

Take Two is a small publisher and distributor of a diverse portfolio of console and PC games. The most notable franchise TTWO has yet published is Grand Theft Auto. GTA 3 was one of the best selling games of all time, its add-ons and expansion packs brought revenue to nearly 1 billion dollars.

While it may seem like eons ago now, that Grand Theft Auto 4 (GTA IV) was on the minds and in the hearts of every entertainment writer, blogger, Guiness World Record Book updater and most importantly gamer, the title is still on the books of Take-Two. PS3 and Xbox 360 owners the world over platooned into stores to own what would become the biggest video game launch in history.

With first day sales of $310Million, Take-Two Interactive (TTWO) shattered previous records for a video game launch. Almost 6Million copies sold virtually immediately and by the end of May the tally stood at 8.5Million units. The game's big star, the brash and vengeful European Nico Bellic has become a household name among that critical 18-29 demographic and Take-Two stands at the base of the mountain of its own Liberty City.

The success of the game pushed earnings beyond expectations (adjusted $1.52/share & real $1.29/share vs. $1.12/share expected) and sent Revenue skyrocketing on a year over year basis. Revenue jumped to $540Million from $205Million a year ago. The top line number handily beat analyst estimate averages of $499Million.

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  GTA rules

Take Two is a small publisher and distributor of a diverse portfolio of console and PC games. The most notable franchise TTWO has yet published is Grand Theft Auto. GTA 3 was one of the best selling games of all time, its add-ons and expansion packs brought revenue to nearly 1 billion dollars. The long awaited GTA 4 is due in the first half of 08, and every evidence suggests this will be every bit the hit GTA 3 was, or, quite likely, bigger.

EA is very interested in Take-Two’s hit “Grand Theft Auto” series, which has garnered a reputation among parents and young adults alike for its graphic violence and sexually charged content. The latest installment of the series, “GTA IV,” was released on April 29 and been a boon for Take-Two.

The game sold 11 million units and pulled in gross revenue of $500 million in its first week. GTA IV’s success alone was enough to push fiscal 2008 revenue estimates to a range of $1.4 billion to $1.5 billion. The previous range was $1.25 billion to $1.4 billion.

Sales from the Grand Theft Auto franchise accounted for 78% of Take Two’s total sales last quarter.

Outside of Grand Theft Auto, Take-Two’s product line runs thin but includes well-known games such as “Civilization” and “BioShock,” which is being made into a movie. And EA is looking to bolster its arsenal to compete with rival Activision Bizzard Inc. (ATVI), maker of the hit “Guitar Hero” series.

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  ERTS pulls bid, deal imminent

Electronic Arts Inc. (ERTS) dropped its $2 billion hostile takeover of video game publisher Take-Two Interactive Software Inc. (TTWO) yesterday (Monday), but the two companies have entered into private discussions that may finally result in a friendly merger.

Relations between the two companies began to thaw Friday, when Electronic Arts Chief Executive Officer John Riccitiello placed a call Take-Two Chairman Strauss Zelnick. After a weekend of discussions, EA announced that after six months, it would not extend the deadline for its hostile takeover bid.

EA said yesterday that its $25.74 a share offer was contingent on being able to distribute Take-Two products during the 2008 Christmas season. But since there is no longer any chance of that happening, EA must “validate the assumptions” inherent in its previous offer.

To assuage EA’s concerns Take-Two has agreed to present the company with its three-year product lineup, as well as financial forecasts.

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  Video gaming is poised to enjoy long term growth

The entire gaming sector is likely to enjoy significant and sustainable long-term growth. Next generation console bases are significant, and opportunities for international expansion are near endless.

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  Strong stable of game franchises

BioShock, Carnival Games, Sports Franchises (Baseball, Basketball and Hockey), and the Civilization franchises are proving TTWO is no longer a "one trick pony".

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  TakeTwo trades at a significant discount to its peers

TakeTwo trades at a significant discount (Even after TTWO's recent 40+ % gain, this stock is undervalued) to its peers. For instance, ATVI will have (calendar year 08) revenues of 1.5 billion or so w/ profits in the 300mm range. TTWO could very well exceed revenues of 1.25b and profits of over 200mm. TTWO trades at 1/4th the valuation of ATVI.

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