But title masks poor Take-Two portfolio, says Wedbush

With the highly-anticipated title Grand Theft Auto IV due for release late next month, Wedbush Morgan has said that it expects the game to sell over nine million units during the fiscal year, and that Take-Two is likely to ship six million of those in the first week of sale.

The analyst predicts the game will be responsible for around USD 450 million of Take-Two's expected USD USD 1.073 billion publishing revenue this year, generating USD 135 million of the company's operating profit.

But the expected success of the title does not compensate for the poor portfolio of titles for 2008 and 2009, says Wedbush's Michael Pachter, as Take-Two fails to produce timely sequels to its popular franchises, and delays key releases.

"As we look at Take-Two's line-up, we see GTA IV, and several games that look much like Take-Two games from past years," commented Pachter.

"We are fans of Midnight Club, but question the decision to delay the game's launch into the competitive Burnout and Need for Speed window as ill-advised. We also note that the Q4 2008 launch of Midnight Club will mark three and-a-half years between versions of the game, highlighting Take-Two’s failure to "sequelise" its key franchises on a regular basis."

Pachter pointed out that of Take-Two's touted franchises, the last Max Payne game was released in late 2003, Red Dead Revolver in May 2004 and Mafia in January 2004.

"Unless management surprises us, sequels to these key franchises will require five or more years of development," he said, noting that Max Payne 2 isn't due for release until 2009.

The analyst also remains unimpressed with other titles already announced by Take-Two, including Top Spin 3, Don King Presents: Prizefighter and Carnival Games: Mini Golf. "These games appear to us like the Manhunt, BIGS, All-Pro Football, Ghost Rider and Fantastic Four games of last year, when the company generated a net operating loss of more than USD 100 million," he said.

On the subject of the EA's proposal to acquire Take-Two, Pachter expects a resolution before the publisher's AGM on April 10, possibly even before the end of the month.

"We expect that in order to save face, Take-Two management will withdraw its demand that any discussions wait until after the launch of GTA IV, and we think that management will engage in discussions with EA," he said.

"We think that EA prefers to complete a friendly deal, and think that it is possible that Take-Two management can convince EA of the extent to which EA may have undervalued Take-Two shares, and believe that as a conciliatory gesture, EA management may be prepared to increase its likely USD 26 offer to somewhere close to USD 27."

"Again, we think investors will jump at the offer," he concluded.