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Hot Coffee Makes Take-Two A Cheap Buy
CNN/Money has a look today at the business fallout from the Hot Coffee incident. Though Take-Two's stock has taken a dip as a result of the negative media exposure, analysts say that this is unlikely to affect the company's long-term fiscal health. From the article: "So rather than focus on the problems of the past few months, analysts think investors should look ahead. In its current fiscal year, which ends in October, analysts are predicting a 20 percent increase in earnings and analysts expect profits to jump 31 percent in fiscal 2006. Still, Take-Two's stock trades at just 16 times fiscal 2006 estimates, a steep discount to top rivals Electronic Arts , Activision and THQ."
Yeah, okay, maybe Take-Two is having a bad year. Hot Coffee, bad publicity... yeah, whatever.
People are still going to buy the Grand Theft Auto games. Yes, they are. No, the sixteen year old market isn't going to scream bloody murder at the fact that they may have once had the ability to almost control pixelated sex. If anything, that's almost good publicity for the target audience.
And we can't forget all the talented coders that work for Take-Two. They've made what they're told, plus an Easter Egg or two.
Having this "bad" hot coffee publicity undervalue Take-Two is the pinnacle of stupidity in my opinion. Of course, this is all my opinion, so...
- dshaw
Perhaps it's just stemming from the idea that Take-Two is a proverbial new kid on the block compared to its three "top rivals," but the comparison being made here is to game companies with far more history, money, and market clout behind them. Has the GTA series taken off since GTA3? Sure it has. Is this good for Take-Two? Sure it is. But is the idea that Take-Two is being offered for a discount "surprising?" I don't think so. Here's a very brief comparison:
Activision: Pitfall, Quake II/III, Doom 3, Spider-Man, Tony Hawk Series
THQ: Rights to WCW, then WWE wrestling games (and I'm sure a couple of +5 funnies will come off of responses to this, but you know as well as I do that the market slice that buys wrestling games will do so pretty religiously)
EA:
Take-Two: Controls 2K Games (which has lost NFL and ESPN licenses, leaving them leaning on basketball and baseball), and Rockstar (Max Payne, GTA series)
Now. I'm sure I risk again getting hounded because the list isn't complete, but I don't mean for it to be. This is a list of strong titles for all 4 groups. It wouldn't surprise me if Take-Two overtook THQ within the next few years, given that THQ's WWE licensing agreement runs out in 2009, but for now? It's a pretty serious statement of the obvious; quirky titles like Manhunt and State of Emergency are not enough to push the GTA-fueled machine into software juggernaut status.
___ In the words of Gen. Douglas McArthur: "I'll be right back."
How is Hot Coffee a bad thing, financially? Ethically, maybe, depends how much you actually think about it, but I'd think the only thing this could do is increase sales, especially among hardcore gamers, or gamers who'd never even heard of the series until now.
Do you honestly think soccer moms can hold a candle to the armies of 20-year-old virgins?
Don't thank God, thank a doctor!
Hmm, if you were to have bought the stock on reading that article, you would have already lost 6.2% of your investment, since Take Two just lowered forecasts again for this year.
The stock is not just trading lower due to the "hot coffee" mod. The company was also under federal investigation for accounting fraud. There is obviously a fear in the market that these guys are going to keep doing sketchy things that could hurt them in the long run if they're caught. There's also the fear that the FCC is going to become more strict when rating video games, so that AO rating might hit the next version of GTA, regardless of whether or not it has a "hot coffee" mod hidden inside. I don't personally believe it, but I bet that the concern is part of the reason the stock is low.