The Bet Against Take-Two vs. Activision and Electronic Arts
The best video game makers today can be argured down to Activision Blizzard, Inc. (NASDAQ:ATVI), Electronic Arts Inc. (NASDAQ:ERTS), and Take-Two Interactive Software, Inc. (NASDAQ:TTWO), but that does not imply their stock price reflects the popularity of the big three.
Activision (ATVI) commands a massive market cap of $6.07 billion, Electronic Arts (ERTS) weighs in at $13.45 billion, and Take-Two (TTWO) has the smallest cap at $854 million.
However when you compare short interest in the companies, the numbers are staggering: Take-Two short interest of 30%, Electronic Arts at 5%, and Activision at 3.7% (data from shortsqueeze.com). That's right, traders are out to get Take-Two Interactive and continue to bet that its stock price is going to tank.
Over the last 12 months Take-Two's stock price has ranged from $7 to $12.57 and today its at $10.13. Back in March Take-Two reported a Q1 2010 loss of $0.31, 20 cents better than the analyst estimate of ($0.51). Revenue for the quarter was $163.2 million, which compares to the estimate of $127 million. Take Two will be cutting 15% of its corporate head count this year and don't be surprised to see that number change if revenue doesn't pick up.
Take-Two sees Q2 earnings per share at $0.20 - $0.30 with Q2 2010 sales $250 - $300 million, versus $267 million consensus. Read more about Take-Two's Q1 conference call at StreetInsider.com>>. Titles being released by the company include BioShock 2, LA Noire, Mafia II, Max Payne 3, Red Dead Redemption and Sid Meier's Civilization V.
WHERE DO WE GO FROM HERE
March 2010 was the first month to show an increase in video game sales since
September 2009 which had 1% growth. Prior to that one must look back to
February 2009. Sales were up roughly 10%.
Activision (ATVI) reports earnings this week and Electronic Arts (ERTS) will issue its own earnings report on May 11th. Analysts will be looking for signs from the companies that the industry will see an improved performance this year compared to last year's slowdown.
If the numbers are good for Activision, all of the video game stocks will get a bump, and if its good for Electronic Arts -- game on.
Let's not forget back in 2008 when Take-Two rejected Electronic Arts $2 billion offer to acquire the company, willing to to buy all outstanding TTWO shares at $26 a pop. If Electronic Arts were to get that itch again, they could buy Take-Two for less than half of that 2008 offer. Keep in mind at today's stock price Take-Two is only worth $854 million.
Depending upon how April game sales turn out and if Activision or Electronic Arts have any thing good to report -- its a throw of the dice for Take-Two. But is that a bet worth taking?
Take-Two's high short interest is crazy and with lukewarm expectations for the gaming industry, the time may be sooner than later to take a gamble on Take-Two increasing its market cap.
Disclaimer: No positions in any of the securities mentioned in this publication.