Investopedia: Take-Two More Like A Big Game Call Option Than A Real Company

There's no such thing as a perfect way to value any company, but cash flow analysis has long suggested that Take-Two Interactive (Nasdaq:TTWO) isn't worth an investor's long-term attention. The stock's performance over the past five years has backed that up, though it's worth noting that Electronic Arts (NYSE:EA) has fared no better (meaningfully worse, actually) and there have been repeated trading opportunities.
With a continued pattern of poor earnings outside of blockbuster launches and delays in bringing major titles to market, it looks like little is going to change. Take-Two can be an interesting trading vehicle to play big-name title launches, but it doesn't look like management has the ability to make this company a consistent generator of free cash flow.

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Investopedia: Will Social Gaming Keep Electronic Arts Relevant?

The fad of the day is social and mobile gaming, and investors are more than a little fired up over the upcoming IPO of Zynga. While some people dread seeing notifications from games their friends are playing on platforms like Facebook, others cannot get enough of them and buy smartphones and tablets, in part on their ability to support gaming. Not wanting to get left behind, Electronic Arts (Nasdaq:ERTS) is making a major financial commitment to becoming a player in this space.


The Latest Deal
Electronic Arts announced Tuesday night that it would acquire PopCap Games, publisher of games like Plants vs. Zombies and Bejeweled, in a cash-and-stock deal. Electronic Arts will be paying $650 million in cash and $100 million in stock up front for the privately held Seattle-based game company. But scaled earn-outs could push the total deal price north of $1.3 billion if PopCap delivers cumulative two-year operating income of over $343 million.

Any way you slice it, this is a rich valuation on the fundamentals. PopCap does boast over 150 million installed games, but it produced about $100 million in revenue last year (though reportedly with a growth rate in the vicinity of 40%). To the extent that traditional game publishers like Electronic Arts, Activision Blizzard (Nasdaq:ATVI) or Take-Two (Nasdaq:TTWO) are comparables, the 7.5 times trailing sales that Electronic Arts is paying (just based upon upfront consideration) is about triple the going rate. 




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Investopedia: Electronic Arts - From Growth To Turnaround ... To Value?

What a long, strange trip it has been for Electronic Arts (Nasdaq:ERTS). This leading video game software company was once a go-go growth stock, with a valuation that virtually required double-digit cash flow growth ad infinitum.


Perhaps not so surprisingly in a competitive marketplace, that growth didn't show up. That sent the financials and valuations to a very dark place, and the stock sold for about one-fourth its peak value. Now, though, the company seems to have turned the ship around. But the question still remains whether Electronic Arts has enough of a moat to be an appealing value-oriented stock.

Fourth-Quarter Results Show Some Progress
Electronic Arts certainly delivered the goods for the fiscal fourth quarter. Revenue (on a GAAP basis) climbed 11%, handily surpassing even the high-end estimate by over 10%. The mix of the revenue is fairly interesting. Growth in North America was just 4%, while European sales jumped 21%. Digital revenue rose 72% (to nearly one-quarter of the total). Within all of that, products for the PC dropped 4%, mobile/handheld was flat, and console sales were up 20%.

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Has Take-Two Found A New Path?

For quite some time it has been easy to figure out how Take-Two Interactive Software (Nasdaq:TTWO) would do in a given year. All an investor had to do was check and see if there would be a release in the Grand Theft Auto franchise; if so, assume profits, and if not, assume losses. That sort of reliance on a single brand is seldom good news for a company, and it has been no exception for Take-Two. The question raised by this fiscal year, though, is whether the old truths about Take-Two may need some reexamination and reconsideration. 

A Surprisingly Good Quarter
Take-Two closed out its fiscal year with something of a bang. Revenue rose 32% to $374 million - handily beating both the average estimate of $325 million and the high-water mark for the quarter of $362 million. Growth was actually pretty well balanced this quarter, as Red Dead Redemption and NBA 2K11 made up for the absence of a new GTA release, and the company's catalog delivered solid performance.

Profitability was also much better this time around. Operating profits exceeded $59 million this quarter, which is a far better result than last year's $3 million. Not surprisingly, the company handily beat analyst earnings expectations. Interestingly, this was not only the first year in more than a decade where the company was profitable without a new GTA title, this period also marked profitability for the 2K Sports franchise. 


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