Take-Two's Murky Pipeline Leads To Caution On Stock Price Outlook

Wall Street wants to like video game company Take-Two Interactive Software, Inc. TTWO, which had big hits in recent years with the "Grand Theft Auto" franchise and the "Red Dead Redemption" games. But it's hard to say what's going to happen with the stock when it's not clear what might be coming down the pipe, and when.

Investors reacted to what one analyst called Take-Two's "choppy quarter," selling off the stock more than 10% on Friday - a sell-off possibly also still being influenced by the departure of chief creative officer Dan Houser from Take-Two's Rockstar studio.

Take-Two reported earnings below Street expectations. But a lackluster forecast and lack of clarity around future game releases is what was mostly leading sell-side analysts to hedge on stock price expectations.

The Take-Two Analysts

Benchmark's Mike Hickey kept a Buy rating on Take-Two, but lowered the price target from $147 to $142.

Wedbush's Michael Pachter reiterated an Outperform rating on the stock, while lowering the target price from $144 to $131.

Stephens analyst Jeff Cohen kept an Equal-Weight rating and $110 price target on the stock.

The TTWO Theses

Hickey said he's cautious on Take-Two's fiscal 2021 growth profile because of the lack of transparency around just what's coming. "We're modeling a meaningful step down in profitability as we are not confident that we will witness a AAA frontline release," Hickey wrote in a note.

Pachter agreed Take-Two's forward path is "opaque." But, he said, he's pretty sure games are coming.

"Although we think that Take-Two’s game pipeline is filled with compelling content, it is difficult to determine when we should expect these titles," Pachter wrote.

And just what they will be - smaller titles, or something big like the next installment of "Grand Theft Auto" isn't clear, making it hard to value the shares, he said. Still, the stock has a compelling value at its current level, Pachter wrote.

Cohen said the company's December quarter report was "uncharacteristically choppy," and pointed to weakness in the "NBA 2-K" game that overshadowed what was a strong quarter for "Grand Theft Auto Online."

But ultimately, Cohen agreed investors are going to be squeamish because of uncertainty.

Lowered outlooks for the NBA game and "Borderlands" along with the lack of a release slate or promised date for "Grand Theft Auto 6" will keep shares under pressure in the near term, Cohen wrote.