Take-Two's 'Red Dead' Is Up Against 'Lofty Expectations,' BMO Says In Downgrade

The case for no longer being bullish on video game maker Take-Two Interactive Software, Inc TTWO is based on concerns that Wall Street's "Red Dead" sales expectations are overly optimistic, according to BMO.

The Analyst

BMO Capital Markets' Gerrick Johnson downgraded Take-Two Interactive from Outperform to Market Perform with a price target lowered from $135 to $116.

The Thesis

Take-Two's latest game, "Red Dead Redemption 2," is expected to sell between 15 million and 18 million units throughout fiscal 2019 on top of 25 million units sold in the first 12 months -- with some estimates as high as 30 million, Johnson said in a note. The analyst is modeling for a "solid performance" of 15 million unit sales in fiscal 2019 and 17.5 million in the first 12 months, which implies the company is up against "lofty expectations."

On top of high sales expectations, Johnson said it's likely "Red Dead" would steal players and net bookings away from the company's other franchise game "Grand Theft Auto." In fact, recent declines in performance metrics at "GTA" indicates an "increase in this likelihood."

Take-Two's management team called out during its Q4 conference call weakness in its "NBA 2K" franchise for a top-line miss versus its guidance. Surprisingly, the company "usually doesn't underperform" against its typically conservative expectations and comes at a time when the game's performance in the eSports category has so far "been a disappointment."