Q2 Shows Take-Two Struggling to Survive on Rockstar’s Rep

L.A. Noire can't save earnings report

   

Q2 Shows Take-Two Struggling to Survive on Rockstar’s Rep

Every time it looks like Take-Two (NASDAQ:TTWO) is going to catch a break, the rug gets pulled out from under it. The video game publisher most famous for its enduring partnership with Rockstar Games, the creator of the Grand Theft Auto series, reported its second-quarter earnings Monday. The company was expected to turn in impressive numbers since it released L.A. Noire – a crime drama game overseen by Rockstar and created by development house Team Bondi — in the middle of the quarter.

L.A. Noire was expected to perform as well as Red Dead Redemption, Rockstar’s Grand Theft Auto-style western. Take-Two has shipped 11 million copies of that game between May 2010 and May 2011. Noire didn’t tank by any means, with 4 million copies shipped over the quarter, but that didn’t help Take-Two as much as it or its shareholders would have liked. The publisher turned in a net loss of $8.6 million for the period. Sales fell from more than $375 million last year to just above $334 million.

Those lax sales are troubling for Take-Two. Red Dead Redemption‘s performance during the second quarter of 2010 had Take-Two boasting that it finally had found a way to keep sales strong in years without a new Grand Theft Auto on shelves, even if it still was relying on titles carrying the Rockstar brand. L.A. Noire‘s performance between May and June of this year suggests that after a decade of prominence — Rockstar’s breakout hit Grand Theft Auto III was released in late 2001 — the Rockstar brand might be losing cache with consumers, replaced by an audience increasingly enamored mobile games on Apple‘s (NASDAQ:AAPL) iPhone, Facebook games like Zynga’s Farmville, and most significantly, Activision Blizzard‘s (NASDAQ:ATVI) Call of Duty series.

There were bright spots in Take-Two’s earnings report. The company’s unusual May release, Duke Nukem Forever, was profitable, according to CEO Strauss Zelnick. More a historical curio than a legitimate release, Nukem had been in development since 1997 but was cancelled in 2009 after Take-Two sued developer 3D Realms for failing to finish the game. Gearbox Software, one of Take-Two’s other long time partners, took over the game at the end of 2010 and released it in May when it was savaged by critics, though apparently not consumers.

The other good news was growing success of Take-Two’s digital sales. Sales of downloadable games and downloadable add-on content for retail games like L.A. Noire and Borderlands totaled nearly $25 million for the quarter, year-on-year growth of 49%. Like Activision, digital is becoming an increasingly prominent part of Take-Two’s overall business.

The year isn’t out, either. It’s possible that Take-Two hasn’t released its biggest 2011 seller yet. That might turn out to be NBA 2K12, the latest entry in its popular basketball game. Last year’s edition, NBA 2K11, spent five months atop U.S. game sales charts and continues to perform well at retail.

The company also is already showing off sequels to popular games that are due in 2012, including Bioshock Infinite and Borderlands 2, but with no new Rockstar intellectual property on the horizon (and the value of one in question), investors are understandably skittish. Shares were trading below $12 on Tuesday, down 34% from highs in June. It won’t be surprising if rumors of Activision Blizzard acquiring Take-Two resurface before the summer is out.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, http://investorplace.com/2011/08/take-two-rockstar-la-noire/.

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