"Grand Theft Auto" boosts Take-Two profit

SAN FRANCISCO (Reuters) - Take-Two Interactive Software Inc raised its profit forecasts and posted higher-than-expected quarterly earnings on Thursday, citing the success of its criminal action video game “Grand Theft Auto 4.”

“They are executing phenomenally well on ‘Grand Theft Auto’,” said Wedbush Morgan analyst Michael Pachter. “Their upside was from selling more units of ‘Grand Theft Auto’ than most of us were expecting.”

The company, which has rebuffed a $2 billion buyout offer from Electronic Arts Inc, is also having “formal discussions” with other parties about strategic alternatives, Chief Executive Ben Feder said.

“The board remains committed to exploring strategic alternatives and we’re actively engaged in that process now. We have had and are having formal discussions with a number of interested parties,” Feder told Reuters in an interview.

Take-Two said it had not entered “negotiations”, the point at which it would have to disclose such activity to securities regulators. But the language on Thursday went beyond previous statements that it had received “indications of interest” from other parties.

Take-Two management has said EA’s offer of $25.74 per share doesn’t fairly value the company and the performance of “Grand Theft Auto 4,” which was launched on April 29 to critical acclaim and earned $500 million in sales in its first week.

The criminal action game had sold 8.5 million copies to consumers and 11 million copies to retail outlets as of May 31, Feder said.

“That 11 million unit number surprised me. That’s big. It’s what people thought they would do for the whole year,” said Signal Hill analyst Todd Greenwald.

Based on the performance of “Grand Theft Auto 4”, Take-Two said it expects to earn 45 cents to 55 cents per share, excluding special items, on revenue of between $325 million and $375 million in its current, third fiscal quarter.

That compares to the average analyst forecast of 35 cents per share on revenue of $322 million, according to Reuters Estimates.

Take-Two shares fell 5 cents in extended trading after rising 1.24 percent to $27.65 in the regular Nasdaq session.

Analysts said that despite the rosy results, the stock was still capped by expectations among shareholders -- now thought to largely be arbitrage traders and not long-term investors -- that EA will raise its bid by a couple dollars per share.

“They are still handcuffed. This has got to be driving them crazy. They show a solid beat and raise their forecast, and the stock does nothing,” Greenwald said.

Feder said upcoming games such as “Midnight Club: Los Angeles”, “Civilization Revolution” and “Carnival Games Mini Golf” would help round out the product slate this year.

Take-Two also delayed the release of downloadable episodes for “Grand Theft Auto 4” by one quarter, to the first quarter of its fiscal 2009, saying it would help balance out its games portfolio for the year. The content will be sold exclusively for the version of the game for Microsoft Corp’s Xbox 360 console.

For the second quarter ended April 30, net profit was $98.2 million, or $1.29 cents per share, compared with a net loss of $51.3 million, or 71 cents per share, a year earlier.

Excluding special items such stock-based compensation, legal fees and reorganization costs, Take-Two’s profit was $1.52 per share, beating the average forecast of $1.12.

Revenue was $539.8 million, up 160 percent from a year earlier and beating the average expectation of $499 million.

Reporting by Scott Hillis; Editing by Andre Grenon and Carol Bishopric