More on Take-Two Earnings and Civ IV
Here's a more detailed look at Take-Two and their earnings announcement. Here are a couple of excerpts (thanks to Reuters--http://tinyurl.com/ayyk6):Take-Two's (TTWO) fiscal third-quarter net loss was $28.8 million, or 41 cents a share, depressed by reserves for "Grand Theft Auto: San Andreas," which was pulled from shelves near the end of the quarter following a controversy over hidden sex scenes accessible with a Web download.
...Take-Two in July lowered targets for the remainder of the year as it set up a roughly $40 million reserve to cover the cost of recalling "Grand Theft Auto: San Andreas" in North America. The Entertainment Software Rating Board changed the game's rating from "Mature" to the more restrictive "Adults Only." The reserve stood at $33 million at the end of July, assuming the return of around 800,000 games.
Okay. There's absolutely no question that Take-Two's accounting practices are, based on history, in the "gray" area of legality. And when companies like Take-Two are going to take a loss anyway, it's an ideal time to bury bodies.
Here's how it works (please keep in mind this is speculative analysis only). Take-Two originally announced that they expected a $40 million loss this last quarter and blamed it all on the recall of GTA: San Andreas. They know it's not going to be anywhere near $40 million--more like half that--but it sets up the perfect situation for them. They can take the $20 million loss, get rid of some "awkward" things on the books, max out all their reserves, and still outperform their estimates. Evil genius. Plus, to many people in the investment community who don't know any better, a loss is a loss is a loss. Better to increase a loss than to affect a profitable quarter's numbers (that doesn't make any sense mathematically, but believe me, some market analysts think that way).
In the future, they can tap those expanded reserves to improve their earnings during a lean quarter. And they can make it very, very hard to figure out what they've done.
This isn't anything new. Companies have done this forever. And I am only speculating that this is what Take-Two has done. I don't have financial documents or sources inside the company. I'm not the only one that thinks this all looks a little stinky, though:
"It just doesn't add up," said Wedbush Morgan Securities analyst Michael Pachter, referring to targets for the current and coming quarters.
Here's what we should be concerned about. When a game gets moved up to correspond to the end of a company's fiscal quarter, that's normally cause for concern, if not downright alarm. It's especially alarming when it's a high-profile, AAA title, like Civ IV, and even more alarming when it seems clear that Civ IV is being moved forward to compensate for the release of "Bully" being pushed into 2006.
So I'm glad Civ IV is coming out sooner than we expected. I just hope we can actually play it.
<< Home