Special Situation Investing

Thursday, September 21, 2006

Take Two Interactive (TTWO) Delisting Notice

Video-game developer Take Two Interactive (TTWO) received a delisting notice today from NASDAQ. The notice stems from the filing delay of their third quarter 10-Q. The company claims that it has had to delay filing as a result of an options backdating investigation.

Personally I don't consider this a significant event for long-term holders. The investigation into the options will play a moderate role in it's long-term stock performance but quite frankly I couldn't care less if it's part of an index. In the short-run, of course, you could and probably will see some pain if it's delisted. The fact is though, Dell was handed a similar warning today so I wouldn't be too concerned. If anything, I would consider delisting a long-term buying opportunity and would welcome it as the risk/reward at $14.50 is still a bit steep. Not that the company isn't going to go up, I believe it will, but you just have too much potential downside at $14.50 for it to be a "good" buy. For the record, I got in at $10.61 and am going to wait this out.

Ultimately, I believe the largest factor in this company's long-term performance will be it's profitability. It has not been profitable of late. However, as I pointed out previously, video game developers make essentially all of their profits in the christmas quarter. Last year's christmas quarter was heavily affected by the GTA sex-scandal, again see my past article. This year's christmas quarter is basically a clean slate with a new release of games. The company has delivered hits in the past and will probably do so in the future. Your hedge (well it's gotten a lot smaller at recent prices), is that the company is selling at a fraction of it's past revenues while competitors sell at multiples of 2-5x. Keep it on your radar screen.


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