Take-Two Interactive Software (TTWO, $9.07, down $3.00) is down 25% after reporting lousy earnings. The company posted a loss of $15 million, or $0.20 a share, which doubled the loss of $7 million, or $0.10 cents a share, from a year ago. Even worse, Take-Two said it now expects earnings to range from zilch to $0.20 a share for next year. Wall Street had forecast an estimate of $1.21. Whew!
We should have seen this coming after Electronic Arts (ERTS, 16.75, down $0.47) warned earlier this month that its year-end earnings would fall short of its expectations. The company blamed disappointing holiday sales, but “analysts” said that should not be viewed as an indication of Take-Two’s performance.
Yeah, and we were suppose to believe that one? If one company says sales are weak, it’s going to effect others. Although Take-Two has some premium games, the enthusiasm has peaked to some degree.
It would have been a risky trade but here is one case where a put option on Take-Two would have paid off. The December 10 puts (TUOXB, $1.00, up $0.80) are up 400% and I have to admit I blew that one (sly grin). I had mentioned in the Weekly Wrap that the company would be reporting earnings this week and a $200 all-or-nothing trade would have been worth a grand. Pretty sweet.
What is still hard to believe is that Take-Two turned down Electronic Arts offer of $27 a share months ago to buy the company…
Rick Rouse
Rick@OptionsMentoring.com
