Event:

Microsoft presented its Keynote today at E3

Conclusion:

Modest Positive for ATVI, ERTS, THQI, TTWO, UBI. We believe Microsoft’s new technology code-named Natal (see details below) is a potential important addition to the 360 platform that will at least enhance it as a multimedia and casual game device. The further expansion of the casual games business is positive for the third-party publishers, especially because they should be better leveraged to the expansion because Microsoft isn’t as competitive with casual gamers. To the extent that Natal eventually enhances hard-core games it could offer another reason for consumers to choose video games over other forms of entertainment.

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Didn't mention on earnings call; Had $40M in net cash after Apr-Q

• Ticker: TTWO
• Rating: Sector Perform
• Price: $8.83

Take-Two beats FQ2 estimates, but lowers forecast on game delays. TakeTwo reported upside to our fiscal Q2 (April) estimates. If not for lower taxes, EPS would have missed by $0.03. It lowered its sales forecast by $100 million on the high end of the range due to game delays, but was able to maintain its EPS targets, also due to lower taxes.

Repeated delays have become a huge issue. Take-Two delayed Red Dead Redemption and Mafia II. By our count, this completes the 12th major game delay since current management took over just over two years ago. Clearly management has no control over the release of its games, cannot accurately predict the timing of their completion or is not concerned with the forecasts it issues to investors. In any case, it has reinforced the low confidence we have in current management.

There are still much better ways to invest in videogames. In delaying more titles out of the year, Take-Two is now looking at an even more back-end-loaded year since most of its products will be released in fiscal Q4 (Oct.). We continue to lack confidence that the company can hit Street estimates. We believe there are better ways to invest that are not inextricably tied to a single franchise with a management team that has not established an investable track record.

BioShock Oct. 30 in Europe. Nov. 3 in North America

Delays Mafia II and Red Dead to F2010; 12th major delay

No industry software or hardware forecasts

GTA DLC for this fall is "Ballad of Gay Tony." Will also be sold on disc w/ Lost & Damned

Developing urban-themed online open world