At 4:30 PM eastern, after the close of the markets, Take-Two Interactive announced its earnings for its second quarter, which ended April 31. The company declared revenues of $539.8 million for a profit of $98.2 million, contrasted with $205.4 million in revenues and a $51.2 million loss during the same quarter a year earlier.

The reason for the turnaround can primarily be attributed to Take-Two-owned Rockstar Games and its incredibly well-reviewed Grand Theft Auto IV, which shipped worldwide on April 29 and sold 6 million copies during its first week, with 11 million sold at the end of May. "While the tremendous consumer, critical and media acclaim for the game speaks for itself, I'd like to take this opportunity  to congratulate the entire Rockstar team on this stunning achievement," said Take-Two chairman Strauss Zelnick. This sentiment was pointedly repeated by the company's CEO Ben Feder and chief financial officer Lainie Goldstein when it came their time to speak, not simply because it was deserved, but also, in the wake of Electronic Arts' persistent bid to acquire to Take-Two, it's a clear signal to Rockstar that it is Take-Two's crown jewel.

To get some more clarity on the company's performance, we turned to Wedbush Morgan analyst Michael Pachter, who agreed to answer our questions via email. Here's what he had to say:

What's your, um, take on Take-Two's Q2 results?

The Take-Two results are pretty consistent with a huge sell-in of GTA. As you said, 78 percent of publishing revenues were GTA (around $380 million). This translates to around 7 million units at wholesale (hard to know how many collector's editions, so I'm using $55 as an average wholesale price). That leaves around $100 million for the rest of their publishing business.

I had estimated that they would sell in $318 million of GTA and sell-in another $110 million of other, so they missed my "other" estimate by a small amount and sold-in more GTA than I expected.

Guidance for Q3 looks completely consistent with more GTA and average performance from everything else. I had estimated another $96 million of GTA, but given their statement that they had sold in 11 million units as of May 31, their sales of the game in Q3 (using the same $55 average wholesale price) will be around $170 million. So the "upside" is merely packing the channel with copies of GTA. Note that only 8.5 million of the 11 million shipped were sold, leaving 2.5 million on store shelves. It's clear that these will sell through over the next few months, but it's not likely that they will get many more reorders during the quarter.

Anyway, I had them selling around $415 million of GTA over the two quarters, and they sold $550 million, so that explains all of the upside.

According to Take-Two, 78 percent of its Q2 revenues came from Grand Theft Auto IV and catalog titles. Should we look at this as simply GTA being a monster franchise, or does this show that Take-Two is too dependent on a single franchise?

To answer your second question, I think the results reflect selling more GTA early on than we all expected, but don't really reflect that overall demand for the game is any different than we thought, merely that demand is compressed. The game sold 6 million the first week, and only 2.5 million the next four, so it's not clear to me that it's going to top the average guess of 12-13 million for the year. They still have to sell 4.5 million to hit that number, and there aren't that many 360s and PS3s out there to give us confidence in a ton of upside.

If I'm not mistaken, the exclusivity deal between Microsoft and Take-Two for downloadable content for GTA IV was structured as an advance against revenues from the actual sales of the DLC. If so, how meaningful is it to Take-Two's bottom line that the GTA IV DLC has slipped from August 2008-October 2008 to November 2008-January 2009?

You're right about the advance from Microsoft. The shift of the game impacts bottom line, since earnings will be next year instead of this year. The advance impacts cash flow, since they already got $50 million, and won't get anything from the first download till they exceed $25 million for their portion of sales. My guess is that they get 70%, so sales of the first download have to be more than $35 million before TTWO gets any cash. They will book the revenues and the profits regardless, so the slip delays profit recognition.

Strauss Zelnick says that Take-Two remains committed to sports and will compete based on the superior quality of its products. Is this plausible given EA Sports' dominant position?

Strauss said that sports was near breakeven a year ago, so take his comments with a grain of salt.

Zelnick says that Take-Two is in "formal talks" with possible acquiring parties, but that it is not in negotations. How do you take that statement? [In its financial statement, Take-Two said that it spent $5.3 million in legal fees during the quarter, "with the majority related to Electronic Arts' unsolicited tender offer."] How likely is it that EA will end up purchasing Take-Two?

I have trouble parsing Strauss's words, and don't know the difference between "formal talks" and "negotiations". I assume he means that they are conducting scheduled meetings, but not discussing price. That sounds pretty silly to me, but I suppose it's an important distinction to somebody.

I think EA will buy Take-Two, and don't think that there will be any other formal offers made.