Take-Two Interactive Software Q2 2024 Earnings Report

Take-Two Interactive Software EPS Results

• Actual EPS: -$3.20
• Consensus EPS: $1.02
• Beat/Miss: Missed by -$4.22
• One Year Ago EPS: $0.72

Take-Two Interactive Software Revenue Results

• Actual Revenue: $1.44 billion
• Expected Revenue: $1.43 billion
• Beat/Miss: Beat by +$13.69 million
• YoY Revenue Growth: -4.00%

Take-Two Interactive Software Announcement Details

• Quarter: Q2 2024
• Date: 11/8/2023
• Time: After Market Closes
• Conference Call Date: Wednesday, November 8, 2023
• Conference Call Time: 4:30PM ET

Take-Two Interactive Software (NASDAQ:TTWO) is an American video game publisher headquartered in New York City. Founded in 1993 by Ryan Brant, the company is publicly traded on the NASDAQ under the ticker TTWO and is led by Chairman and CEO Strauss Zelnick. Take-Two operates through distinct publishing labels that manage development, marketing and distribution of interactive entertainment for a global audience.

Take-Two’s publishing portfolio includes Rockstar Games and 2K, as well as the Private Division label, which supports independent and mid-size developers. Its major franchises span a variety of genres and platforms and include Grand Theft Auto and Red Dead Redemption (Rockstar), as well as 2K-owned series such as NBA 2K, BioShock, Borderlands and Civilization. The company distributes games across consoles, PC and mobile devices and supports titles post-launch with downloadable content, live-service updates and in-game offerings.

Take-Two serves markets worldwide, leveraging digital distribution, licensing and merchandising to extend franchise value and recurring consumer engagement. The company pursues a mix of internally developed projects, third‑party publishing partnerships and strategic investments to broaden its content and technical capabilities. Take-Two’s business model emphasizes high-quality, narrative-driven blockbuster titles alongside recurring-revenue sports and live-service products to sustain long-term player communities and commercial performance.

Take-Two Interactive Software Q2 2024 Earnings Call Transcript

Key Takeaways

• Q2 net bookings of $1.44 billion came in at the high end of guidance, and management reiterated its fiscal 2024 net bookings outlook of $5.45–$5.55 billion.
• Grand Theft Auto V and GTA Online saw continued engagement from the San Andreas Mercenaries update and growing GTA Plus membership, while Red Dead Redemption 2 has sold over 57 million units; the next GTA trailer is slated for December.
• NBA 2K24 has sold more than 4.5 million units, driven by new season pass options and a unified progression system, delivering double-digit ARPU growth versus NBA 2K23.
• Zynga’s mobile segment launched titles like PowerSlap, Top Troops and Match Factory, which drove ad bookings higher, even as recurring consumer spending fell 7% year-over-year.
• The company took a $220 million impairment on acquired intangibles and a $165 million goodwill write-down, resulting in a 24% increase in cost of revenue.

Presentation

[Operator]

Greetings, and welcome to the Take-Two Interactive Second Quarter Fiscal Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications.

[Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications at Take-Two Interactive Software]

Good afternoon. Thank you for joining our conference call to discuss our results for the Second Quarter of Fiscal Year 2024, ended September 30, 2023. Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer, Karl Slatoff, our President, and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q&A session following our prepared remarks. Before we begin, I'd like to remind everyone that statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors.

[Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications at Take-Two Interactive Software]

These important factors are described in our filings with the SEC, including the company's most recent annual report on Form 10-K and quarterly report on Form 10-Q, including the risks summarized in the section entitled Risk Factors. I'd also like to note that unless otherwise stated, all numbers we will be discussing today are GAAP, and all comparisons are year-over-year. Additional details regarding our actual results and outlook are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. Our press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. We've also posted to our website a slide deck that visually presents our results and financial outlook. Our press release and filings with the SEC may be obtained from our website at take2games.com.

[Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications at Take-Two Interactive Software]

Now I'll turn the call over to Strauss.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Thanks, Nicole. Good afternoon, and thank you for joining us today. We delivered another consecutive quarter of excellent results, highlighted by net bookings of $1.44 billion, which was at the high end of our guidance and management results that exceeded our plans. While we expect continued macroeconomic uncertainty, we believe that we're well positioned for the holiday season and are reiterating our fiscal 2024 net bookings guidance of $5.45 billion-$5.55 billion. Looking ahead, I'm exceedingly optimistic about our company's multi-year growth trajectory and our ability to deliver long-term value to our shareholders. Our development pipeline is robust and diverse, and we're getting closer to delivering the groundbreaking titles that our audiences throughout the world have been anticipating eagerly.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Our unwavering commitment to being the most creative, the most innovative, and the most efficient entertainment company gives us great confidence that our offerings will surpass our players' expectations and set new standards of creative excellence in our industry. Now, turning to the performance of our titles during the quarter. Grand Theft Auto V and Grand Theft Auto Online continue to surpass our expectations, an outstanding achievement for two titles celebrating their tenth anniversaries. To date, Grand Theft Auto V has sold in approximately 190 million units. Grand Theft Auto Online experienced continued momentum due to the rollout of new gameplay and items from the San Andreas Mercenaries update, with new seasonal events, vehicles, modes, clothes, and weapons driving sustained engagement and Net Bookings.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Our GTA+ membership program continued to grow, and we're deepening our relationships with our player communities through new offerings, which now include access to a rotating assortment of classic Rockstar Games titles. During the quarter, Rockstar Games announced that CitizenFX, the team behind the FiveM and RedM role-playing communities for Grand Theft Auto V and Red Dead Redemption 2, officially joined the label. With their immense passion and creativity, CitizenFX has been pivotal in expanding the possibilities of user-generated content around Rockstar's leading titles. We're excited to see them continue to build these creative communities and help them thrive into the future. We're also thrilled by today's announcement from Rockstar Games founder, Sam Houser, that the eagerly anticipated first trailer for the next Grand Theft Auto will be revealed this coming December.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

As the label approaches its 25th anniversary next month, we congratulate Rockstar Games on their constant innovation in the pursuit of the highest quality interactive entertainment. Red Dead Redemption II surpassed our plans and has sold in more than 57 million units to date. Rockstar Games continues to support Red Dead Online with new content, including bonuses for the Naturalist and Bounty Hunters and new free roam missions and events. In addition, Rockstar Games expanded the audience for the franchise with the launch of Red Dead Redemption: Undead Nightmare for PlayStation 4 and Nintendo Switch. On September 8, 2K and Visual Concepts once again redefined the No. 1 NBA simulation experience in our industry with the successful worldwide launch of NBA 2K24.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

With exciting new features and next generation enhancements, the title is off to a great start and to date has sold in over 4.5 million units. NBA 2K24 features new season pass options that provide players with the opportunity to earn even more rewards, as well as a new seasonal progression that tracks and combines MyCAREER and MyTEAM into one linear reward system. Engagement has been phenomenal, with season pass and virtual currency bookings exceeding our plans and driving double-digit growth in ARPU compared to NBA 2K23. Our franchise extensions continue to perform extremely well, including NBA 2K Mobile, NBA 2K Online in China, and the recently launched NBA 2K24 Arcade Edition on Apple Arcade. I'd like to thank 2K and Visual Concepts for continuing to bring innovation and creativity consistently to our beloved franchise.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

2K continued to support LEGO 2K Drive with its second Drive Pass season and the Creators Hub, and PGA Tour 2K23 with additional pros and gear. In addition, the label harnessed the power of our industry-leading catalog with the launch of the Borderlands Collection: Pandora's Box, which bundles together all six acclaimed Borderlands games and their previously released add-on content into a single offering at an amazing value. We have great respect for the team at Gearbox, and we value deeply our long-term relationship. Zynga once again delivered solid results during the quarter, and we remain pleased with its ongoing performance. We continue to benefit from Zynga's ability to create engaging new games, which is a distinguishing capability of our mobile business. For example, Rollic successfully launched Power Slap, based on the world's first regulated and sanctioned slap-fighting promotion.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

The title is highly entertaining, and to date, has experienced more than 1 billion slaps across training and matches. With the launch of this new mobile game, Rollic has now had 22 titles reach the number one or two spot in the U.S. Apple App Store. We'd like to thank the entire team over at TKO, including Ari Emanuel and Dana White, for their strong partnership, as well as our colleagues at Rollic, who created this title from inception to release in just 8 weeks. Zynga also recently launched Top Troops Match Factory!, both of which delivered excellent KPIs in soft launch and appear to have strong long-term potential for our portfolio. And Star Wars: Hunters continues to hit important milestones as we approach its planned release date in calendar 2024. Karl will discuss these titles in greater detail.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Other highlights from our mobile business this quarter include our advertising bookings grew year-over-year, driven by the addition of Popcore, contributions from strategic partnerships, and our efforts to increase ad inventory in many live games. We continue to make excellent progress in our profitability initiatives, including expanding the number of mobile games to leverage our direct-to-consumer platform. As we convert additional players, we're gaining new insights that we believe will better serve our players' preferences. We remain optimistic that over the next few years, most of our mobile games will leverage this highly accretive owned distribution channel. In addition, we continue to enhance the profitability and performance of our hyper-casual business, with multiple new games scaling rapidly and several games generating revenue from in-app purchases in addition to ads. Our live games portfolio also continued to deliver.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Social Casino maintained steady performance coming off a great first quarter, driven by new Bold Beat features, which drove strong results, particularly in Zynga Poker. Additionally, we implemented new updates and events across many games, including Top Eleven and Dragon City, which drove audience growth as well as increased engagement in core systems, leading to better retention and monetization. We stand at an exciting time in our company's history, with numerous growth opportunities ahead of us. As we deliver on our strategic priorities, we have the potential to create unparalleled entertainment experiences, engage broader audiences throughout the world, and ultimately enhance our scale and margin profile. I'd like to thank all of you for your continued support, and we look forward to delivering our next phase of growth. I'll now turn the call over to Karl.

[Karl Slatoff, President at Take-Two Interactive Software]

Thanks, Strauss. I'd like to thank our teams for delivering another strong quarter and adding to the ongoing positive momentum of our business. I'll now turn to our recent and upcoming launches for fiscal 2024 and beyond. On October 3rd, Zynga's Socialpoint Studio successfully launched Top Troops, a new mobile game that blends strategy, RPG, and merge mechanics to create a thrilling medieval fantasy adventure of combat and conquest. This marked the studio's first worldwide launch under Zynga following our combination last year. The game has seen positive player reception, with an average rating of 4.38 on Google Play and 4.5 on the Apple App Store. Engagement has also been fantastic, with over 2 million hours played and over 70 million battles fought since its worldwide launch date.

[Karl Slatoff, President at Take-Two Interactive Software]

2K and Gearbox Software expanded the audience of our beloved Borderlands franchise with the October 6 release of Borderlands 3: Ultimate Edition for Nintendo Switch. The game now allows players to make the mayhem at home or on the go in a thrilling, high-stakes adventure filled with genre-defining shooter looter action. On October 20, 2K and Visual Concepts launched the WWE 2K23 Bad Bunny Edition across all platforms. Global phenomenon Bad Bunny is featured on the cover of the edition, which also includes a new playable version of his in-game character wearing the apparel that he wore at WWE's Backlash 2023 live event. Zynga's Peak Games Studio, the makers of Toon Blast and Toy Blast, released Match Factory!, a new puzzle game for mobile, where players connect identical items, sort tiles, and clear the board in a mesmerizing 3D environment.

[Karl Slatoff, President at Take-Two Interactive Software]

In soft launch, we observed strong engagement and monetization metrics, as well as very positive player response, as indicated by App Store review scores, which gives us optimism about the long-term potential for this new mobile title. Private Division has several exciting releases planned for this fiscal year. On November 28th, Roll7 will release their critically acclaimed and wildly imaginative third-person shooter skater, Rollerdrome, for Xbox Series X and S and PC, as well as Xbox Game Pass for both platforms.... Also during the fourth quarter, Evening Star, founded by the industry veterans behind Sonic Mania, will launch Penny's Big Breakaway, a kinetic yo-yo 3D platformer for PlayStation 5, Xbox Series X and S, Nintendo Switch, and PC. 2K and Visual Concepts are hard at work on WWE 2K24, the next installment of our popular wrestling series, which will launch during the fourth quarter.

[Karl Slatoff, President at Take-Two Interactive Software]

Looking ahead, we continue to see great engagement and feedback from audiences enjoying Star Wars: Hunters in soft launch across multiple territories. There are several exciting new elements that we are working hard to get into the game, causing us to move the title's worldwide launch window to calendar 2024. Private Division is working with Weta Workshop on Tales of the Shire, a game set in the Middle-earth universe and inspired by the books of J.R.R. Tolkien. The team recently released a teaser trailer showing fans a glimpse of the project, which is planned for release in calendar 2024 during our fiscal year 2025. Also, Zynga plans to globally launch Game of Thrones: Legends, an all-new RPG puzzle-oriented mobile title.

[Karl Slatoff, President at Take-Two Interactive Software]

In addition to our full game releases, our labels will continue to provide new content and experiences that drive engagement and recurrent customer spending across many of our key offerings. Our hyper-casual studios plan to release a steady cadence of mobile titles for games that have the potential for enhanced retention rates and a mix of in-app purchases and advertising to drive higher monetization and profitability. Looking at the balance of this fiscal year and beyond, we are highly optimistic about what we believe to be the strongest and most exciting development pipeline in our company's history. Now I'll turn the call over to Lainie.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

Thanks, Karl, and good afternoon, everyone. Today, I'll discuss the key highlights from our second quarter before reviewing our financial outlook for the full year and third quarter of fiscal 2024. Additional details regarding our actual results and outlook are contained in our press release. We delivered another great quarter, which demonstrates the enduring strength of our catalog, our ability to deliver deeply engaging post-launch content, and our commitment to disciplined execution. At the same time, our teams continued to make excellent progress advancing our development pipeline, which gives us confidence in our multiyear growth trajectory. I'd like to thank our incredible teams worldwide for their hard work and passion for our business. Now moving on to our results. We achieved net bookings of $1.44 billion, which was at the high end of our guidance range.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

Our performance reflects better than expected results from Grand Theft Auto V and Grand Theft Auto Online and Red Dead Redemption II. During the quarter, we released NBA 2K24, Red Dead Redemption and Undead Nightmare for Switch and PlayStation 4, Borderlands Collection: Pandora's Box, and Power Slap. Recurrent consumer spending declined 7% for the period, which was in line with our outlook and accounted for 78% of net bookings. GAAP net revenue decreased 7% to $1.3 billion, while cost of revenue increased 24% to $884 million, driven by an impairment charge of $220 million and $190 million, the amortization of acquired intangibles.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

Operating expenses increased by 3% to $959 million and included $165 million of goodwill impairment, representing a partial impairment of one of our reporting units. On a management basis, operating expenses were flat year-over-year, which is favorable to our guidance. This was driven by lower marketing expenditures, some of which shifted to later this year. Turning to our guidance, I'll begin with our full fiscal year expectations. As Strauss mentioned, we are reiterating our net bookings outlook range of $5.45 billion-$5.55 billion. The largest contributors to net bookings are planned to be NBA 2K, Grand Theft Auto Online, and Grand Theft Auto V, our hyper casual mobile portfolio, Empires & Puzzles, Toon Blast, Red Dead Redemption 2, and Red Dead Online, Words With Friends, Merge Dragons!, and Zynga Poker.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

We expect the net bookings breakdown from our labels to be roughly 49% Zynga, 31% 2K, 18% Rockstar Games, and 2% other. We forecast our geographic net booking split to be about 65% United States and 35% international. We are projecting recurrent consumer spending growth of 4% compared to fiscal 2023, which assumes an increase for NBA 2K as well as Zynga, since we will own the business for a full 12 months this year. For Grand Theft Auto Online, virtual currency and GTA+ membership is expected to be flat. RCS is expected to represent 78% of net bookings. We plan to generate approximately $100 million in non-GAAP adjusted unrestricted operating cash flow and to deploy approximately $150 million for capital expenditures, primarily to support our office buildouts and larger footprint.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

We continue to forecast GAAP net revenue to range from $5.37 billion-$5.47 billion. Our total operating expenses are now planned to range from $3.53 billion-$3.55 billion as compared to $3.45 billion last year. On a management basis, we continue to expect operating expense growth of approximately 14% year-over-year due to a full year of Zynga, an increase in personnel and marketing expenses, and higher depreciation of office buildouts and capitalized IT expenses, which are being partially offset by the realization of synergies from our combination with Zynga and savings from our cost reduction program. We remain vigilant in our efforts to optimize our cost structure and reduce discretionary costs where possible, while still investing for growth. Now moving on to our guidance for the fiscal third quarter.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

We project net bookings to range from $1.3 billion-$1.85 billion, compared to $1.4 billion in the third quarter last year. Our release slate for the quarter includes 2 mobile titles, Top Troops and Match Factory!, as well as Borderlands 3 Ultimate Edition, all of which have been released. The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online, and Grand Theft Auto V, our hyper-casual mobile portfolio, Empires & Puzzles, Toon Blast, Red Dead Redemption II, and Red Dead Online, Words with Friends, Merge Dragons, and Zynga Poker. We project the current consumer spending to decrease by approximately 5%, which assumes a modest decline in our mobile business, which is being partially offset by expected growth in NBA 2K.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

The Grand Theft Auto Online, virtual currency, and GTA+ membership is expected to be up. We project GAAP net revenue to range from $1.29-$1.34 billion. Operating expenses are planned to range from $826-$836 million. On a management basis, operating expenses are expected to grow by approximately 7% year-over-year, driven by higher personnel and depreciation expenses, which are being partially offset by the Zynga synergies and our cost savings initiatives. In closing, there are many exciting upcoming catalysts that we believe will enable our company to achieve new record levels of financial performance. Powered by our incredible talent, we believe that our projects in development will set new standards for creativity and engagement in our industry, while also significantly enhancing our financial profile.We'd like to thank all our stakeholders for being on this journey with us, and we can't wait to share more details with you. Thank you. I'll now turn the call back to Strauss.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for enabling us to achieve our goals and to deliver another strong quarter. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

[Operator]

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is on the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Andrew Uerkwitz with Jefferies. Please proceed.

[Andrew Uerkwitz, Senior Analyst at Jefferies]

Great, thank you for taking my questions. The first one, and I just have one follow-up. The first one, in last quarter, you reiterated your fiscal 2025 and 2026 guidance. I think you announced, or Sam Houser mentioned we'll get a trailer for Grand Theft Auto, I think, in December. How are you feeling about those two years, and any reason why you didn't mention those two years in the reiteration of guidance?

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

Due to shifts in our pipeline, our expectations are that Net Bookings will now be below $8 billion, but not materially. So it really isn't a big change, and we expect growth in 2026 as well.

[Andrew Uerkwitz, Senior Analyst at Jefferies]

Got it. Thank you. And then kind of just turning to high level, high level question. The acquisition of FiveM seems super interesting, in that it could allow you guys to maybe learn more about user-generated content and find ways to monetize that and expand your audience. Well, what's the broader thought of making an acquisition like that and how it fits in, not just with Grand Theft Auto, but maybe the company as a whole?

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

We're really excited about it. I mean, to be clear, this is a small economic opportunity right now and a small cost to us. We want to be where the consumer is and what's going on in role-playing and in really in two ways. Number one, the people who are actually playing role-playing servers, and number two, the people who are watching what they're doing on Twitch. Both are really interesting. The actual people playing is a relatively modest audience. It's in the hundreds of thousands, but the people watching, that's a huge audience. And we're interested in first of all, making sure that our intellectual property is protected. We're also really interested in meeting the consumer where the consumer is, and for certain consumers, bonding is a really important activity.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Finally, you know, people are consuming our intellectual property. We would like to monetize it if we can. We think this gives us an opportunity to do all of the above.

[Andrew Uerkwitz, Senior Analyst at Jefferies]

Got it. Thank you.

[Operator]

Our next question comes from the line of Eric Handler with Roth MKM. Please proceed.

[Eric Handler, Managing Director, Senior Research Analyst, Media & Entertainment at Roth MKM]

Good afternoon, thanks for the question. Wondered if you could talk a little bit about, you know, what you're seeing with players who are engaged with GTA+. Are they, you know, are there different, you know, how they interact with the game versus someone who's not a subscriber?

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

We don't see materially a different behavior. We think it's a great addition. We're thrilled to engage with our consumers in this way. You know, it's a learning experience, but it's also gratifying that GTA+ continues to grow and be more and more relevant to more and more consumers.

[Eric Handler, Managing Director, Senior Research Analyst, Media & Entertainment at Roth MKM]

Great. And then, Lainie, maybe you can just do a quick clarification. At least on a GAAP basis, advertising was down. Is there a difference between GAAP revenue for advertising and advertising bookings?

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

Yes, in the GAAP, there is some deferral of some of the advertising, so that's the difference between us being up in the quarter versus the GAAP showing flat.

[Eric Handler, Managing Director, Senior Research Analyst, Media & Entertainment at Roth MKM]

Got it. Okay, thank you.

[Operator]

Our next question comes from the line of Doug Creutz with TD Cowen. Please proceed.

[Doug Creutz, Managing Director, Senior Research Analyst, Media & Entertainment at TD Cowen]

... Hey, thanks. Just wondering if you could give any more color on the write-down you took in the quarter. I'm guessing that had to do with some of your mobile assets, but whatever other color you can give on that would be helpful.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

Sure. We recorded an impairment charge of $220 million related to intangible assets and $165 million of goodwill, representing a partial impairment of one of our reporting units. This is as a result of an updated long-term projection for that reporting unit. But we're not giving any more details, other than that.

[Doug Creutz, Managing Director, Senior Research Analyst, Media & Entertainment at TD Cowen]

Okay, thank you.

[Operator]

Our next question comes from the line of Andrew Marok with Raymond James. Please proceed.

[Andrew Marok, Director, Internet Equity Research at Raymond James]

Hi, thanks for taking my questions. Saw over the last couple of weeks and months that trying out some different additions of content for GTA+ subs, thinking about the trilogy in particular. I guess, kind of what learnings have you had from the different types of content included in the subscription and how it drives uptake?

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

You know, that's the kind of detail that we typically leave to our labels, so we probably don't have much more to add today except what I said earlier, which is: We're thrilled that Rockstar is offering a subscription to avid consumers, and we think it bodes really well for the future.

[Andrew Marok, Director, Internet Equity Research at Raymond James]

All right, appreciate that. And then one more, if I could. Heard a lot about some of the coming titles in mobile. Kind of a greater prominence of licensed IP with things like Star Wars, Game of Thrones, Lord of the Rings. Just any difference in thinking as to the value of licensed IP on mobile versus console and PC? Thank you.

[Karl Slatoff, President at Take-Two Interactive Software]

This is Karl. The fact is we do value both. Both can be very, very valuable. Obviously, owning the IP in any context and also in mobile, the margin potential is much higher because you own it full and outright. Obviously, with licensed IP, you have to pay royalties. But the mobile market is tough to break new IP. It's tough to get attention, and it's undoubtedly you can't argue with the fact that having a known brand out there is a way for you to get attention. So it's a give and take. I would say our perspective hasn't changed. In a perfect world, we would focus exclusively on owned IP, but the truth is, when we see a good license that we think would have...

[Karl Slatoff, President at Take-Two Interactive Software]

We have a great idea for a game, and the Zynga folks want to take it to market, then that's something that we're gonna continue to pursue.

[Andrew Marok, Director, Internet Equity Research at Raymond James]

All right, much appreciated. Thank you.

[Operator]

Our next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed.

[Eric Sheridan, Managing Director, Senior Research Analyst, US Internet at Goldman Sachs]

Thank you so much for taking the questions. Maybe one bigger picture, one first for Strauss. You know, you've seen a lot of media inflation and increases in subscription prices broadly in the media landscape. How do you think about striking the balance between pricing and attracting a wider array of audience when you think about the content pipeline you're going to bring to market over the next couple of years to capture the right mix between those two dynamics? And then, second question would be: Are there any guardrails we should be keeping in mind in terms of the evolution of the DTC platform and what pace or cadence that might continue to evolve as a percentage of the mix? Thank you.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Yeah, I mean, you don't want to generalize to our business too much from what's gone on in linear entertainment, because the increase in subscription pricing in linear entertainment is really a reflection of the fact that too many streaming services were underpricing to acquire customers, and then they realized those customers were not durable, and the LTVs were upside down. So they were basically adjusting their pricing to make sure that the LTVs are potentially positive, and I think there's still more pain to come for some of those services, and I can wax eloquent if you want, although it has nothing to do with our business.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

In terms of pricing for any entertainment property, basically, the algorithm is the value of the expected entertainment usage, which is to say the per-hour value times the number of expected hours, plus the terminal value that's perceived by the customer in ownership if the title is actually owned, not, say, rented or subscribed to. And you, you'll see that that bears out in every kind of entertainment vehicle. By that standard, our frontline prices are still very, very low because we offer many hours of engagement. The value of the engagement is very high. So, you know, I think the industry as a whole offers a terrific price to value opportunity for consumers. That doesn't necessarily mean that the industry has pricing power or wants to have pricing power. However, there is a great deal of value offered.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

And look, it's our strategy here to deliver much more value than what we charge consumers. It's always been our strategy here. We want to make sure the experience is first class, and the nature of the experience is not just the quality of what we offer, it's also, you know, what you pay for it. Everyone knows that anecdotally. So that's how we look at it. You know, there have been precious few price increases in the business. The price increase, for example, to $70 for certain frontline products was the first price increase in many years after many generations. So again, I think we offer terrific value to consumers. On the second question-

[Eric Sheridan, Managing Director, Senior Research Analyst, US Internet at Goldman Sachs]

DTC.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Regarding the direct-to-consumer platform, we think there continues to be a great deal of upside there, again, for consumers and also for our margins. It's still a relatively small part of our business. There's a great opportunity for growth. To be clear, we will always work with third-party retailers. We want to be where the consumer is. We value our third-party retailer relationships. They do provide marketing support. That's important to us. There are times when consumers want to have a direct relationship. We can do both. We can do all the above. It is not our strategy to bring everything in-house.

[Eric Sheridan, Managing Director, Senior Research Analyst, US Internet at Goldman Sachs]

Thank you.

[Operator]

Our next question comes from the line of Drew Crum with Stifel. Please proceed.

[Drew Crum, Managing Director, Equity Research at Stifel]

Okay, thanks. Hey, guys. Good afternoon. So Strauss, you mentioned that the business is well positioned for the holiday season. What's driving that confidence, and how would you assess the health of your consumer? And then separately, I know it's just a subtle change to RCS, but what's behind the adjustment to that figure for the second half, given your fiscal 2Q is in line? It looks like just based on the commentary around the net bookings mix of Zynga, but just want to confirm that. Thanks.

[Karl Slatoff, President at Take-Two Interactive Software]

So, speaking to the confidence of our holiday season, like, I look simply, I think it's the strength of our catalog and the strength of our products. A lot of our releases are must-have releases. Anytime you're heading into a holiday season, and I think everyone around the table and on the phone is hopeful that we're going to have a very strong hardware season this season, this year. We do have a lot of titles that we think are sort of go-to titles for people to engage with. So, and also, obviously, we're also riffing off of the results that we've had to date, which are very strong. So the momentum feels positive.

[Karl Slatoff, President at Take-Two Interactive Software]

We've got a great lineup in place, and it looks like it's going to be a pretty good holiday season from a consumer perspective, particularly in the gaming space.

[Lainie Goldstein, Chief Financial Officer at Take-Two Interactive Software]

And for the RCS, the main driver is the reduction in Zynga's business for the remainder of the year. So we forecasted some of our titles, including a more muted expectation for the holiday based on the current trends. And we're also continuing to focus on profitability and hyper-casual, which is reducing our top line, but enhancing our margins. And then there's also some shifts in the pipeline, including Star Wars Hunters.

[Drew Crum, Managing Director, Equity Research at Stifel]

Got it. Helpful. Thanks, guys.

[Operator]

Our next question comes from the line of Omar Dessouky with Bank of America. Please proceed.

[Omar Dessouky, VP, Equity Research Analyst, Technology at Bank of America]

Hi, thanks so much for taking the question. I just wanted to get a little bit of clarification on what you said about shifts in your pipeline causing your fiscal 25 guide to be not materially below $8 billion. Is that because of shifts in your very largest AAA games in the pipeline, your smaller AAA games in the pipeline, or your mobile games? If you could provide some clarity on that, I'd appreciate it. Then I have a follow-up. Thanks.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Yeah, we haven't even issued initial guidance for the year. We do that in the spring of the new year, and that's when we'll give a lot more specificity around the release schedule. However, I want to reiterate, you know, we are going to be shy of $8 billion in fiscal 2025, but not materially so.

[Omar Dessouky, VP, Equity Research Analyst, Technology at Bank of America]

Okay. All right. No problem. So then the other question is, you know, obviously, super happy to see Sam Houser's message about the Grand Theft Auto Six, next Grand Theft Auto trailer coming soon. You know, on September 26th, the SAG-AFTRA voted to approve strike authorization for video game performers covered under the union's interactive media agreement. Now, they haven't actually striked yet, but there are negotiations, and I wanted to know whether, you know, if voice actors and motion capture actors were to go on strike, would it slow down the production of the next Grand Theft Auto at Rockstar? Does Rockstar have the type of employment contracts that, you know, would allow the workers, the actors, to work through a strike?

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Negotiations are expected to resume next week. We're optimistic. We value all of our talent greatly, and we value excellent labor relations, and we're looking forward to reaching an agreement that serves everyone well. That's always been my approach. I've been involved with labor negotiations in every entertainment industry there is in my career, and they've always worked out just fine. In the event that they don't work out just fine, now we are completely protected.

[Omar Dessouky, VP, Equity Research Analyst, Technology at Bank of America]

Thank you.

[Operator]

Our next question comes from the line of Mike Hickey with Benchmark. Please proceed.

[Mike Hickey, Analyst at Benchmark]

Hey, Strauss, Karl, Lainie, Nicole. Great quarter, guys. Thanks for taking my questions. Two questions. The first one, Strauss, I'd be curious sort of your, your updated thoughts on, AI here. It seems like the, the technology is, at least the, the unlock here, is accelerating, and some of the use cases that we're seeing in terms of, product and, and productivity, seem fairly remarkable. So just curious what, what you're thinking there, if that's different or not. And then the second question, on, on the trailer, in early December, curious what sort of impact you could think, you think that might have on, other Rockstar product, catalog product. Obviously, it's already been strong. I'm curious if that would be a, a catalyst, boost for your catalog.

[Mike Hickey, Analyst at Benchmark]

And then curious on Grand Theft Auto Online, what sort of the strategic value of that live service, given the vitality it has into the release of GTA Next? Obviously, that's a setup you haven't experienced before. Thanks, guys.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Thank you, Mike. Look, we've been in the AI business since the dawn of this industry. Our entertainment properties are created largely in and by computers, and we value tools, and we create those tools internally, and we license external tools as well, and the new developments in AI are really exciting. And I've said publicly and repeatedly that I believe that they'll help create efficiency, and in certain instances, allow us to do things we haven't been able to do before. But it's going to allow that for our competitors as well. So I think the tool sets that come out of these recent developments will be commoditized quickly, and the efficiency that we see, others will see. Do I think that generative AI is going to make hit games? No.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Do I think that the need for creative people will go away? Absolutely not. I think if anything, you know, better tool sets just raise the bar. They give us the opportunity to do more and do better. So the changes will be menial work probably is reduced or eliminated. High level work is enhanced in importance. So I think you'll see shifts in what we can do with our games. So you mentioned product. I think you'll see some shifts in product, positive ones, I hope. And you mentioned productivity, and I think you will for sure see some shifts in productivity, but I'm not sure those shifts will drop to the bottom line, because typically when we've, you know, generated productivity with tool sets, we've just set our sights higher.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

You know, it's that our story. Our strategy is to be the most creative, the most innovative, and the most efficient company in the business, and AI, I think, probably ticks all three boxes. But don't expect the price tags to go down. Just expect everything to get better, and competition probably to become more intense, for people who are not, you know, able to avail themselves of the resources that we can afford. With regards to the expected trailer that Sam Houser posted about today, you know, we're as excited as anyone else. And do I think there'll be an impact on our catalog revenue? Potentially. Things are already going really well in that space.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

With regards to GTA Online, I mean, it's one amazing story that here we are 10 years later after the initial release, and GTA Online is going strong. Why is it going strong? Because it's phenomenal and because Rockstar continues to supply content and updates and engage consumers and entertain them more effectively than, frankly, anyone else in the business. As long as we keep doing that, we'll be very well positioned indeed.

[Operator]

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Clay Griffin with MoffettNathanson. Please proceed.

[Clay Griffin, Research Analyst at MoffettNathanson]

Yeah, thanks. Good evening. I couldn't help but notice that Nintendo announced a live action film, Zelda film. I know, Strauss, I know this question comes up all the time, but I guess maybe we'll pose it this way. You know, what's your relative willingness and perhaps even Rockstar's willingness to partner and find ways to extend Red Dead Redemption IP, Grand Theft Auto IP, just because it has been so successful from a narrative perspective? Just wanted to get your updated thoughts on that. Thanks.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

We've spoken about this many times. You know, if we were willing to use the company's balance sheet to make, you know, a movie or a television show, then in the event of great success, we would benefit from it. But we're not prepared to use the company's balance sheet that way because the risk-reward profile is unappealing to us. They're very difficult businesses. I've been in them successfully. They're super challenging. They're not what we do. We much prefer the risk-reward profile of the business we're in. So that means that the only way we can be in that business is through a licensed arrangement with a third party. And you know, let's put it in context.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Mattel announced, they said that their profits, expected profits, from licensing the Barbie IP for a movie, would be about $125 million. Now, Barbie is a massive, massive hit. It's an extraordinary hit. So you don't want to posit a massive hit and, and, you know, look at the numbers that way. Even in a really good news scenario, the, the license fees would be a fraction thereof for many of our properties, not really enough to be meaningful here. And, you know, we have to weigh that, too, against the risk of failure. And the, the hit ratios in the motion picture business are vastly lower than they are in the interactive entertainment business. Our hit ratios for console properties here in the 80s are 90%.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

You know, the hit ratio for a well-run movie studio is around 30%, which is to say there's a 70% chance that, you know, the movie that we license could fail. And so in success, the number, you know, in terms of the benefit to our bottom line is, it's not de minimis, it's not zero, but it's not really material to what we do around here. And in failure, we run the risk of compromising the underlying intellectual property. So it's a high bar. We have licensed two properties. You know, we've licensed Borderlands to Lionsgate, and it's a picture coming. We've licensed BioShock. We're looking forward to that as well. And we have other titles in discussions, not anything ready to announce, but we're going to be very, very selective and very careful.

[Clay Griffin, Research Analyst at MoffettNathanson]

Makes sense. Thanks.

[Operator]

Our next question comes from the line of Brian Fitzgerald with Wells Fargo. Please proceed.

[Brian Fitzgerald, Managing Director, Equity Research, Internet & Interactive Entertainment at Wells Fargo]

Thanks. Strauss, we've been seeing more discussion of intrinsic in-game advertising, things like in-game billboards, and it seems like brand advertisers are getting more and more comfortable with in-game advertising. What are your thoughts on the broader opportunity there, beyond mobile, beyond games within games, and, and maybe as well as your outlook for Take-Two's own ad business and how that evolves? Thanks, and, and congrats on the quarter.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

...Thanks. I mean, you understand what we're already doing in mobile, so I don't think you want me to cover that. You alluded to that. With regard to console titles, we have advertising when it makes sense creatively and feels organic to the title. So for example, in NBA, if you go to a basketball game, you're gonna see advertising in the arena. So it's perfectly reasonable to see the same kind of advertising in our game. But we're not gonna do product placement where it's inappropriate, so that we can, you know, create a small amount of revenue. First of all, the numbers aren't huge, but secondly, anything that we do that takes a consumer out of the experience is problematic. So years ago, and I don't mean to take a potshot, but I'll do it anyhow.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

Years ago, there was a Bond movie, and James Bond, everyone knows he only drives an Aston Martin. He's only ever driven an Aston Martin. I don't know which iteration it was, but there was one iteration where they clearly made a deal with BMW, and all the cars in the movie were BMW. And look, it ruined the movie for me because to me, every time I saw a BMW, I was like: Wow, that look a little bit of product placement right there, a little bit of an advertisement. That's a disaster. So it's perfectly fine in basketball. It's perfectly fine in WWE. It's not perfectly fine in a title where advertising doesn't fit.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

As a result, I don't think you should expect that the numbers will be really material, although again, we do have an advertising business when it makes sense. That's completely separate, again, to at the risk of being repetitive, from the mobile advertising business. That's a growth category for us. Our mobile advertising was up year-over-year. We feel really good about that.

[Brian Fitzgerald, Managing Director, Equity Research, Internet & Interactive Entertainment at Wells Fargo]

Thanks, Strauss.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

I think those are all the questions we have. I just want to say thank you again for everyone joining us today. We're thrilled with the results, and the results are driven by the creativity and passion and commitment of our colleagues, all 12,500 of them all around the world. They work really hard every day, and we get to talk about it here, but the work, the work is done at the studio level, at the label level, at the corporate level. This is a company of great commitment to our strategy of creativity, innovation and efficiency. We have a culture of ambition, hard work, excellence-seeking, and kindness. I'm really proud of that. This is a really unusual place.

[Strauss Zelnick, Chairman and CEO at Take-Two Interactive Software]

If we pursue our strategy and we do it in a way that's consistent with our culture, we seem over and over again to do well. We're proud of that, and we feel very optimistic about the future. Thanks so much for joining us today.

[Operator]

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Karl Slatoff, President
• Lainie Goldstein, Chief Financial Officer
• Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications
• Strauss Zelnick, Chairman and CEO

Analysts

• Andrew Marok, Director, Internet Equity Research at Raymond James
• Andrew Uerkwitz, Senior Analyst at Jefferies
• Brian Fitzgerald, Managing Director, Equity Research, Internet & Interactive Entertainment at Wells Fargo
• Clay Griffin, Research Analyst at MoffettNathanson
• Doug Creutz, Managing Director, Senior Research Analyst, Media & Entertainment at TD Cowen
• Drew Crum, Managing Director, Equity Research at Stifel
• Eric Handler, Managing Director, Senior Research Analyst, Media & Entertainment at Roth MKM
• Eric Sheridan, Managing Director, Senior Research Analyst, US Internet at Goldman Sachs
• Mike Hickey, Analyst at Benchmark
• Omar Dessouky, VP, Equity Research Analyst, Technology at Bank of America