Take-Two Interactive Software Q4 2023 Earnings Report

Take-Two Interactive Software EPS Results

• Actual EPS: -$3.62
• Consensus EPS: $0.68
• Beat/Miss: Missed by -$4.30
• One Year Ago EPS: $0.87

Take-Two Interactive Software Revenue Results

• Actual Revenue: $1.39 billion
• Expected Revenue: $1.34 billion
• Beat/Miss: Beat by +$55.12 million
• YoY Revenue Growth: +64.70%

Take-Two Interactive Software Announcement Details

• Quarter: Q4 2023
• Date: 5/17/2023
• Time: After Market Closes
• Conference Call Date: Wednesday, May 17, 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 Q4 2023 Earnings Call Transcript

Key Takeaways

• Take-Two reported Q4 FY23 net bookings of $1.39 B, surpassing guidance, and full-year net bookings of $5.28 B, driven by strong performance from GTA V/Online, Red Dead Redemption 2 and Zynga’s mobile portfolio.
• The Zynga integration has been highly accretive: Take-Two exceeded first-year cost synergies of $50 M, expanded its mobile platform through select acquisitions and now employs nearly 12,000 people, including ~9,000 developers.
• For FY24, Take-Two expects net bookings of $5.45–$5.55 B and ~$100 M in adjusted unrestricted operating cash flow, reflecting a challenging consumer environment and extended development timelines.
• Looking to FY25, management forecasts >$8 B in net bookings and >$1 B in operating cash flow as it launches a robust slate of groundbreaking titles, with further growth anticipated in FY26.
• Key franchises remain resilient: GTA V has sold 180 M+ units, Red Dead Redemption 2 53 M+ units and NBA 2K23 a record 11 M units, while Zynga’s in-app purchases and ads now account for ~27 % of its net bookings.

Presentation

[Nicole, Company Representative at Take-Two Interactive Software]

Good afternoon. Thank you for joining our conference call to discuss our results for the fourth quarter and fiscal year 2023 as in March 31, 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, Company Representative 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 the non-GAAP financial measure to the most comparable GAAP measure. We have 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, Company Representative 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. I'm pleased to report that we concluded fiscal 2023 by delivering strong fourth quarter results, including Net Bookings of $1.4 billion, which were above the high end of our expectations. On behalf of our management team, I'd like to thank all of our colleagues around the world for helping us achieve these results and supporting our vision to become a more scaled, diverse, industry-leading organization, especially as we navigate an oftentimes volatile and uncertain economic landscape. With fiscal 2024 underway, our initial expectation is to deliver full-year Net Bookings in the range of $5.45 billion-$5.55 billion. We're assuming a continuation of the current challenging consumer backdrop within our forecast.

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

Additionally, the development timelines of some of our titles have lengthened, especially as we strive to redefine the creative standards of excellence of our industry, which affect our release slate for the year. Looking ahead, fiscal 2025 is a highly anticipated year for our company. For the last several years, we've been preparing our business to release an incredibly robust pipeline of projects that we believe will take our company to even greater levels of success. In fiscal 2025, we expect to enter this new era by launching several groundbreaking titles that we believe will set new standards in our industry and enable us to achieve over $8 billion in Net Bookings and over $1 billion in Adjusted Unrestricted Operating Cash Flow. We expect to sustain this momentum by delivering even higher levels of operating results in fiscal 2026 and beyond.

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

I'd now like to discuss several key highlights from fiscal 2023, which was a milestone year in the 30-year history of our organization. We delivered Net Bookings of $5.3 billion, which reflects both the transformative evolution of our company through our combination with Zynga and our ability to create, market, and distribute the highest quality entertainment experiences. We made excellent progress integrating Zynga. The combination has been highly accretive to our business as we've embarked on new revenue-driven opportunities, exceeded our anticipated cost synergies for year one, and enhanced further our mobile platform through select acquisitions. As we approach the one-year anniversary of our combination, we're immensely proud of the trajectory of our integration and the strength of our shared culture and values.

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

Our headcount now stands at nearly 12,000 talented individuals, including approximately 9,000 developers in our studios throughout the world, which positions us exceedingly well to reach the full potential of our pipeline. We've maintained our focus on our core tenet of efficiency. We've taken a rigorous approach through our cost reduction program announced in February, which we believe will surpass meaningfully the $50 million in annual savings that we originally anticipated. Our fourth quarter outperformance was led by strong results from Grand Theft Auto V and Grand Theft Auto Online, Red Dead Redemption II, and Zynga's mobile portfolio. Broadly speaking, the macroeconomic environment remained relatively consistent with what we experienced throughout the third quarter holiday season. While consumers continued to exercise restraint with their purchasing behaviors, they prioritized blockbuster franchises and titles that offered great value.

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

As a result, our vast catalog of proven high-quality titles achieved strong results. As part of our ongoing portfolio management measures, we made the decision to cancel several unannounced titles in development, which we believe will enable us to tighten our focus and reallocate resources to projects for which our creative teams have higher levels of conviction and expectations of success. Excluding the associated write-offs, our fourth quarter and full year management earnings results were above the high end of our guidance. We manage our pipeline actively, sometimes making difficult decisions to ensure that we're meeting our creative standards and achieving financial returns that are consistent with the goals of our company.

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

We believe that an evolving, robust pipeline is an essential part of our long-term strategy to expand, enhance, and diversify our portfolio to grow our player base and to launch a multitude of new hit franchises across an array of platforms and business models. Turning to the performance of our titles for the period. Grand Theft Auto V exceeded our expectations, and to date, the title has sold in more than 180 million units worldwide. As hardware supply constraints receded, Grand Theft Auto V and Grand Theft Auto Online adoption on the latest generation of platforms continued to grow.

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

For the first 3 weeks of Grand Theft Auto Online's holiday update, PlayStation 5 and Xbox Series X|S consoles grew to 14% of its audience penetration and 25% of its revenue penetration, up from 11% and 20% respectively, versus last summer's content update for the comparable period. During the period, Rockstar Games continued to support the passionate global Grand Theft Auto Online community with an array of new content offerings, including The Last Dose, an epic finale of the Los Santos Drug Wars update, as well as the roving Gun Van, taxi work missions, a new 50-car garage, new vehicles, clothes, weapons, modes, and much more. Los Santos Drug Wars introduced a phased approach to delivering high-value content, creating a much longer tail of sustained engagement in Net Bookings than we've seen with previous content updates.

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

Additionally, GTA+, Rockstar's premium membership program, continues to perform well, driven by a positive response to monthly events since the launch of Los Santos Drug Wars. Red Dead Redemption 2 outperformed our plans, and to date, the title has sold in more than 53 million units worldwide. We're also pleased with the continued engagement of players with Red Dead Online, as demonstrated by its 10% year-on-year increase in new online players on all platforms. NBA 2K23 continues to grow its audience, with the title selling in over 11 million units to date, a record for the series at this stage, and achieving its highest-ever virtual currency sales. In addition, engagement with NBA 2K23 remained incredibly strong, with approximately 2.3 million daily active users, including growth in The City, MyCAREER, and MyTEAM users.

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

NBA 2K23 Arcade Edition continues to bring the best basketball experience to mobile devices and has maintained its number one position on Apple Arcade. Building upon Visual Concepts' resounding success in reinvigorating our WWE franchise last year, WWE 2K23 enjoyed the highest Metacritic review score average in the history of the series. Engagement with the game has been outstanding, with players logging nearly 8 million hours of gameplay and facing off in more than 100 million matches. 2K is supporting the title with a series of add-on content that can be purchased individually or as part of a season pass. We value deeply our relationship with the WWE and look forward to continuing and expanding upon our successful partnership in the years to come. Private Division and Intercept Games launched Kerbal Space Program 2 in early access for PC on Steam, Epic Games Store, and other storefronts.

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

Our teams are encouraged by the incoming player feedback. We've already implemented several updates with more on the way as development continues. Last week, Private Division announced a partnership with Game Freak to publish their upcoming new action-adventure IP, which is one of Private Division's most ambitious projects to date. In addition, Private Division and the Roll7 Studio were recently honored with two prestigious industry awards, the BAFTA for Best British Game for Rollerdrome and Best Sports Game at DICE for OlliOlli World. Zynga's mobile business had a strong finish to the year. In-app purchases were above our expectations. Momentum has continued. We were pleased to experience strong demand over the Easter holiday. Efforts to increase our advertising business are tracking well, with ad revenue growing quarter-over-quarter and accounting for approximately 27% of Zynga's Net Bookings.

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

Our teams are successfully increasing advertising supply in our games, investing in optimization, and implementing new ad products, which are helping us monetize a much broader cohort of users. Our direct-to-consumer efforts are tracking well with numerous titles currently on our platforms and plans for nearly all mobile games across our labels to leverage our highly profitable proprietary distribution channel over the next few years. A few highlights of Zynga's offerings during the period include Empires & Puzzles, Zynga's highest-grossing title, drove engagement through its new in-game event, Season of Love. Zynga's social casino portfolio had its best quarter in nearly two years, driven by record performance from Game of Thrones Slots Casino and strong overall results from Zynga Poker, Hit It Rich, and Wizard of Oz Slots.

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

Top Eleven had a robust quarter and launched its Proving Ground: England mini game update in February, which challenged players to recreate the greatest moments in English football history. The new Race Pass from CSR Racing 2 continued to drive player engagement, retention, and monetization with innovative new profile banners for players to collect. We remain quite pleased with our hyper-casual mobile business. Popcore achieved strong results during its first full quarter under our ownership. Additionally, Rollic has increased its profitability, and the studio celebrated several milestones during the period, including the first anniversary of its title Fill The Fridge and its social media-inspired Pressure Washing Run, reaching the number one most downloaded spot in Apple's US App Store.

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

In closing, as we continue to pursue our mission to be the most creative, the most innovative, and the most efficient entertainment company in the world, we do so incredibly well-positioned with a broader portfolio of owned intellectual property, a deeper pool of the industry's top creative talent, and the sound infrastructure to capitalize on the vast opportunities on the horizon. As we execute on our strategy, we believe that we can increase meaningfully our scale and prominence within the industry, grow margins, achieve record-breaking operating results for fiscal 2025 and beyond. 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 colleagues around the world for delivering another momentous year for Take-Two. We continue to release many of the industry's highest quality, most engaging entertainment experiences, thanks to the incredible passion and talent of our teams. We are extremely excited about our release pipeline, which includes approximately 52 titles through fiscal 2026. Our revised plan reflects several title cancellations, as well as a reclassification of our mobile games to include only those titles currently in our plans for worldwide launch. For fiscal 2024, our pipeline includes 16 planned re-releases. We expect to deliver 3 immersive core offerings. This includes NBA 2K24 and WWE 2K24, our genre-defining sports titles developed by Visual Concepts.

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

Additionally, we expect to release an eagerly anticipated new IP from one of our premier studios later this fiscal year. We plan to release two mid-core arcade titles, which include LEGO 2K Drive, the ultimate driving adventure game from 2K and Visual Concepts. LEGO 2K Drive brings the iconic LEGO play experience into a vast open world where players of all ages can build any vehicle, drive anywhere, and become a LEGO racing legend. LEGO 2K Drive is the first release in a multi-title partnership between 2K and the LEGO Group. We are confident that 2K's proven expertise in creating high quality and engaging interactive entertainment properties combined with the LEGO Group's unprecedented cultural reach will evolve the iconic LEGO games experience that fans love in exciting new ways.

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

We also plan to launch 2 new iterations of previously released titles and 3 independent titles, including Private Division's planned May 23rd release of After Us from Piccolo Studio. Players of After Us will navigate stunning environments in a surrealistic world to salvage the souls of extinct animals and restore life on Earth. Lastly, we expect to release 6 mobile titles during the year, including Zynga's Star Wars: Hunters, which offers players the opportunity to join the greatest hunters from across the Star Wars galaxy. Players will engage in thrilling third-person combat in a range of competitive game modes across battlegrounds that evoke the iconic worlds of Star Wars. Throughout the year, our hyper-casual studios will release a steady cadence of mobile titles, focusing on games that have the potential for enhanced retention rates and a mix of in-app purchases and advertising to drive higher monetization and profitability.

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

Our labels will also continue to provide new content and experiences that drive engagement and recurrent consumer spending across many of our hit franchises, including Grand Theft Auto Online, Red Dead Online, WWE 2K, LEGO 2K Drive, PGA TOUR 2K, and throughout Zynga's mobile portfolio. Looking ahead, we currently expect to deliver 36 titles throughout fiscal 2025 and 2026. As always, these plans are a snapshot of our current development pipeline. It is likely that some of these titles will not be developed through completion, that launch timing may change, and that we will also add new titles to our slate. Our release slate for fiscal 2025 and 2026 includes 14 immersive core releases, 6 of which are sports simulation games. 2 mid-core games, 1 of which will be sports-oriented. 4 new iterations of previously released titles.

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

Four independent titles from Private Division, two of which include our previously announced partnerships with Wētā Workshop and Game Freak, and 12 mobile games. In addition to our full game releases, we will continue to offer post-launch content for nearly all of our titles, including virtual currency, DLC packs, and season passes. Given the strength of our upcoming release schedule and the high degree of visibility we have into our pipeline, we believe that we'll achieve the record levels of results that Strauss mentioned, including over $8 billion in Net Bookings and over $1 billion in Adjusted Unrestricted Operating Cash Flow in fiscal 2025, with further growth in fiscal 2026 and beyond. As we approach this significant inflection point in our business, we believe our expanding scale and margins will generate industry-leading returns for our shareholders. I'll now turn the call over to Lainie.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

Thanks, Karl. Good afternoon, everyone. Today, I'll discuss the key highlights from our fourth quarter and fiscal 2023 before reviewing our financial outlook for the full year and first quarter of fiscal 2024. Please note that our results include our combination with Zynga, which affects the comparability of our results relative to last year. Additional details regarding our actual results and outlook are contained in our press release. I'm so proud of our team for their strong execution and unwavering focus throughout the year. We made fantastic progress on our integration with Zynga, delivered incredible high-quality content, and announced several exciting new games from our pipeline. Efficiency was also a major area of focus.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

We announced our cost reduction program in February. As part of our ongoing portfolio management process, we canceled several titles that we anticipated would not meet our internal hurdle rates. We are confident that all these steps will help grow our scale, enhance our long-term margin structure, and ultimately deliver sustainable returns for our stakeholders. As Strauss mentioned, we finished fiscal 2023 with momentum and delivered fourth quarter Net Bookings of $1.39 billion, which was above our guidance range of $1.31 billion-$1.36 billion. This reflected better than expected results from Grand Theft Auto V and Grand Theft Auto Online, Red Dead Redemption 2, and Zynga's mobile portfolio.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

During the period, recurrent consumer spending rose 115%, which was above our outlook of 105% growth and accounted for 78% of Net Bookings. The outperformance was primarily driven by Zynga and Grand Theft Auto Online. Digitally delivered Net Bookings increased 76% above our guidance of 70% growth and accounted for 97% of the total. During the quarter, 78% of console game sales were delivered digitally, up from 75% last year.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

GAAP net revenue increased 56% to $1.45 billion, and cost of revenue increased 207% to $1.22 billion, which included impairment charges of $465 million related to intangible assets acquired from Zynga, reflecting forecast changes for a few titles, and $54 million relating to capitalized software and development costs for unreleased and canceled console and PC titles, the latter of which was included in our management results. Operating expenses increased by 130% to $926 million, which primarily reflected the addition of Zynga, which was partially offset by lower marketing expenses.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

GAAP net loss was $610 million, or $3.62 per share, which includes $302 million of amortization of acquired intangibles and $45 million of business acquisition costs. Excluding the $54 million impairment charge, our management earnings would have been above the high end of our guidance range. Turning to our fiscal 2023 results, total Net Bookings were $5.28 billion, which was above our guidance of $5.2 billion-$5.25 billion. While the challenging macroeconomic backdrop affected certain components of our portfolio, we experienced favorable performance within our catalog of industry-leading intellectual properties, and Zynga had a strong finish to the year.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

Recurrent Consumer Spending increased 88%, which was slightly above our outlook of 85% growth and accounted for 78% of Net Bookings. Digitally delivered Net Bookings increased 63%, which was also above our guidance of 60% growth and accounted for 95% of the total. During the year, 74% of our console game sales were delivered digitally, up from 68% last year. Non-GAAP Adjusted Unrestricted Operating Cash Flow was $56 million as compared to our outlook of over $400 million. During fiscal 2023, we spent $204 million on capital expenditures. At fiscal year-end, we had cash and short-term investments of approximately $1 billion and debt of $3.1 billion.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

GAAP net revenue grew 53% to $5.35 billion. Cost of revenue increased 100% to $3.1 billion, which included impairment charges of $465 million related to intangible assets acquired from Zynga, and $79 million related to capitalized software and development costs for unreleased and canceled titles, the latter of which was included in our management results. Operating expenses increased by 131 to $3.45 billion, which primarily reflected the addition of Zynga as well as higher personnel, stock compensation, and IT expenses. GAAP net loss was $1.12 billion or $7.03 per share, which includes $1.04 billion of amortization of acquired intangibles and $270 million of business acquisition costs.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

Today, we provided our initial outlook for fiscal 2024. We project Net Bookings to range from $5.45 billion-$5.55 billion. 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, Words With Friends, Merge Dragons!, Red Dead Redemption 2, and Red Dead Online, and Zynga Poker. We expect the Net Bookings breakdown from our labels to be roughly 53% Zynga, 31% 2K, 15% Rockstar Games, and 1% other. We forecast our geographic Net Bookings split to be about 67% United States and 33% international. We expect recurrent consumer spending to be up approximately 5% compared to fiscal 2023 and represent 79% of Net Bookings.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

Our forecast assumes that 76% of console game sales will be delivered digitally. We expect to generate approximately $100 million in non-GAAP Adjusted Unrestricted Operating Cash Flow, and we plan to deploy approximately $180 million for capital expenditures. We expect GAAP net revenue to range from $5.37 billion-$5.47 billion and cost of revenue to range from $2.51 billion-$2.54 billion. Our total operating expenses are expected to range from $3.39 billion-$3.41 billion as compared to $3.45 billion last year.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

At the midpoint, this represents a 1% reduction, reflecting lower acquisition costs, the realization of synergies from our combination with Zynga, and savings from our cost reduction program, which are partly offset by a full year of Zynga, higher stock compensation and personnel expenses driven by the annualization of new hires, and the effects of inflation on other business operating expenses, primarily reflected in IT costs. We expect a GAAP net loss ranging from $477 million-$518 million, or $2.80-$3.05 per share, which assumes a basic share count of 170.1 million shares. For management reporting purposes, we expect our tax rate to be 18% throughout fiscal 2024.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

I'd like to acknowledge that our current forecast for fiscal 2024 reflects the continuation of the challenging economic environment as well as an extension of the development timeline for several high-profile and long-awaited titles. While this affects our expectations for our current fiscal year, our high degree of visibility into our pipeline gives us confidence that we are approaching a significant inflection point in our business where we will achieve new record levels of results for our business next year and beyond. Moving on to our guidance for the fiscal first quarter. We project Net Bookings to range from $1.15 billion-$1.2 billion, which reflects a full quarter of Zynga compared to $1 billion in the first quarter last year.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

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, Toy Blast, Merge Dragons!, Words With Friends, Zynga Poker, Red Dead Redemption 2, and Red Dead Online. We project recurrent consumer spending to increase by 35%. Our forecast assumes that 79% of console game sales will be delivered digitally, up slightly from 77% in the same period last year. We expect GAAP net revenue to range from $1.21 billion-$1.26 billion and cost of revenue to range from $572 million-$592 million. Operating expenses are expected to range from $827 million-$837 million.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

At the midpoint, this represents an 18% increase over last year, which reflects the full quarter of Zynga and higher stock compensation, personnel, and IT expenses based on the factors I mentioned previously. GAAP net loss is expected to range from $161 million-$178 million, or $0.95-$1.05 per share, which assumes a basic share count of 169.4 million shares. We believe that we are very well positioned in our industry to deliver the highest quality content, gain market share, and enhance our profitability as we grow our scale and maintain our focus on efficiency. We are extremely excited about our next chapter of growth, and we look forward to our labels sharing more details about the many exciting projects we have underway. Thank you. I'll now turn the call back to Strauss.

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

Thank you, Carl and Lainie, and thank you to all of our colleagues for your dedication, your hard work, and these terrific results. We will now take your questions. Operator?

[Operator]

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in 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. One moment, please, while we pull for questions. Thank you. Our first question comes from Andrew Uerkwitz with Jefferies. Please proceed with your question.

[Andrew Uerkwitz, Analyst at Jefferies]

Yes, hi. Thanks for taking my question. I guess I'll just skip right to fiscal 25 and 26. It's pretty rare that you guys give 2-year guide like this. We've seen quite a few delays across the industry. Could you just give a little additional color on where the confidence is coming from on being able to provide that to us today?

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

Yes, you're right. It's very uncharacteristic of us to talk about subsequent years at this time. We're doing so because we've been investing in a pipeline for a long time, and we now have a great deal of confidence that pipeline will be delivered in the next three years. 12 titles in fiscal 2024, 36 in the following two years. 44% of that is new intellectual property. The rest is new iterations of existing franchises, and that's mobile, console, PC, and numerous business models. We couldn't be more excited. Fiscal 2024's titles look good and as I said, we're very confident in the years to come as well, and we thought it was important to convey that with transparency today.

[Andrew Uerkwitz, Analyst at Jefferies]

Just with the, I think, 44% of new IP, when you're looking this far out, Can you walk us through a little bit like how you think about modeling those, the conservatism you're thinking about in some of those or just kind of how you come up with the forecast for the new IP? Thank you.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

New IP. As you know, new IP is always a little bit of a wild card, and it's difficult to predict exactly how it's going to behave. Obviously, we're not completely flying blind because we do have a pretty comprehensive process of doing comps in the market. You really just never know, which is one of the reasons why when we model out in our product investment review process, new IP, actually we never model out big hits, which ignores upside. I don't want to necessarily call it a conservative approach, but we don't look at it as sort of outlying success. Obviously, everything that we invest in and everything that we release, we're looking to achieve that outlying success, and we know for a fact that not every single one of our titles will achieve that.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

That is the game we're in, and that's why we're making these investments in new IP, which ultimately is the lifeblood of our industry. That's why we're still very much dedicated to doing that.

[Andrew Uerkwitz, Analyst at Jefferies]

Got it. Thank you so much. Appreciate the color.

[Operator]

Thank you. Our next question is from Matthew Thornton with Truist Securities. Please proceed with your question.

[Matthew Thornton, Equity Research Director at Truist Securities]

Hey, good afternoon, everybody. Maybe two from me. Strauss, it's been another three months, and AI remains a hot topic. I'm sure you and team have had more time to digest and think about them. Just kinda curious your latest thoughts on how you think it will influence the business and the industry? Just secondly, as we think about the headcount and the infrastructure that we now have in place, are we kind of at a place where you have what you need?

[Colin Sebastian, Managing Director and Senior Research Analyst at Baird]

To pursue this aggressive pipeline, or do we still need some more invest? I'm just trying to think about the OpEx leverage and how to think about that as we kind of flow through the out years. Thanks again, everyone.

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

Thanks. Yes, as you know, I'm usually a skeptic when others engage in hyperbole. In the case of AI, I'm pretty enthusiastic. First of all, despite the fact that artificial intelligence is an oxymoron, as is machine learning, this company's been involved in those activities no matter how you no matter what word you use to describe them for its entire history, and we're a leader in the space. While the most recent developments in AI are surprising and exciting to many, they're exciting to us, but not at all surprising. Our view is that AI will allow us to do a better job and to do a more efficient job when you're talking about tools, and they are simply better and more effective tools.

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

I wish I could say that the advances in AI will make it easier to create hits. Obviously, it won't. Hits are created by genius and datasets plus compute plus large language models does not equal genius. Genius is the domain of human beings and I believe will stay that way. However, I think jobs can be made a whole lot easier and more efficient by developments in AI, and we're certainly looking forward to that. As I said, we're already putting it in practice every day.

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

Your second question in terms of cost. From an op, I'm not sure exactly what you meant by operating expenses, I'll just kind of break it down about overhead. Publishing overhead and corporate overhead, I would say generally speaking, we're kind of at scale. We have what we need. That's not to say to achieve our plan over the next few years. That's not to say that we won't still be investing in those areas, and there will be cost increases associated with that. We're always looking for efficiencies, but people do get raises and, you know, we find needs as new opportunities arise. Can't stand here and say that we don't have any more investment in publishing and corporate overhead, but we certainly believe that we're at scale.

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

We also believe that that's an opportunity for us to, excuse me, to expand our margins based on the fact that we are at scale or very nearly at scale in that regard. On the development side, we do intend over the next few years to continue to add to our development capacity. That's something that we have been able to do successfully. We have about 9,000 developers in-house today. That doesn't include our third party relationships, which are vast and strong. Part of our plan is to continue investing in that area.

[Operator]

Thank you. Our next question is from Matthew Cost with Morgan Stanley. Please proceed with your question.

[Matthew Cost, Executive Director, Equity Research at Morgan Stanley]

Hi, everybody. Thanks for taking the questions. The first one is just about the long-term guidance. I think you mentioned growth in fiscal 2026 off of a base of fiscal 2025. Off of the base in fiscal 2025. Presumably, there's, you know, quite a few units of, you know, new games that are being launched in that year. I guess when you think out into fiscal 2026, what are the moving pieces that you see driving growth year-over-year off of what looks to be based on the numbers you've just provided, a very, very strong year in fiscal 2025? Then the second question is just on mobile. You announced that you're going to be launching Star Wars: Hunters, this fiscal year. I think the game's been in development for, you know, some time.

[Matthew Cost, Executive Director, Equity Research at Morgan Stanley]

Are you seeing something in the mobile gaming market, a sort of stabilization or improvement of marketing efficiency that makes you feel this is the right time to come out with the game? Thank you.

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

In terms of our confidence in talking about what would grow fiscal 26 over 25, it's the same answer of what would grow 25 over 24, which is our pipeline, and it's the makeup of that pipeline. I don't want to get into too much detail about, you know, title, what title unit expectations are, whether it's unit, it's title units or it's the recurrent consumer spending, because the fact is it's all of the above. In the end, it's based on us delivering the pipeline that we have on plan and achieving the results that we expect. I really don't have much more to say beyond that. Do you want to do Hunters?

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

On Star Wars: Hunters, you asked about the market backdrop. We are seeing some improvement in year-over-year comps. Mobile really was under a lot of pressure. The market is recovering a bit. It's still down year-over-year. In certain instances, we appear to be overperforming, and we're excited about many developments at Zynga. For example, advertising penetration. Advertising now represents 27% of Zynga's Net Bookings, which is great. That'll continue to improve. We're excited also about our direct-to-consumer platform, which obviously has an effect on our margins, a beneficial effect on our margins. I think the backdrop is stable and perhaps improving a little bit. At the end of the day, what'll matter, of course, is the quality of the title. Mobile is a very competitive space. We feel really good about Star Wars: Hunters.

[Matthew Cost, Executive Director, Equity Research at Morgan Stanley]

Great. Thank you.

[Operator]

Thank you. Our next question is from Colin Sebastian with Baird. Please proceed with your question.

[Colin Sebastian, Managing Director and Senior Research Analyst at Baird]

Thanks, and good afternoon, everybody. Strauss, you talk about setting new standards in the industry, and I know quality is a big piece of that, but we'll be also curious to know beyond that, what specific areas of innovation within your games you would say, you know, keep the portfolio ahead of the competition. Then regarding the fiscal 2025 commentary, I'd just be curious out of that more than $2.5 billion in incremental bookings next year, what portion of that, you know, should we think of as falling into RCS versus I guess, unit sales? Thank you.

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

Thanks for your question. In terms of, you know, how do you define innovation, you know, if it had one definition, I think it would stop being innovation pretty quickly. I think our labels are known for leading in new areas, whether that's a 3D view when there wasn't one before, whether that was downloadable add-on content many years ago, or in-game purchases, virtual currency or the like, whether that was the neighborhood or The City in NBA 2K, Grand Theft Auto Online, Red Dead Online, what you could do in those online environments, all of those were innovations, driven by our labels.

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

Everyone who works in a creative capacity at this company is trying to think about how do we engage and entertain consumers in a way that's novel, that hasn't been seen before. Actually just had an internal email exchange earlier today talking about the unknown unknowns, you know, that we know in the next 10 years there will be extraordinary changes in this industry. This is a highly dynamic industry, we need to be not only current, we need to be leading the charge. Sometimes historically we have, other times we've missed the boat, we want to be at the front of the line, and our creative folks work in service of their passions to make the best entertainment anyone creates on Earth. Again, we don't always succeed, but often we do.

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

Our track record's pretty great creatively. That's thanks to our 9,000 developers who work here and another 1,500 who work outside of our four walls to do work that Take-Two brings to market. I'm sort of highly optimistic on the one hand, and very mindful that this is a really ambitious challenge and the ambition is, you know, it's an emotional burden for everyone who works here, but also a great benefit when we succeed. On your second point, I think you asked us to distinguish between RCS and console sale and full game sales.

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

Right. For fiscal year 2025, you know, we are really excited to talk about it. It's a highly anticipated year, and we're, you know, we're really happy to talk about us hitting $8 billion in Net Bookings, but we aren't talking about what the detail of that is at this time.

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

Thanks, guys.

[Operator]

Thank you. Our next question is from Doug Creutz with TD Cowen. Please proceed with your question.

[Doug Creutz, Managing Director and Senior Research Analyst at TD Cowen]

Hey, thank you. I just wanted to talk about your unadjusted operating cash flow margins for a minute. If I go back to fiscal 2018 through fiscal 2021, you were pretty consistently in the low mid 20% range. It's slipped down below then since then, I think is a function of you investing against your future pipeline. Your fiscal 2025 guide is over $1 billion in OCF against over $8 billion in bookings, which is still only about a 12.5% margin if my math is correct, which seems low. Do you expect that in fiscal 2025 you're still going to be investing heavily against future opportunities? Do you expect to get back to that 20% plus range in 2025 or thereafter? Any kind of color you're given, that would be great. Thank you.

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

Sure. It's definitely still, you know, going to be investing in the pipeline going forward. We still will have, you know, interest payments and tax payments through those years. We definitely will see a lot of the titles that we have been building up onto the balance sheet coming out those years. That will definitely be affecting the AUOCF in those years as well.

[Doug Creutz, Managing Director and Senior Research Analyst at TD Cowen]

Okay. Thank you.

[Operator]

Thank you. Our next question is from Clay Griffin with MoffettNathanson. Please proceed with your question.

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

Hey, thanks for taking the question. I guess, I'm thinking about the, are the marketing strategies for some of these big, you know, highly anticipated titles different now than they were, say, maybe in the Red Dead, Red Dead 2 launch? I mean, notwithstanding the fact that a larger number of titles ought to bring a higher level of marketing support in the aggregate. I'm curious if the overall level of marketing efficiency against bookings is materially different now than maybe the prior generation. I guess, in other words, you know, awareness of your IP is already quite high. Just curious on that.

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

I would say. Hey, Clay. I would say, I wouldn't say that the overall marketing spend levels are different. I think we continue to spend in a consistent manner, although the makeup of that spending and the timing of the spending is definitely different now than it has been in the past. We don't spend a heck of a lot of money on TV, really if any at this point. Outdoor, a lot of those items are not really in our media plan. We have a lot more social spending than we did before, targeted spending, performance marketing, et cetera.

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

It also used to be that a big portion of the marketing budget was spent prior to the release, in the weeks prior to the release, and certainly within the couple weeks following the release. We still will spend significant amount of marketing in and around the launch date, but it is much more spread out because we have the ability to monetize for a much longer period of time, and there are certain opportunities for us, excuse me, to market additional content drops. You would see our marketing budgets are definitely spread out longer than they would be had been in the past. Those are really the two changes. No, I don't really think there'd be a significant change in the scale of what we spend.

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

Got it. There was some commentary about what sounded like a one-time tax cash tax issue in Q4. I just wanted to confirm that and maybe just give us a sense of maybe what that was. Do we expect that to repeat? Just kind of general framework we're thinking about cash taxes going forward. Thanks.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

It wasn't really like a one-time taxing. It was really like a timing issue. It, you know, it's not something that will repeat, but it is, you know, our tax balances for each year. It's something that, we'll have tax payments every year going forward.

[Martin Yang, Executive Director and Senior Analyst at Oppenheimer]

The rate that you guys have been speaking to is there's no sense that that's moving one direction or the other.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

Well, we have an it's like an 18% estimated tax rate is in our management rate, and that's an annual rate that we use for every year.

[Martin Yang, Executive Director and Senior Analyst at Oppenheimer]

Great. Okay. Thank you.

[Operator]

Thank you. Our next question is from Omar Dessouky with Bank of America. Please proceed with your question.

[Omar Dessouky, Vice President and Equity Research Analyst at Bank of America]

Hi, thank you for taking my question. I guess I was wondering if you could maybe parse out a little bit implied in your operating income guidance, you know, mobile versus PC console. You know, I think a number of your peers guided profits roughly at the same levels for calendar 2023, as was calendar 2022. Was just wondering, just for starters, whether your implied guide is up or down, if you could tell me that. Then I have a follow-up question.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

Can you repeat the first question? I'm sorry.

[Omar Dessouky, Vice President and Equity Research Analyst at Bank of America]

Yeah, no problem. A number of your peers that publish only mobile games have guided profits at similar levels in 2023 full year as 2022 full year. I was wondering whether your guidance implies your profitability for Zynga and your Take-Two Mobile business up or down. You know, I realize there's a number of moving pieces, such as potential revenue synergies, you know, reducing the cost of advertising and of course, cost synergies. You know, are you is your implied guide for mobile up or down versus last year? Like for like, including 53 days of Zynga.

[Lainie Goldstein, CFO at Take-Two Interactive Software]

Yes. On a like-to-like basis for a comparable 12 months, the Zynga Mobile business is up year-over-year.

[Omar Dessouky, Vice President and Equity Research Analyst at Bank of America]

Okay. Okay, great. I'm also glad that you guys addressed the $500 million of annual Net Bookings opportunities in the presentation. I wanted to dig into that for a second. I think you have, so the first question is, on that is can you give us any sense of the cadence of how you might get to $500 million, you know, in terms of like fiscal 2024, fiscal 2025, fiscal 2026? The reason I ask that is because you guys did put out a cadence in the S-4, obviously, you know, that's a long time ago, but any update there would be great. The cadence first, and then the second, the ramp to $500 million.

[Omar Dessouky, Vice President and Equity Research Analyst at Bank of America]

The second one is you have a couple of bullet points here, establishing a more meaningful presence in key mobile first emerging markets and introducing mobile games from some of our most popular and proven intellectual properties. Does that include high fidelity mobile games? Is that what you're referring to there, and specifically for, you know, for Asian markets, potentially using your, some of your PC console IP? Lots of questions. Appreciate your responses.

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

It's Karl. In terms of some of the cadence around the $500 million or the $500 million revenue synergies, obviously we're still very committed to that, and we feel very good about those opportunities for us. I think in the near term, there are several meaningful opportunities that we believe our teams we can actually start to begin to activate this fiscal year. Those are really more around expanding our D2C efforts more meaningfully, in some of our other games. Also things like implementing new bold beats, marketing beats, across the company. User acquisition optimization, creating centralized library of data of customer data across the company. You know, integrating the Take-Two databases with the, with the, with the Zynga databases.

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

All of those things, we're going to be able to start realizing some of that in this fiscal year, then obviously accelerate that into the next few years as well. In terms of over the immediate and long term, I think this will answer, I think both of your questions. We do have a vision to introduce mobile games to some of our most popular properties on the T2 side into the mobile space. That's something that we're having conversations right now. Nothing to announce specifically, but the conversations are happening and I would characterize them as very positive and people are excited about that opportunity.

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

I'm not really sure I understood, the sort of reference to Asia and high fidelity, et cetera, but, you know, these are intellectual properties, you know, think about them as some of our, some of our more core type games. By definition, you would expect, and again, I don't have anything to announce right now because we don't have any games necessarily in development in that regard, that those games would be a little bit more upmarket. You know, because we do believe that there's a market for that. You've seen some success in the mobile space with other folks bringing their titles to market. Call of Duty is a perfect example of that.

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

We think that there's several of our titles that have that kind of opportunity, and I would expect those games to be a little bit more towards the mid-core arena. I hope that answers your question.

[Omar Dessouky, Vice President and Equity Research Analyst at Bank of America]

Absolutely it does. Thank you very much.

[Operator]

Thank you. Our next question is from Martin Yang with Oppenheimer. Please proceed with your question.

[Martin Yang, Executive Director and Senior Analyst at Oppenheimer]

Hi, good afternoon. Thank you for taking the question. First question on Zynga. Can you tell us if Zynga's developer headcount grows since it was acquired?

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

Yeah, we don't break out the headcount label by label, but we did say that we have about 9,000 internal development people at the company.

[Analyst at Oppenheimer]

Thank you. My second question is broader. Want to get your broader view on console cycles. You know, when do you plan to stop supporting past gen consoles? What goes into the decision stopping or for the past gen consoles for certain franchise or for overall, you know, Take-Two release game?

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

It really varies. I mean, obviously our labels will continue to support platforms for which they believe there's a meaningful audience. If and when the audience diminishes to a point where it's not economical to do so, we stop supporting the platforms. In general, we, you know, we're pretty supportive on an ongoing basis.

[Analyst at Oppenheimer]

Thank you.

[Operator]

Thank you. Our next question is from Brian Fitzgerald with Wells Fargo. Please proceed with your question.

[Brian Fitzgerald, Managing Director and Senior Equity Research Analyst at Wells Fargo Securities]

Thanks. Two questions on consumer pricing, not with your titles, but we've seen discounting on some of your competitors' recent releases. They were anticipated AAA titles, but were being discounted within days and weeks. Do you think the gamers still struggling a little bit with, you know, coming to terms with $70 price points, maybe still macro impacted? The second one related to pricing is, again, you saw strong RCS performance. Historically, the narrative has been, you know, gaming spending is resilient because even in macro, because you get that bang for buck, you know, relatively low cost per hour of entertainment. At the same time, the model is evolving to more live services, more RCS.

[Brian Fitzgerald, Managing Director and Senior Equity Research Analyst at Wells Fargo Securities]

Is that RCS spend just as resilient as, you know, the historical industry consumer spend has been?

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

We've talked about this in the past. I mean, to take your second question first. We do think that live services spending is probably more affected by macroeconomic conditions because you don't need to spend. If you have the game, you can enjoy the game. Now, there are certain titles, we don't really put ours into this category, where, you know, you kind of have toll booths. If you don't pay, you really can't play. That doesn't describe any of our titles, mobile or console. We think of spending in a live services environment as a nice to have for the consumer, not a must-have. As a result, if the consumer, you know, is feeling the pinch, that might be an area that would be more likely to be influenced negatively.

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

In terms of the pricing point that you raised, we're not seeing a pushback on a frontline price. What we're seeing is consumers are seeking to limit their spending by going either to the stuff they really, really care about, blockbusters or to value. Sometimes it could be both. The good news is, like, we have a bunch of blockbusters and we have a wonderful catalog. The other news is we also have a robust frontline release schedule. Without regard to price, there has been some pressure as a result if a consumer sees something as interesting, but not necessarily yet a huge blockbuster. We think that'll change. This is a growth business, and this is a unique market. You know, nothing that's going on now is inconsistent with the view that we outlined during the pandemic.

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

You know, we said at that time we were benefiting greatly from people being at home in an odd turn of events. We set our expectations that were post-pandemic. We'd as an industry, be in a better place than pre-pandemic, in a worse place than during a time when people were sheltering at home. That's exactly what's happened, exacerbated by a challenging mixed economy and what I believe is a recession, at least if you look at it through the lens of people who purvey digital entertainment consumed at home and e-commerce suppliers. There's a lot of pressure in those markets. The overall tailwinds of the industry will continue. This is a growth business. It will remain the fastest growing part of the entertainment business for the next 20 plus years, and we will have those tailwinds.

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

Now, we still have to deliver in that context, and we intend to, you know, to torture the metaphor, the winds at our back.

[Brian Fitzgerald, Managing Director and Senior Equity Research Analyst at Wells Fargo Securities]

Awesome. Thanks, Strauss. Really appreciate it.

[Operator]

Thank you. Our next question is from Mike Hickey with Benchmark. Please proceed with your question.

[Mike Hickey, Senior Analyst, Equity Research at The Benchmark Company]

Hey, Strauss, Karl, Lainie, Nicole. Thanks, guys, for my questions and congrats on your I guess it's congrats on your 2025 guide. No pressure, guys, on $8 billion in revenue. Just curious, you didn't guide to profitability. I don't expect you to now. That $8 billion was a little bit above consensus view. Just curious, how we should think about profitability. I think consensus for 2025 is over $8 in EPS. Don't expect you to confirm that either way, Lainie, but just thoughts on how we should think about profitability on 2025, especially given that we have extended timelines now on development and what impact that could have. The second question, just another one on AI. Strauss, glad to hear you're positive on it. That's nice.

[Mike Hickey, Senior Analyst, Equity Research at The Benchmark Company]

Just curious on the mobile side with AI and barriers to entry. Just curious if you think that will have any challenges in terms of more competitors coming to the market? Thanks, guys.

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

Thanks, Mike. Well, we basically have indicated profitability by talking about our operating cash flow. You're right, we haven't gotten granular because we're not providing initial specific guidance, but we do expect that fiscal 25, 26 and beyond will be highly profitable years. We've said, you know, repeatedly and in these remarks today, we expect to grow our margins. That's a big part of what our financial objectives include. With regard to AI and mobile, I think the implication of your question is, does generative AI allow people who aren't in the business to make mobile hits by saying to ChatGPT, "Come up with a great idea for a new mobile hit.

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

Oh, and by the way, please code it for me too." While you can do that now, you should give it a try, and you'll see what happens, ’cause we certainly have tried it around here. Let's just say that, no, you will not be able to create hits that way. I mean, remember, what you're looking at with AI and what you will always be looking at is a data set compute, and at least sitting here today, large language models. In the future, you may not be looking at large language models or they will change, but you'll still be looking at a data set and compute. A data set by definition is backward-looking, and hits in the entertainment business by definition are forward-looking.

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

No matter how intelligent, and I use the word, in quotes, very much in quotes, maybe multiple quotes, a machine is not going to be able to look forward. A machine can predict based on data sets and using massive compute and using large language models. We're all super excited about what we see 'cause we haven't seen before the possibility of doing a natural language query and getting a natural language re-result. That looks incredibly cool. To confuse that result with intelligence and creativity is like confusing a magic trick with magic. It's not magic. It's still a magic trick. That's where I'm at on this. No, AI is not going to allow people to push a button to make a hit.

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

AI is going to make certain elements of any process that requires coding easier for everyone, for everyone. Not, not disproportionately for anyone, for everyone.

[Operator]

Thank you. As a reminder, we ask that you limit to one question to allow for as many questions as possible. Our next question is from Gerrick Johnson with BMO Capital Markets. Please proceed with your question.

[Gerrick Johnson, Senior Toys and Leisure Analyst at BMO Capital Markets]

Great. Thank you. on the topic of delivering mobile games direct to consumer, what kind of share are you targeting for downloads in MTX? What kind of margin lift would you see on a game-by-game basis as well as consolidated basis?

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

We haven't disclosed what our target is. We do think it's a significant opportunity for us. It's, it certainly is greater than 0 and less than 100%. We don't think that it makes sense in all cases to go to direct to consumer, we do think there's a lot of room for us to grow from where we are right now. I think it's the second question. What was the second question?

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

What was the second part of your question?

[Gerrick Johnson, Senior Toys and Leisure Analyst at BMO Capital Markets]

Margin lift and.

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

Yeah. Well, I mean, again, I don't think we've talked about the margins, but you can kind of back into them yourself. I mean, we're doing it ourselves, and there's sort of the take rate obviously is much, much, much lower, 'cause you're really talking about payment clearances and things of that nature. When you go D2C. Other, other rates that may be in them.

[Gerrick Johnson, Senior Toys and Leisure Analyst at BMO Capital Markets]

Thank you.

[Operator]

Thank you. Our next question is from Benjamin Soff with Deutsche Bank. Please proceed with your question.

[Benjamin Soff, Director, Equity Research at Deutsche Bank]

Hey, guys. Thanks for taking the question. Just one on the slides. LEGO 2K Drive is listed under the mid-core section, but it seems like a $70 price point with a full year of seasonal updates, and to me that would seem like a AAA title. Do you mind expanding a bit on the difference between immersive and mid-core in your mind? Apologies if I missed it, but are you expecting both top line and bottom line growth in fiscal 2026? Thanks.

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

In terms of, you know, it's a funny question you ask, 'cause we've debated this exact thing internally, whether or not like a LEGO title, for example, is a mid-core title, mid-core slash arcade or is it immersive. And it really isn't a question of quality and the amount of gameplay that's involved. The $70 price point, I would say is a bit of a red herring. We think that the game is certainly worthwhile with that experience. The experience itself, when you look at sort of you compare that experience to a Grand Theft Auto, for example, obviously there's a big difference. The depth of the storyline, the vastness of the world, et cetera. LEGO Drive is an open-world driving experiences, but it's not Los Santos.

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

There's quite a bit of. It's, you know, it's probably not even The City of NBA. The term is probably a little bit of art in terms of how we classify things. In this particular case, just given the look and the feel of the game, we thought that mid-core and slash arcade was the right categorization of it. There's no specific guideline other than a kinda. In this particular case, it kinda felt that way. I should also say, sorry to inter. Lainie was about to answer the other question. Whether it's mid-core or arcade versus core or immersive, that doesn't necessarily indicate our expectations about commercial success. 'Cause you can have a commercially successful title that's mid-core or casual.

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

Yeah.

[Benjamin Soff, Director, Equity Research at Deutsche Bank]

Okay. Got it.

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

And then.

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

And then.

[Benjamin Soff, Director, Equity Research at Deutsche Bank]

Go ahead.

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

For fiscal 26, what we've said is that we expect Net Bookings and operational results to be higher than fiscal 25. That would imply that both would be growing.

[Benjamin Soff, Director, Equity Research at Deutsche Bank]

Okay. Got it. Thank you, guys.

[Operator]

Thank you. Our next question is from Stephen Ju with Credit Suisse. Please proceed with your question.

[Stephen Ju, Analyst at Credit Suisse]

Okay. Thank you. Strauss, I certainly do not want to put words in your mouth, but your answer to one of the prior questions sounded like you were talking about incremental bar bailing of industry dollars, I guess, similar to what we were seeing during the financial crisis. I guess in an environment where only the AAA and the value games are going to capture dollars and the stuff in the middle, may be in some trouble. You know, what are you doing at the studio level that is different now to maybe adjust for that environment? Karl, like, what are you doing at the Private Division level to adjust to what might be the new normal? Thanks.

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

I think that's right, at the end of the day, it just means quality. Just means you have to put out great stuff, that speaks to Private Division as well. That's always the case. This is less about changing strategy because our strategy is that everything that we put out should be just spectacular and more just a reflection of where the consumer sits. The consumer will return, this is going to be a growth business. As long as we make the highest quality titles, you know, we should do just fine. Private Division's approach has never been based on sort of taking a shortcut on quality.

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

Its approach has been, "Let's bring into the tent developers who might not otherwise bring their products to Take-Two." In certain instances, we can deliver an A-plus title on a more economical level than we might be able to do in-house. That's been proven out. Private Division has generated a lot of successful titles. In fact, virtually everything they've done. Not everything, but virtually everything has been successful.

[Stephen Ju, Analyst at Credit Suisse]

Thank you.

[Operator]

Thank you. Our next question is from Matthew Thornton with Truist Securities. Please proceed with your question.

[Matthew Thornton, Equity Research Director at Truist Securities]

Hey, guys. Just a quick follow-up. I'm not sure if this is for Strauss or Karl. We've talked about DTC on the mobile side. You guys have DTC experience with the Rockstar launcher on the PC side. If we think out a couple years, given the scale you're going to be at as the world perhaps starts to take more steps towards streaming, do you see the opportunity to perhaps, you know, partner on the back end or white label the streaming back end to go D2C on streaming? Again, given the scale you'll be at in a couple of years. Just kind of curious if you're thinking about that yet. Thanks again.

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

You know, our strategy has always been to have the broadest possible distribution. We were a leader in digital distribution in the very beginning, one of the reasons we did so well is that we basically were willing to do business with everyone whose terms made sense to us, and who were, you know, good market participants in terms of security and compliance. To the extent that streaming is a viable business opportunity and technology for our industry, of course, we'll avail ourselves of it, and I'm certain we'll work with third parties as we have in the past. We were, I think, the first licensed for Stadia, for example. Sorry it didn't work out, we were there to support the effort.

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

Equally to the extent that it makes sense to have our own platform, we will do that too. We're very unlikely to be exclusively and, you know, limited in one direction or the other. We want to be where the consumer is. I think that's all the questions we have today. Thank you so much for joining us. We're thrilled with these results. We're more than thrilled with our outlook. I want to reiterate our gratitude to our teams around the world who show up every day with more or less, with smiles on their faces, mostly with smiles, aiming to do their very best work and pursuing their passions. I want to thank our business teams who bring their great work to market and make sure that we run our business in a first-class fashion.

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

Of course, I want to thank our shareholders for their support and confidence in us. Have a great day.

Participants

Executives

• Karl Slatoff, President
• Lainie Goldstein, CFO
• Nicole, Company Representative
• Strauss Zelnick, Chairman and CEO

Analysts

• Andrew Uerkwitz, Analyst at Jefferies
• Benjamin Soff, Director, Equity Research at Deutsche Bank
• Brian Fitzgerald, Managing Director and Senior Equity Research Analyst at Wells Fargo Securities
• Colin Sebastian, Managing Director and Senior Research Analyst at Baird
• Doug Creutz, Managing Director and Senior Research Analyst at TD Cowen
• Gerrick Johnson, Senior Toys and Leisure Analyst at BMO Capital Markets
• Martin Yang, Executive Director and Senior Analyst at Oppenheimer
• Matthew Cost, Executive Director, Equity Research at Morgan Stanley
• Matthew Thornton, Equity Research Director at Truist Securities
• Mike Hickey, Senior Analyst, Equity Research at The Benchmark Company
• Omar Dessouky, Vice President and Equity Research Analyst at Bank of America
• Stephen Ju, Analyst at Credit Suisse
• Analyst at Oppenheimer