Take-Two Interactive Software, Inc. — 2025 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Greetings, and welcome to the Take-Two Interactive First Quarter Fiscal Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.
Good afternoon. Thank you for joining our conference call to discuss our results for the first quarter of fiscal year 2025 ended June 30, 2024. 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.
Thanks, Nicole. Good afternoon, and thank you for joining us today. I'm pleased to report that fiscal year 2025 is off to a solid start. Our first quarter net bookings of $1.2 billion were in line with our expectations, and our management team remains highly confident in our path forward. We're reiterating our net bookings outlook for the year. As we release our groundbreaking pipeline, we expect to achieve tremendous growth, including sequential increases in net bookings in fiscal 2026 and 2027. I'd like to thank our talented teams across our labels for their boundless passion, hard work and dedication to our mission.
Hunters, the label's first ever cross-platform title, which is available for free on the Nintendo Switch and iOS and Android devices. Expanding the iconic Star Wars universe with new locations and characters, the competitive battle arena game received a tremendous amount of fanfare from the media and audiences around the globe. Players can look forward to additional content offerings coming soon.
Thanks, Strauss. I'd like to thank our teams for continuing to deliver immersive and engaging entertainment experiences that are strengthening the foundation for our long-term success.
Legends, which invites players to journey through the magical land of Westeros featuring characters, lower and storylines from HBO's popular Game of Thrones and House of the Dragon franchises. The game marked the exciting return of Emmy and Golden Globe-nominated actor, Kit Harington to the franchise, who also started in a marketing campaign set in the title Immersive World. Player reception has been positive, with the title entering the top 10 in the overall free games category on the U.S. Apple App Store and on Google Play in the U.S.
Thanks, Karl, and good afternoon, everyone. We achieved solid first quarter results by engaging our players with exciting new game releases and content updates, while maintaining our focus on efficiency. We continue to have great confidence in our ability to deliver a multiyear period of growth. Our core franchises remain healthy. Our teams are hard at work on the most ambitious development pipeline in our company's history, and we remain focused on new growth opportunities to enhance our business model and financial profile. I'd like to thank our teams for enabling us to captivate millions of players every day and for their unwavering support to our long-term vision.
Hunters.
Legends and NBA 2K25. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Match Factory!, our hyper-casual mobile portfolio, Empires & Puzzles, Words With Friends, the Red Dead Redemption series and Merge Dragons!.
Legends and the addition of Gearbox partially offset by savings from our cost reduction programs.
Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for delivering results consistently that reflect our unique ability to provide the highest quality and most engaging entertainment offerings to our player communities. To our shareholders, I want to express our appreciation for your continued support.
[Operator Instructions] And the first question comes from the line of Doug Creutz with TD Cowen.
Your largest peer just released the college football game that has done exceptionally well, as I'm sure you've seen. Just curious if that's caused any thoughts about potentially adding a college basketball feature to NBA 2K, whether it's a unit-based item or just another mode in the game. It seems like there might be a nice opportunity there.
Thanks for the question, Doug. So yes, obviously, we did -- we have noticed the success with college football and it's just exciting -- in the industry. We take a note of that. And we obviously do have a history with colleges [ basketball ] with [ colleges 2K. ] And we're always listening to our community and interested to see if there's something that we might be able to do in the future. That's across the board, not necessarily just with how generally speaking. Nothing to announce now, but obviously, it did -- we did take notice of it.
And the next question comes from the line of Colin Sebastian with Baird.
I guess first off, with at least a year or so to go on development of the next GTA, I was just curious if you could sort of outline perhaps generically at this point in the production cycle of a game at the scale, what parts of development are left to complete, I guess, are you still in the midst of core development? Are you approaching the testing stage? Any sort of color there, I think, would be interesting. And as a follow-up, Lainie, the increase in OpEx guidance for the year, is that more to support with marketing new titles? Or was that something related to Gearbox? Any clarification there would be great.
Thanks, Colin. First of all, where we would be in [ debt ] would be title-specific, so at this stage of the game, it really would vary depending on the title. There's really no cookie-cutter to answer your question. But in any case, it's not the kind of insight that we would give with regard to any specific development that's going on in the company.
And in terms of the increase in the OpEx, it's mostly driven by the acquisition of Gearbox and to a lesser extent, higher marketing, personnel and occupancy expenses.
The next question comes from the line of Andrew Marok with Raymond James.
Maybe kind of a corollary to the last question. But with the news of the strikes getting underway, I've seen the reports that it won't affect games in development before September [ '23 ]. But maybe for some of the earlier-stage projects, how are you able to adapt your processes to still make headway? And is there a point in the dev process where you could hit blockers?
So look, we deeply value our talent relationships. And historically, we worked very successfully with all of the unions, including [indiscernible]. We continue to work hard to come to a resolution on this current situation. In fact, the common ground on 24 out of 25 proposals. So I'm pretty confident that we can get to a deal that will be mutually beneficial.
Got you. And then maybe one quick clarification question on the back of that. Is there anything to consider on the expense side related to the strikes, like potential savings from stop labor? Or is that just something that probably isn't very material?
We certainly -- we don't get any benefit from the situation.
And the next question comes from the line of Drew Crum with Stifel.
So I want to go back to Doug's question on college football as it relates to NBA 2K, Curious if you're seeing, anything in terms of leading indicators you track or anticipating any impact on sales from what appears to be now a more crowded sports category. And then, Lainie, just on RCS, it looked like there was a tad off your guidance for fiscal 1Q, but you kept the annual outlook unchanged. Can you just reconcile the 2?
Thanks for the question, Drew. In terms of the question about college football. No, we're not expecting. We're not seeing any significant or any impact on our NBA title based on the success of it. Look, we're always competing for the customers' mind share and while across all titles. So I don't necessarily think it's necessarily a sports issue for us, but we're not anticipating any effect on engagement in '25…
And for the RCS full year, it's being driven by Match Factory! and Toon Blast. So that's why we're able to keep the full year.
Which is good news.
Yes. So it's introducing fantastic.
And the next question comes from the line of Benjamin Soff with Deutsche Bank.
I wanted to ask a little bit about Star Wars: Hunters and it seems like the first game of that type that you guys have released since acquiring Zynga. And so does this provide a blueprint to bring more AAA content to mobile? I'm just kind of curious to get your thoughts there.
Look, we are very happy with the --for Star Wars: Hunters, it was a really ambitious title, I think the team at Natural Motion has done a great job. And I think the Zynga label actually has been really excited to launch this cross-platform title, based on [indiscernible]. And it's early yet to see how it will perform. So the jury is out, but it's off to a really good start. And I do think this successful development does potentially inform other titles, but each title stands alone. And as you know, it is our preference to focus on intellectual properties that we own.
And then as a quick follow-up, it looks like the outlook for NBA RCS changed a little bit. Just curious if you could drill down into the moving pieces there.
So we had a slight miss in Q1. That was driven by fewer active users in the center this year, which was driven by lower sales of units due to the Gen 8 unit. But when we look at the full year, we expect it overall to be -- and a lot of that is driven by NBA 2K24. We still have the same expectations that we did for NBA 2K25 as we did at the beginning of the year.
And the next question comes from the line of Martin Yang with Oppenheimer & Company.
First question regarding your overall view. Can you give us updated view on your approach to UGC across different franchises? And how are you open to maybe modeling both on PC and console for your future games?
We've been very open-minded and we certainly are very excited about many things that our users are delivering in their engagement with our titles and other people's titles. Obviously, we're excited about what we see in the modern community for PTA. And we think that's pretty exciting. At the end of the day, payment companies need to bring great entertainment to consumers. That is the starting point. And I'm not a believer that the industry will turn into a UGC-driven industry.
Got it. Another question from Lainie. Can you maybe clarify if the GTA and NBA 2K24, did both franchise grow bookings on a year-over-year basis in the first quarter?
So for the quarter for GTA, and we saw some -- the title declined for net bookings in RCS, I'm sorry, what was the second that you asked about?
2K24 comparison, 2K23...
Well, I don't have 24 or 23 but in general, NBA 2K declined in the quarter.
And the next question comes from the line of Mike Hickey with The Benchmark Company.
Strauss, Karl, Lainie, Nicole. Great quarters guys. Just to Strauss, obviously, a lot of debate on our economic future here near term. Always curious your opinion. But I guess more importantly, just how you're thinking about maybe sort of a darkening macroeconomic picture impact on your business. You already sort of weathered one storm on a mobile live service. Do you feel like you're more resilient if you go into a more challenging environment again?
As drawdowns go, it was not a terrible drawdown. The unemployment rate at 4.2% or 4.4% is still very low unemployment, 114,000 jobs or so were added in the period, which is solid. As you know, people have left the workforce. So I'm not particularly worried from one report that we're heading into some kind of consumer recession, I don't see it. Now I'm also not in the business of predicting that sort of thing. But the metrics don't support that.
And the next question comes from the line of Omar Dessouky with Bank of America.
Strauss, I wanted to ask you how big is the opportunity for a second soccer simulation game in the market? Whether you would comment on any rumors about 2K acquiring the FIFA license? And what your philosophy is on developing sports games, how long they might take and what your strength might be in that regard.
Yes, there's a lot there. Look, we're in the software business. We have the #1 mobile software manager title in top 11. We're really happy that we do. And we're also very mindful that it's incredibly difficult to build a great SIM experience for console. It takes a long time. And that if you do it right, your users are very loyal and very embedded. I would just now with regards to the FIFA license it does not bring along with it, right, doesn't come with players, teams or leagues. So it's not as simple, for example, is negotiating with the NFL or the NBA or MLB, where at most, you have to negotiate with league and a players association.
The next question comes from the line of Clay Griffin with MoffettNathanson.
Curious on the year-over-year change in advertising net revenue, I suspect that's something to do with the reorientation of the hypercasual business. But Strauss, maybe just talk about what you think advertising can do for your more core portfolio of mobile titles like, what you have in peak. And would you prefer to see kind of I guess, the external sources of demand in advertising there? Or do you think the bigger opportunity is this continued push into direct-to-consumer and really just investing in more of the in-app side?
It really varies title by title. There are certain titles that really aren't built for much advertising. They're really more meant for in-app purchases. There are titles that can be both -- and then there are titles that really have to be ad-driven. We have all of those. And we want to make sure that we do offer appropriate ad units where they do make sense, and that has been a very significant area of growth for Zynga since the acquisition, and I think that will continue. What we want to make sure is that we monetize all of the engagement. This is -- historically, the mobile business has been one where you monetized a very small part of the engagement.
And the next question comes from the line of Chris Schoell with UBS.
You pointed to the multiyear ramp in bookings as the pipeline builds in '26 and '27. Lainie, can you remind us how you're thinking about operating leverage and efficiencies alongside the bookings ramp? I recognize you've been going through a period of development and investment, which has impacted margins in recent years. But is it fair to think we can see a return to more historic margin levels amongst your cost initiatives are implemented and these new titles are released?
We're going to do in '26 and '27 when we look at the pipeline and bring it to fruition. We really have been working very hard in terms of reducing our cost structure of the organization and looking at places that we could be more and more efficient. So we have announced a couple of cost-cutting initiatives that we've been doing over the last couple of years and looking at ways to streamline our costs between our corporate departments and our label as well as look for areas that we can continue to improve.
And our final question comes from the line of [ Ed Alter ] with Jefferies.
I noticed the big GTA update this June was right at the end of the quarter where last year it was a few weeks earlier. Could you just talk about how those 2 updates did kind of compare to each other rather than with the arbitrary quarter end?
So we're actually really excited about the summer release for detail online this year, and it was a fantastic result for us. In terms of comparing them directly to the -- typically, we don't even really compare the releases. They're all very different. They had -- and we have different expectations and they have different deliveries. This was very strong for us, and it certainly helped us exceed our expectations for the quarter. But in terms of giving a direct comparison between this one and the last one, that's not something that we're prepared to do.
Ladies and gentlemen, at this time, we have reached the end of the Q&A session. Now I would like to pass the call back over to Strauss for any closing comments.
I just want to thank our team that delivered these great results, as always. We believe we have the best and most talented creative teams in the business, and we're so grateful that we do, we have a phenomenally talented executive leadership team as well. We have [ 1,500 ] colleagues all around the world who work really hard every day, in service of delivering the best entertainment to our consumers. That's what they deserve, and that's what we aim to give them. Thank you for joining us today. We're really optimistic about the rest of the year and the years ahead.
And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.