Take-Two Interactive Software Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

There are 16 speakers on the call.

Operator

Welcome to Take 2 Interactive First Quarter Fiscal Year 20 24 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Nicole Chavids, Vice President of Investor Relations and Corporate Thank you.

Operator

You may begin.

Speaker 1

Good afternoon. Thank you for joining our conference call to discuss our results for the Q1 of fiscal year 2024 until June 30, 2023. Today's call will be led by Strauss Zelnick, Take 2's Chairman and Chief Executive Officer Carl Sladoff, our President and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q and 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.

Speaker 1

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. These important factors are described in our filings with the SEC, including the company's most Recent annual report on Form 10 ks 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.

Speaker 1

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. In addition, 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 at tik2games.com. And now, I'll turn the call over to Strauss.

Speaker 2

Thanks, Nicole. Good afternoon and thank you for joining us today. I'm pleased to report that fiscal 2024 is off to a strong start, highlighted by 1st quarter net bookings of $1,200,000,000 which was at the high end of our expectations and management results that were in line with our plans. Grand Theft Auto Online and Grand Theft Auto 5 and NBA 2K23 exceeded our projections, which illustrates the long lasting benefits of producing the highest quality offerings and amassing one of the strongest and most diverse portfolios in entertainment. In keeping with our core values of creativity, innovation and efficiency, this quarter we introduced new intellectual properties, advanced The development of our eagerly anticipated pipeline and maintained our vigilance with cost management initiatives across our organization.

Speaker 2

Turning to the results of our titles for the period. Grand Theft Auto V continued to outperform and to date the title is sold in more than 185,000,000 units. On June 13, Rockstar Games launched San Andreas Mercenaries for Grand Theft Auto Online, which offers 6 new major story based missions as well as new Los Santos operations, hangar upgrades, smuggler source and cell mission, 7 new vehicles and more. The update also includes a range of fan requested experience improvements as well as the career progress feature Players a new way to track their progression across criminal careers and claim rewards. San Andreas Mercenaries continues to deliver high value content post launch using a phased approach that is driving sustained engagement and recurring consumer spending.

Speaker 2

This June, Grand Theft Auto Online recorded more players than any other June in its history outside of the height of the pandemic. GTA Plus, Rockstar's premium membership service for GTA Online on PlayStation 5 and Xbox Series X and S offered Exclusive options for members to test drive and purchase an array of vehicles and we're continuing to see strong growth in GTA Plus adoption with each passing quarter. We were pleased with the performance of Red Dead Redemption 2, which has sold in more than 55,000,000 units to date. Rockstar Games continues to support Red Dead Online with new bonuses and rewards, including free apparel inspired by the Red Dead Fashion Subreddit and seasonal content such as April's Condor Ag Free Mode event. NBA 2 ks23 exceeded our plans The title has now sold in over 13,000,000 units, representing 11% year over year growth, driven by higher demand, especially on Gen 9 consoles, as well as a more tailored promotional cadence.

Speaker 2

This incredible performance marks the title's 2nd highest sell through ever with only NBA 2 ks20 achieving higher unit sales. Engagement with NBA 2 ks23 remains strong with approximately 2,600,000 daily active users Our franchise extensions with the NBA continue to perform extremely well And NBA 2K23 Arcade Edition remains one of the top games on Apple Arcade. WWE 2K23, which is the highest rated game in our wrestling franchises history and the 2nd highest rated sports simulation title of the year, Experienced strong engagement throughout the quarter with players logging nearly 22,000,000 hours of gameplay and facing off in 170,000,000 matches. 2 ks and Visual Concepts continue to support the title with a series of 5 DLC packs that can be purchased individually or as part of a season pass. 2 ks also continues to support PGA Tour 2 ks23 with additional pros, courses and clubhouse passes.

Speaker 2

In May, 2 ks and Visual Concepts launched LEGO 2 ks Drive, the first game in a multi title partnership between 2 ks and the LEGO Group. Following the launch, our teams released the first of 4 drive past seasons for the title, which features 100 levels and new content inspired by the Fast and the Furious saga. Also in May, Private Division and Piccolo Studio launched After us on PlayStation 5, Xbox Series X and S and PC, which has been praised by critics for its striking visuals and game world. Zynga had a solid start to the year performing in line with our plans and we're pleased with the ongoing progress of our mobile business. Ad revenue grew approximately 11% year over year, driven by the addition of Popcorn and our ability to open new inventory supplies in our portfolio.

Speaker 2

Toon Blast has been introducing strong feature releases such as the Toon Race event, which drove outperformance versus our forecast and Help the Game recently surpassed $2,000,000,000 in lifetime gross bookings. We made excellent progress on our profitability initiatives in mobile. We expanded our offerings on our direct to consumer platforms and we continue to believe that over the next few years, the majority of our mobile games will leverage our highly profitable We continue to enhance the performance and profitability of our hyper casual business with multiple new games scaling quickly and several titles generating bookings from in app purchases in addition to ads. A few key highlights of Zynga's live services during the period include Empires and Puzzles grew quarter over quarter, driven by the new Path of Giants Battle Pass featuring daily and weekly challenges to unlock rewards. Rollix Twisted Tangle reached the number one free game spot on the U.

Speaker 2

S. Google Play Store. Social Casino again delivered strong results Driven by Hit It Rich's best quarter in 2 years and Game of Thrones Casino's 2nd best quarter in its history. Casual games continue to improve participation and engagement with Words With Friends launching the new Club Daily puzzle and Harry Potter Puzzles and Adding bonus levels and special delivery prize events. With numerous games in development and soft launch across Zynga Studios, we're excited to start delivering several new offerings in the coming months.

Speaker 2

Turning to our outlook, We're reiterating our prior guidance of $5,450,000,000 to $5,550,000,000 in net Bookings for fiscal 2024. We remain highly optimistic about our future and our ability to deliver record results in the coming years. Lainie will provide more details on our outlook shortly. In closing, as we continue to execute our strategy, we believe that we can increase significantly our scale and prominence within the industry, grow margins and pursue the vast opportunities to engage even larger audiences around the world. Led by the passion, creativity and innovation of our world class development teams, Take 2 is in a powerful position to set new benchmarks for our player communities, which we believe will drive long term returns for our shareholders.

Speaker 2

I'll now turn the call over to Carl.

Speaker 3

Thanks, Strauss. I'd like to thank our teams for a strong start to the year. Turning to our announced launches for fiscal 2024. Yesterday, Rockstar Games announced that the beloved Western experiences Red Dead Redemption and Undead Nightmare will be coming to the Switch and PlayStation 4 for the first time in a new single package arriving August 17. In the new conversion by Double 11 Studios, the Switch and PS4 versions bring the 2 classic experiences together again for new players and original fans to enjoy across modern consoles, including backwards compatibility with the PlayStation 5.

Speaker 3

On September 8, 2 ks and Visual Concepts will celebrate the 25th anniversary of our industry defining NBA 2 ks series And once again redefine basketball simulations with the launch of NBA 2K24, featuring the iconic Kobe Bryant As the games cover athlete for the 2nd time in the history of the franchise. Players will be able to celebrate Brian's legacy and replicate his Skills in the brand new Mamba Moments mode. Players in the U. S. And Canada can also purchase the WNBA edition of the game exclusively at GameStop featuring WNBA All Star Sabrina Aouniszou as this year's cover star.

Speaker 3

NBA 2K24 will introduce cross play, a community requested feature for PlayStation 5 and Xbox Series X and S. Available in every multiplayer mode, players will be able to compete with or against others from around the world in dynamic co op matches, thrilling online tournaments or casual pickup games between new generation consoles. The title will also introduce Pro Play, a groundbreaking new technology that directly translates actual NBA footage and gameplay. 2 ks will have more to share on NBA 2 ks24 in the coming weeks. In addition, 2 ks and Visual Concepts remain hard at work on WWE 2 ks24, the next installment of our popular wrestling series, which set new creative Critical benchmarks with last year's highly successful release.

Speaker 3

In June, Private Division and Evening Star announced Penny's Big Breakaway, A new 3 d action platformer from the team behind Sonic Mania. This kinetic yoyo adventure is expected to launch in early 2024. Zynga Star Wars: Hunters, which offers players the opportunity to join the greatest hunters from across the Star Wars galaxy, is expected to launch later this fiscal year. Players will engage in thrilling third person combat in a range of competitive game modes across battlegrounds from the iconic world of Star Wars. Also in mobile, Social Point's latest game Top Troops, a medieval fantasy themed title in the PDP merge genre It's progressing well on soft launch and is expected to launch worldwide in this fiscal year.

Speaker 3

In addition, our Hyper casual studios will release a steady cadence of mobile titles throughout the year, focusing on games that have the potential for enhanced retention rates and the mix of in app purchases and advertising to drive higher monetization and profitability. Our labels will also continue to provide new content and experiences That drive engagement and recurrent consumer spending across many of our offerings, including Grand Theft Auto Online, Red Dead Online, WWE 2 ks, LEGO 2 ks Drive, PGA Tour 2 ks, Kerbal Space Program 2 and Zynga's mobile portfolio. Throughout fiscal year 2024, we look forward to launching an additional releases from what we believe to be the strongest and most exciting development pipeline in our company's history. I'll now turn the call over to Lainie.

Speaker 4

Thanks, Carl, and good afternoon, everyone. Now I'll discuss the key highlights from our Q1 before reviewing our financial outlook for the full year and Q2 of fiscal 2024. Our combination with Zynga closed on May 23, 2022, which affects the comparability of our results relative to last year. Additional details regarding our actual results and outlooks are contained in our press release. We had a strong start to the fiscal year, powered by our portfolio of iconic industry leading intellectual As we approach our next phase of growth, our teams continue to make excellent progress advancing our development pipeline and capitalizing on our revenue driven opportunities and synergies.

Speaker 4

We also partner together to maintain our focus on efficiency and this is a challenging macroeconomic backdrop and cautious consumer spending trend. I'd like to thank our incredible teams worldwide for their determination and passion for our business. Now moving on to our results, we achieved net bookings of $1,200,000,000 which was at the high end of our guidance range. In the current backdrop, many consumers are purchasing established franchises and those that offer great value. Our catalog stands at the intersection of these two trends.

Speaker 4

Accordingly, our performance reflects better than expected results from Grand Theft Auto Online and Grand Theft Auto V and NBA 2K23. During the quarter, we launched Marvel's Midnight Suns for Gen A console, Lego 2 ks Drive and Apsaroth. Recurrent consumer spending rose 38% for the period, which was above our outlook of 35% growth and accounted for 84% of net bookings. The outperformance is primarily driven by Grand Theft Auto Online and NBA CK23. GAAP net revenue increased 17% to $1,280,000,000 and cost of revenue increased 39 percent to $606,000,000 driven by $187,000,000 of amortization of acquired and are intangibles.

Speaker 4

We also recorded an impairment of $80,000,000 related primarily to capitalized software and development costs for an unreleased title, which affected our management results compared to our guidance. Operating expenses increased by 25% to $883,000,000 On a management basis, operating expenses grew by 46%, which primarily reflected a full quarter of Zynga, Higher personnel costs and depreciation related to office build outs and capitalized IT expenses. Turning to our guidance, I'll begin with our full fiscal year expectation. As Strauss mentioned, our business is performing well and we are reiterating our net bookings outlook range of $5,450,000,000 to $5,550,000,000 The largest contributors to net bookings are expected to be NBA 2 ks, Grand Theft Auto Online and Grand Theft Auto V, Our hyper casual mobile portfolio, Empires and Puzzles, Tomb Blast, Merge Dragons! Words With Friends, Red Dead Redemption 2 and Red Dead Online and Zynga Poker.

Speaker 4

We expect the net bookings breakdown from our labels to be roughly 51% Zynga, 30% 2 ks, 17% Rockstar Games and 2% Other. And we forecast our geographic net bookings split to be about 65% United States and 35% International. We continue to forecast recurrent consumer spending growth of 5% compared to fiscal 2023, representing 78% of net bookings. Mobile trends are projected to remain stable and Zynga's ad business continues to deliver growth. We expect to generate approximately $100,000,000 in non GAAP Adjusted operating cash flow and deploy approximately $180,000,000 for capital expenditures, primarily to support our office build outs and larger footprint.

Speaker 4

We continue to expect GAAP net revenue to range from $5,370,000,000 to $5,470,000,000 Our total operating expenses are expected to range from $3,380,000,000 to $3,400,000,000 as compared to $3,450,000,000 last year. On a management basis, our operating expenses are expected to grow by approximately 15% year over year, due primarily to a full year of Zynga, an increase in personnel and marketing expenses and higher depreciation of office build outs 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. As we announced previously, our teams are taking extensive measures to review our cost structure and reduce discretionary costs whenever possible to offset the current consumer backdrop and inflationary environment, while still investing for growth. Now moving on to our guidance for the fiscal second quarter. We project net bookings to range from $1,400,000,000 to $1,450,000,000 compared to $1,500,000,000 in the Q2 last year.

Speaker 4

Our release slate for the quarter includes Red Dead Redemption and Undead Nightmare for Switch and PlayStation 4 and NBA 2 ks24. The largest contributors to net bookings are expected to be NBA 2 ks, Grand Theft Auto Online and Grand Theft Auto V, our hyper casual mobile portfolio, Empires and Puzzles, Tomb Blast, Words With Friends, Merge Dragons! Red Dead Redemption 2 and Red Dead Online and Zinger Poker. We project recurrent consumer spending to decline by approximately 7%, which assumes modest declines in our mobile business NBA 2 ks driven by changes to its summer promotional cadence and Grand Theft Auto Online as well as a reduction in DLC revenue from several titles that were released in prior years. We expect GAAP net revenue to range from $1,260,000,000 to $1,310,000,000 Operating expenses are expected to range from $811,000,000 to $821,000,000 On a management basis, operating expenses are expected to grow by approximately 5% year over year, driven by last year's acquisition of Popcorp and higher personnel costs, which are being partly offset by the Zynga synergies and our and a listen only mode.

Speaker 4

In closing, we are confident that the actions our teams are taking this year are preparing us for a strong trajectory of growth. Through our collective efforts, we continue to believe that we are positioning our business for a significant inflection point in fiscal 2025 that will culminate in us delivering new record levels of operating performance next year and beyond.

Operator

We thank

Speaker 4

all of our stakeholders for their continued support, and we look forward to delivering on this exciting next chapter. Thank you. I'll now turn the call back to Strauss.

Speaker 2

Thanks, Lainie and Carl. On behalf of our entire management team, I'd like our colleagues for delivering a strong start to the fiscal year. And to our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

Operator

Our first question is from Andrew Urquowitz with Jefferies. Please proceed.

Speaker 5

Yes. I just have one question. Lainie called out consumer weakness kind of continuing. Could you just give an update on where you think consumers at? Is there a Particular segment that's weaker than others, just kind of an update on where you think consumers are today?

Speaker 5

Thank you.

Speaker 2

Yes. I mean, I love that people are debating whether we're going to be in a recession from the point of view of a digital entertainment company. We've been in a recession for the better part of 18 months. The market for interactive entertainment was down meaningfully And 2022 down for the first time in the history of the mobile business, over 10% pretty much across the board. Things are looking a lot better.

Speaker 2

The year over year comps have stabilized. We're seeing growth in the console market. It's early, but we are seeing some growth. Mobile sort of flat, slightly down. We hope that will improve.

Speaker 2

I do feel like we're all seeing some green shoots Across the economy, but it definitely is a mixed picture, depending on who you ask. So in the context of the entertainment business, live entertainment is doing great. But in the context of entertainment that people consumed at home during the pandemic, it's been challenging for a while. And again, I think it's beginning to normalize, but it's early days yet. When asked a couple of calls ago, what I thought would happen in the economy, I said that I thought it would bottom out in June, July, And by the end of calendar 2023, we begin to see some good news and that we'd be in a reasonably good position from an economic point of view In early 2024 and I continue to believe that that's what will happen.

Speaker 5

Got it. And then just one quick follow-up on that with around media, I guess. If Hollywood stays in a recession, is that a positive, negative or does it not matter for video games?

Speaker 2

Look, we live within the entertainment ecosystem. So we would never wish for any other industry to have a problem. But If the strike means that new content can't be delivered, then I suppose it could be some small positive benefit for our business. But we aren't counting on that. We're certainly not hoping for it.

Speaker 5

Got it. Thank you so much, guys. Appreciate it.

Operator

Our next question is from Eric Handler with Roth MKM. Please proceed.

Speaker 6

Good afternoon and thank you for the question. Strauss, I wonder if you could just talk about with mobile advertising, how much How many of your games beyond the hyper casual business have integrated advertising now?

Speaker 2

Some and we are moving in that direction selectively. Look, historically for games where you could make in app purchases, Less than 10% of the audience actually spent. So we are fielding a game for 100% of the audience and monetizing 10% or so, perhaps a bit more, often a bit less. And it's our view that we ought to be monetizing 100% of the audience. So if someone's going to spend, that's great.

Speaker 2

And And if they're not going to spend, then we ought to be able to monetize through advertising. The question is how do you do that and create a high quality experience? And I think the answer is we can do that. We can distinguish among those audiences. We're not there yet, but I think we're moving in that direction.

Speaker 6

Thanks. And just as a follow-up, I wondered if you could willing to give any specifics about how much of the mobile revenue at this

Speaker 2

So we don't actually give out that percentage. Some of our competitors do. And so one of our biggest competitors I think has gone on the I would note that Zynga's advertising net bookings were up 11% year over year. So it's really good news And we're really happy about the growth of our direct to consumer platform and what that can mean for consumers and also for us.

Speaker 7

Thank you.

Operator

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

Speaker 8

Hey, good afternoon, Strauss, Carlini. Two quick ones for me. Last quarter, we talked about obviously Achieving north of $8,000,000,000 in bookings next year and north of $1,000,000,000 in operating cash flow. I'm just kind of curious if those are still the right bogeys for next year. And then just secondly, any and I apologize if I missed this, any changes to this year's slate?

Speaker 8

I saw we've got the $18,000,000 impairment charge here, but I guess relative to where we were 3 months ago, is there any change to this year's release slate? Thanks so much.

Speaker 2

So the answer to question 1 is yes, and Lainie will answer question 2.

Speaker 4

Sure. So for question 2, there has been some movements within The back part of the year within the slate, but we're still able to achieve the same guidance for the year. So reiterating our guidance, so just some small Changes within the slate, but it has nothing to do with the impairment charge. So the year is still the same.

Speaker 5

Perfect. Thank you.

Operator

Our next question is from Matthew Kwest with Morgan Stanley. Please proceed.

Speaker 9

Hi, everybody. Thanks for taking the questions. Maybe I'll start just by asking about mobile M and A. I mean, that was historically a very big part of Zynga's business. It seems like the market may be starting to thaw out there in terms of Deal activity after a deep freeze for the past year or 2.

Speaker 9

I guess, do you see an opportunity to lean back into M and A at the Zynga business? Number 1. And then number 2 is just, Lainie, you mentioned in the prepared remarks that some changes to the promotional cadence for NBA 2 ks. I I was

Speaker 7

wondering if you could

Speaker 9

just give a little more detail about what those changes are and the size of

Speaker 10

the financial impact. Thank you.

Speaker 2

So on the deal side, it's hard to know. In terms of our strategy, We think we're in a position to grow organically. We have a lot of new releases coming from Zynga. We're really excited about them. As you know, hit ratios are very low in the mobile business.

Speaker 2

So We're not claiming success until it occurs, but we do feel really good about some new launches. And in terms of the promotional cadences?

Speaker 4

So, NBA 2K24, we expect to be up from 2 ks23. But 2 ks23 versus 2 ks22, There is some less promotional timing in this quarter versus what we did with 2022 last year. So that's why we expect the title to be a little bit down versus last year.

Speaker 10

Great. Thank you.

Operator

Our next question is from Doug Creutz with T. D. Cowen, please proceed.

Speaker 11

Hey, thanks. You alluded to this a little bit earlier, you and others have talked How difficult it is to launch a new mobile title these days. We did see, however, a few months ago, a competitor of yours launched Scopely launched Monopoly Go, which is Shot to number 1 in the App Store charts

Speaker 12

rapidly, has

Speaker 11

had a lot of success. As you have observed that, is there anything That you would sort of any lessons you would draw from their success that you think could you could apply to your own games that you have coming out soon?

Speaker 2

Look, I think it's an established intellectual property that's been known and beloved for a very long time. And if you combine that with a high quality Expression, I think you can do very well. We don't we obviously don't know what they're spending, to be in the position that they're in. I do know that we're very focused on profitability. So we're being careful to make sure that our user acquisition spending reflects a high lifetime value for our

Speaker 7

customer. Okay. Thank you.

Operator

Our next question is from Eric Sheridan with Goldman Sachs. Please proceed.

Speaker 13

Thanks so much. Maybe just one bigger picture question. As you continue to sort of integrate Zynga and move Further away from the acquisition, curious your updated thoughts on how you're thinking about the elements of AAA titles having Sort of cross promotion, cross play across elements of console and mobile and how that might inform some of your development cycles in the next couple of years or some of the Pipeline dynamics that fed back into some of the bookings longer term framework from last quarter? Thanks so much.

Speaker 2

We continue to believe there's an opportunity there. We do have titles coming that will For an opportunity to engage on console and also in mobile. We don't think it's something that you have to offer. Each title will stand alone. And a question you didn't ask, but we've also discussed is the possibility of creating new mobile titles based on core Take 2 intellectual property.

Speaker 2

And that's something that we're also potentially excited about. In all instances, the consumer experience, the quality of the title is what governs, not the business model. So we have to create something great that consumers want. If we do, they'll show up and if we don't, they won't.

Speaker 13

Thank you.

Operator

Our next question is from Mario Lu with Barclays. Please proceed.

Speaker 10

Great. Thanks for taking the questions. The first one is on NBA 2 ks24. You guys mentioned the upcoming cross play feature was A largely asked one by the community. So that being said, curious if there's any data points you could share in terms of how impactful This feature will be in terms of user engagement or recurring consumer spending.

Speaker 10

And then is there any reason why it was not included

Speaker 3

So this is Carlo Mario. So look, we're very about cross play. It's something that our customers have been asking for and something that's a natural for NBA. So obviously, we don't do anything. And we don't put any new votes into a game unless we think this is going to have a significant impact on the experience for the consumer.

Speaker 3

That's something the consumer is going to love and is going to end up Leading to increased engagement. And obviously, as we say, when you get increased engagement, you get increased monetization and then everyone's happy in that regard. So all of these decisions are economic decisions, but it starts off first with the experience itself. And at this point, we're very that 2 ks has cracked a note on cross play experiences, and we're looking forward to that. And as it relates to PC and Oh, Jen, in terms of it's really just to get allocation of resources, these decisions.

Speaker 10

Got it. That makes sense. And then just on a separate note, In terms of the topic of charging a higher price for users to get access to a game, like early access during the launch, I noticed it wasn't included in NBA 2ks preorder pricing. Is this an opportunity in the future or is it just something you guys opted out of? Thanks.

Speaker 3

Yes, we have most of the it's funny you say a higher price because when we have some early access games in the market right now, we typically would offer them at a lower Because it would imply that there's more to come in the game and it's not necessarily the final version. We have seen the early access models Out there in terms of holding back access and making people pay more for earlier access, that's not something that we've done to date. I would never say never, but Honestly, that's a marketing decision. And our priority is really making sure that the game comes out, comes out in a timely fashion as the best experience possible. That's something that makes sense.

Speaker 3

So down the line, we could experiment with it. But to date, that has not been something that we've looked at.

Speaker 10

Got it. Thank

Operator

you. Our next question is from David Karnovsky with JPMorgan. Please proceed.

Speaker 6

Thank you. Just on the

Speaker 14

bookings by label, I wanted to follow-up on the guidance for Zynga. I think that's down slightly on a maintained I wanted to see if you could walk through the adjustment there. And then sticking with mobile, you talked about hyper casual focus Releasing games that retain better have a higher mix of IAP spend. I just want to see if you can unpack the thinking behind the strategy there, what the traction has been and Maybe how that impacts the ad revenue potentially from Rollick and Popcor? Thanks.

Speaker 4

So for the bookings for Zynga for mobile, there are some game shifts within the year. So there were some re forecasting of some of the existing games and that's What has changed within mobile?

Speaker 3

And then in terms of the hyper casual business, what we've seen is that there are Games, particularly when we with the acquisition of Popcor that are a bit stickier than the typical hyper casual business, and they have the opportunity to engage consumers for longer periods of time and also potentially lead to not just necessarily monetizing through advertising, but also monetizing through in app purchases. So we're starting to see that. We're starting to experiment with that. And we think that there's a market there for us. I think people have been we've been calling it the hybrid casual market, where You have the ability to not only monetize with advertising, but also in app purchases just because the experiences are a bit deeper and they last a little bit longer.

Speaker 3

So we think that's very exciting. I don't know that it's going to necessarily impact the advertising opportunity overall, but it certainly creates new opportunities within in that purchase list for us.

Operator

Our next question is from Omar Svi with Bank of America. Please proceed.

Speaker 12

Hi. Thank you for taking my question. So you didn't change your full year guidance. And I wanted to know, I think David Cardenovsky asked the question and you talked about Zynga a little bit. I wanted to know whether your implied Like for like guidance on mobile has changed at all since the last time you guided?

Speaker 12

And then within that, Do you expect advertising to grow on an organic basis that is excluding Popcorn? And I have one more question.

Speaker 4

So we just mentioned that Zynga has changed a little bit because there's movement in the release And some updates to the forecast. So we did have some changes in the rest of the year. So there were some changes in the release schedule. So there were some ups and downs Within the year, but overall, we've kept the entire year the same. So we were at the higher end in the Q1, but we kept We reiterated the full year.

Speaker 4

And then in terms of expecting advertising to grow, yes, we do expect it to grow in the full year. Organically. Organically, yes.

Speaker 12

Okay, great. And then the other part of the question I wanted to ask was, in terms of your direct to consumer channel, I think Strauss said that the majority of mobile games in a few years will leverage that channel. So you have a lot of games. We've counted well over 100. Not all of them are your big winners.

Speaker 12

I think there's a long tail of games. So I guess I wanted to ask, is it that the biggest games are going to be on your DTC platform? Or is it Just the sheer number of games, because I'm trying to get a sense of how much revenue could potentially flow through that channel, if you understand what I mean?

Speaker 2

Yes, I do understand what you mean. It really varies game by game. So if the game is not suited to direct to consumer and it may not be because of its Style, it's the interaction that consumers have with the title, Then there may not be an opportunity even though it's a big title and then there are other titles where it's terrific opportunity. Again, we haven't Established a number that we're shooting for, but I did quote the number that a competitor has outlined. And I think that number is kind of the high end of the possibility.

Speaker 9

Thank you.

Operator

Our next question is from Mike Hickey with Benchmark Company, please proceed.

Speaker 15

Hey, Strauss, Carlene, Nicole. Nice quarter, guys. Thanks for taking our questions. Curious Strauss sort of big picture pardon upon curious what you're thinking on Film opportunity. I know you're not a trend bandwagon guy, so but maybe this isn't that.

Speaker 15

Hard not to notice The results here from Super Mario Brothers and The Last of Us, and this is an area where historically it's been challenged For game IP to have success in new mediums. Looks like the formula is kind of involved the creative piece to the original game and have great storylines. And when you look at your portfolio by peak, you've got a ton of opportunities. It would seem like You certainly have a creative talent. You definitely have a great story line.

Speaker 15

So two questions on that, Strauss. Curious if your creative teams are motivated to expand their IP into new entertainment mediums like film or streaming episodic content. And then curious if you think IP expansion And to new mediums like film can sort of complement your growth strategy over the long term? Thanks guys.

Speaker 2

Thanks, Mike. We think it's probably a relatively small opportunity economically. We're not going to use our balance sheet to invest In film and television projects, those are typically very challenged asset classes with which I'm quite familiar. And to point out 2 successes notable as they may be, lies the fact that there are many, many failures, where money was lost. So, so far we've taken a very selective approach to licensing and we do have a Borderlands movie coming from Lions Gate, And we have BioShock movie coming as well.

Speaker 2

We're excited about both. And selectively, we could see licensing In the future when there's a creative imperative and an economic opportunity. I think you're right. The reason there's been success lately was Because you had great IP and then there was a great project that was made from it. And the reason you've had failure in the past is that the expression of the IP just wasn't very good despite people's best efforts.

Speaker 2

It's a really hard business and we're not going to bet this company's future or the value Our intellectual property based on someone else's execution in another area of the entertainment business. So we'll continue to be very selective indeed. Even if we did take a broad based approach, in the absence of investing ourselves, the economic opportunity in the context of the much greater economic

Operator

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

Speaker 7

Thanks. Two quick ones. Strauss, not to get wrapped around the axle with semantics, but you said, hey, we had a phased approach When you were talking about GTA Online, anything to call out there is a difference or an evolution of how you're marketing and delivering incremental Content or no, it's just more of the normal MO. And then second question is on NBA 2 ks23 Added to PlayStation Plus, game of the month, that definitely contributes Strong engagement, but we're curious whether or not you also see a meaningful uptick in RCS there among those PlayStation Plus players. Point being, if they are waiting to engage with it once it's in A subscription service, is there a lower propensity to spend on the game or no, actually we see an uptick in RCS there as well?

Speaker 2

So on the first question, a bi phased approach, I was referring to delivering somewhat smaller Chunks of really high quality content as opposed to waiting for a longer period of time to deliver something that's much larger. And both approaches can work. And of late, the phased approach has been working really well. However, there's not one Right approach. It varies with what the team has in mind creatively in any given time.

Speaker 3

And then in terms of the Things like subscription services or game of the month, where the consumer is necessarily buying the individual game. Obviously, We don't do these things unless we think there's a significant economic opportunity for us to do so. So you can If you see it going into one of those services, you can assume that, that math has been done. And yes, we do see an uptick in recurrent consumer spending generally because we bring a lot of new players. And those players are valuable players.

Speaker 3

And as long as they're engaged with the game itself, the engagement is strong and the conversion to RCS is very strong. It's all about and again, it varies cohort to cohort and varies game to game. But if we do drive significant engagement from folks who are coming into the game, We are seeing very favorable results as it relates to modernization.

Speaker 7

Awesome. Thanks, Karl. Thanks, Strauss.

Operator

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

Speaker 10

Hey, guys. Thanks for the question. Just wanted to dig back into the revenue breakdown by studio. It looks like the percentage for Rockstar and other went up. And I'm just wondering if that's function of share shift from the things you talked about with mobile or if your expectations for those Segments have actually improved.

Speaker 10

And if so, could you talk a little bit more about that? Thanks.

Speaker 4

So the update for Rockstar is based on the momentum in their current business. So there's Some GTA 5 unit sales, some the Red Dead updates and some virtual currency with GTA Online updating. So it's just overall reforecasting of the business.

Speaker 10

Okay, got it. And then Can you talk broadly about the competitive environment in the industry and whether you think it will be sort of at this level more competitive, competitive 6 or 12 months from now? Thanks.

Speaker 2

I think it will be about the same. It's always hard to know. It's a very competitive business at any given time. But ultimately, we're really competing with ourselves because If there's a lot in the market that consumers want, generally speaking, they'll go consume it. And if there's nothing that they want, it's not like they consume the next best, They just stay away.

Speaker 2

So we have to deliver the highest quality properties. And if we do that, they'll show up in good times and in bad. I I mean, you're seeing that even in a mixed economy, the best titles still pull bigger audiences.

Operator

We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing comments.

Speaker 2

I just want to take a minute to thank our teams again for delivering a superb quarter and we're really thrilled with the way this year is unfolding. Our titles continue to be of phenomenal quality. We're really excited about our upcoming releases and And obviously very excited about the future beyond this fiscal year. And we also want to thank all of you for attending the call for your great questions. And naturally, we're grateful to our shareholders for their

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Earnings Conference Call
Take-Two Interactive Software Q1 2024
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