Take-Two Interactive Software Q4 2022 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
May 16, 2022
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Operator

Greetings and welcome to Take-Two Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications. You may begin.

Nicole Shevins
Senior Vice President, Investor Relations & Corporate Communications 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 2022 ended March 31, 2022. 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.

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

And now I'll turn the call over to Strauss.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

Thanks, Nicole. Good afternoon and thank you for joining us today. Our strong fourth quarter results concluded another highly successful year for our company. We delivered net bookings of $3.4 billion, which reflect our creative team's unwavering commitment to quality and the ability to deliver captivating and engaging entertainment experiences that transcend geographies and generations. On behalf of our management team, I'd like to thank all of our colleagues around the world for helping us to achieve these results especially as we continue to navigate through the new normal following the pandemic. During the year, we positioned our organization strategically for long-term growth. To that end, we bolstered our creative teams by adding nearly 1,000 new developers, including through the acquisition of several talented studios, which will help us expand our capabilities and support our growing pipeline of offerings.

We broadened our portfolio further with the introduction of new intellectual properties and business models to drive player engagement. We agreed upon our pending combination with Zynga, which will grow our audience significantly and increase exponentially our net bookings from mobile, the fastest growing segment in interactive entertainment, while also providing us with substantial cost synergies and revenue opportunities. As we build our scale, we believe that we can grow our margins meaningfully. Lastly, we advanced our ESG efforts and I'm pleased that we recently published our first dedicated report, which includes information on our initiatives to-date as well as our road map for the future. During the quarter, our newly released WWE 2K22 and Tiny Tina's Wonderlands outperformed our expectations as did Red Dead Redemption 2. NBA 2K22 continued to grow its audience with the title selling-in over 10 million units to-date and exceeding sell-in from the prior year.

During the fourth quarter, engagement remained very strong with average active days of playing up 6% and average games per user up 13% year-over-year. In addition, NBA 2K22 Arcade Edition continues to hold the Number 1 position on Apple Arcade's Top Game chart and for the full year, downloads of NBA 2K Mobile increased nearly 25% as compared with fiscal 2021. We see a significant opportunity to add unique and innovative experiences throughout the game and focus on expanding our player base. On March 11, 2K and Visual Concepts returned triumphantly to the squared circle with the eagerly anticipated release of WWE 2K22, which achieved the highest Metacritic scores on both the Xbox and PlayStation platforms in franchise history. Setting new benchmarks for quality, the title offers more features and enhancements than any prior release in the series including a redesigned gameplay engine, new controls, foundational improvements, upgraded visuals, and an array of options requested by our passionate player base.

Notably, WWE 2K22's sell-in for first four weeks exceeded the levels achieved for both WWE 2K19 and WWE 2K20 even with the revised release window that was not during the holiday season. Consumer engagement with the title has been outstanding with over 140 million in-game matches played to-date and over 5.6 million hours of WWE 2K22 content viewed on Twitch. I'd like to thank 2K and the WWE team at Visual Concepts for their commitment to reestablishing this incredible franchise. We greatly appreciate WWE's immense support in launching this year's game and look forward to continuing and building upon our successful partnership in the years to come. On March 25, 2K and Gearbox Software released Tiny Tina's Wonderlands, an all-new fantasy-fueled offering that has taken our partnership with Gearbox to new creative heights and is viewed as the best new franchise launch from 2K in several years.

The title has resonated with core fans and new audiences alike with nearly 30% of players having never before played a Borderlands title. To-date, Tiny Tina's Wonderlands has exceeded our expectations and is being supported with cross-play functionality, an array of post-launch content, and a season pass. I'd like to congratulate 2K and Gearbox on delivering another stellar game and we look forward to the possibilities for this new franchise in the years to come. During the fourth quarter, Rockstar Games expanded the reach of their iconic entertainment experience, Grand Theft Auto V, with the release of new versions of the game upgraded specifically for PlayStation 5 and Xbox Series X/S. This marked the third console generation for which the game has been made available since its initial launch in 2013 and to-date the title has sold-in more than 165 million units. Also for the first time ever, Grand Theft Auto Online was made available as a standalone title for the latest generation consoles.

Featuring an array of graphical and technical enhancements, a new Career Builder, new vehicles and more; these versions were well received by the game's vast community of players. In the period, Grand Theft Auto Online maintained its massive audience size from the prior year while growing 8% and 74% as compared to the fourth quarters of fiscal 2020 and 2019, respectively. In addition, Rockstar Games launched GTA+, an all-new membership program that's exclusive to Grand Theft Auto Online players on PlayStation 5 and Xbox Series X/S consoles whereby participants can receive a range of valuable player-friendly benefits, including a monthly deposit of GTA dollars and other bonuses designed to help players experience everything Grand Theft Auto Online has to offer including access to major content packs like last holiday's The Contract. Initial conversion has been above our expectations, which we believe bodes well for this to be an ongoing engagement driver over time.

Red Dead Redemption 2 continued to expand its audience and to-date has sold-in more than 44 million units worldwide. Results for the series were notably above our expectations for the period, which is further proof of the ongoing popularity of Rockstar's blockbuster entertainment experiences. Turning to Private Division, the label's recently-acquired studio Roll7 successfully launched OlliOlli World in February, which received significant critical praise for its unique art style and impressive gameplay mechanics. We will support the title with its first expansion, VOID Riders, in the first half of this fiscal year. Championing the best independent talent in our industry, Private Division recently signed four new publishing agreements with leading independent developers Die Gute Fabrik, Evening Star, Piccolo Studio, and Yellow Brick Games. We look forward to working with these talented teams. During the fourth quarter, recurrent consumer spending declined 6% over last year and accounted for 60% of net bookings.

Over the past few months, the consumer has seen a wide array of long-awaited high quality new releases in the market, including several of our own exciting titles that have not deployed significant live service offerings. We believe that this dynamic has impacted our overall recurrent consumer spending. NBA 2K and Grand Theft Auto Online were the largest contributors to recurrent consumer spending during the fourth quarter and many of our free-to-play offerings were notable drivers as well. Top Eleven continued to perform very well following our acquisition and was our Number 1 mobile title during the fourth quarter. Two Dots delivered notable year-over-year growth and posted its best-ever net bookings performance driven by new in-game events and successful marketing activations. Dragon City and Monster Legends delivered a solid finish to the year supported by enhanced live operations.

WWE SuperCard has now been downloaded more than 26 million times and remains 2K's highest grossing mobile game and NBA 2K Online in China outperformed our expectations. The title remains the Number 1 online PC sports game in the region with nearly 57 million registered users. We're incredibly excited about our future path of growth, including our pending combination with Zynga. We believe that this will be a transformative moment for Take-Two as we continue to build upon our core tenets to become the most innovative, the most creative, and the most efficient entertainment company in the world. Combined we'll create a powerhouse of industry-leading titles that span key platforms and genres across interactive entertainment developed by some of the most creative and forward-thinking talent within the industry. Later this week our respective shareholders will vote on the transaction which, assuming such approvals are obtained, we anticipate will close on May 23, 2022.

On a standalone basis for fiscal 2023, we expect to achieve a new record of $3.75 billion to $3.85 billion in net bookings as we plan to deliver many exciting new releases during the year. Looking ahead and excluding the impact of our combination with Zynga, we expect fiscal 2024 and fiscal 2025 to set even higher records of net bookings for our company alongside a significant ramp-up in profitability. Lainie will provide additional details on our outlook shortly while Karl will share an update on our exciting diverse multi-year pipeline including approximately 69 titles that we plan to release through fiscal 2025. In closing, we're highly optimistic about our future. As we continue to expand our enterprise and execute on our growth strategies, we believe that Take-Two remains incredibly well-positioned to increase its scale and prominence within the industry, expand margins, and deliver long-term value for our shareholders.

I'll now turn the call over to Karl.

Karl Slatoff
President at Take-Two Interactive Software

Thanks, Strauss. I'd like to begin by thanking our teams around the world for delivering another outstanding year for our company. Our strong results were driven by our colleagues' passion, creativity, and commitment to deliver value for all of our stakeholders. I'll now discuss our recent first quarter releases. On April 21, 2K and Gearbox Software released Coiled Captors, the first of four exciting downloadable content packs in the Tiny Tina's Wonderlands season pass. Featuring a new environment, boss encounter, and legendary loot; the offering represents an innovative post-launch experience from this exciting new franchise. On April 26, 2K and Visual Concepts launched The Banzai Pack featuring five playable Superstars plus MyFACTION EVO cards for each. This is the first of five downloadable planned content offerings for WWE 2K22, all of which will be available individually and as part of the game's season pass throughout the year.

Looking ahead, fiscal 2023 will be another exciting year for Take-Two as we deliver captivating new entertainment experiences for our players while also growing our business through our pending combination with Zynga. I'll now provide details on Take-Two's fiscal 2023 pipeline on a standalone basis, which includes 18 planned releases. We expect to deliver six immersive core offerings, all of which will be available for purchase. These include The Quarry, which is an all-new horror narrative game from 2K and Supermassive Games, where every choice big or small shapes your story and determines who lives to tell the tale. Featuring an iconic ensemble cast of Hollywood stars, including David Arquette, Ariel Winter, Justice Smith, Brenda Song, Lance Henriksen, Lin Shaye, and more. The Quarry will launch on June 10 for PlayStation and Xbox consoles and Windows PC via Steam. Marvel's Midnight Suns is planned for release during the second half of calendar 2022 and is one of this year's most anticipated games.

The title is being developed by Firaxis Games, the acclaimed studio that brought audiences such iconic franchises as Sid Meier's Civilization and XCOM and features the Marvel Universe's most revered heroes in an entirely new gameplay experience. 2K will have more to share in the coming months. Kerbal Space Program 2, which is coming from Private Division and Intercept Games, is now expected to launch on PC in early calendar 2023 and on consoles later in calendar 2023. Anticipation for the title is high with more than 12 million views of the announcement trailer. The dedicated Kerbal community can look forward to more information about the game and its new features from the title's ongoing gameplay reveal video series. Turning to our annual sports offerings. Fans can expect all-new releases from our popular sports series including NBA 2K23, WWE 2K23, and PGA TOUR 2K23 which will debut legendary golf icon Tiger Woods as the game's Executive Director.

2K will have more to share about these titles shortly. Continuing with our fiscal 2023 pipeline. We plan to release eight mobile titles, including four from new franchises and four from existing franchises; and three midcore/arcade titles for purchase, which include one new sports title from 2K, a new franchise from Private Division, and a new Tales from the Borderlands game which will feature new characters and stories set in the Borderlands universe. And lastly, we'll have one new iteration of a previously-released title available for purchase. Our labels will continue to provide new content and experiences that drive engagement and recurrent consumer spending across many of their hit franchises, including NBA 2K, Grand Theft Auto Online, Red Dead Redemption Online, WWE 2K, Tiny Tina's Wonderlands, OlliOlli World, and more. Excluding our pending combination with Zynga, we expect to deliver 51 titles throughout fiscal 2024 and fiscal 2025, which we believe will pave the way for us to achieve a strong acceleration in net bookings growth and profitability.

This includes 18 immersive core releases, seven of which are sports simulation games, 16 of these will be available for purchase while two will be free-to-play; 10 independent titles, which will all be available for purchase; 12 free-to-play mobile games; four mid-core games for purchase, two of which will be sports-oriented; and seven new iterations of previously-released titles, which will all be available for purchase. It bears noting that these titles 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 be adding new titles to our slate. In addition to our full game releases, we will continue to offer post-launch content for many of our releases ranging from virtual currency sales to DLC packs and season passes. Turning to eSports, the NBA 2K League kicked off its fifth season on March 23 and included new sponsors such as Google and Coinbase.

This year the League has partnered with the City of Indianapolis to bring all tournaments as well as payoffs and finals to its new home at The Pavilion at Pan Am. The League's overall prize pool has increased to $2.5 million this season, the largest since its inception. We remain very excited about the continued success and growth of the NBA 2K League, which has the long-term potential to enhance engagement and to be a driver of profits for our company. In closing, as we execute on our organic growth initiatives and unlock new opportunities presented by our pending transaction with Zynga, we believe that we can broaden our portfolio and capitalize further on new platforms, business models, emerging markets, and distribution channels. As we deliver on these growth opportunities, we believe that Take-Two is exceedingly well-positioned to deliver long-term value for our shareholders.

I'll now turn the call over to Lainie.

Lainie Goldstein
Chief Financial Officer at Take-Two Interactive Software

Thanks, Karl, and good afternoon, everyone. Today I'll discuss our fourth quarter and fiscal 2022 results and then review our financial outlook for the full year and first quarter of fiscal 2023. Please note that our initial outlook does not include Zynga in our projected results or the interest expense on the notes that Take-Two issued in April to fund the cash portion for our pending acquisition of Zynga. Additional details regarding our actual results and outlook are contained in our press release. I'm extremely pleased with the accomplishments that Take-Two delivered during the fourth quarter and fiscal year. We posted strong financial results, took exciting steps to position the company for long-term growth, and announced our transformational pending combination with Zynga which brings massive potential to our portfolio and financial profile. I'd like to thank our teams for their passion, commitment, and for continuing to help Take-Two deliver its strategic vision.

Starting with our fourth quarter results. Total net bookings grew 8% to $846 million. Our newly released WWE 2K22 and Tiny Tina's Wonderlands outperformed our expectations as did Red Dead Redemption 2. During the period, digitally-delivered net bookings grew 4% and accounted for 91% of the total. This exceeded our outlook of a slight increase due to the outperformance of digitally-delivered full game sales. 75% of console game sales were delivered digitally, up slightly from last year. As Strauss mentioned, over the last few months there has been a wide array of long-awaited high quality new releases in the market including several of our own exciting titles that have not deployed significant live service offerings. Accordingly, our recurrent consumer spending declined 6% and accounted for 60% of total net bookings. GAAP net revenue grew 11% to $930 million while cost of goods sold increased 43% to $399 million driven by amortization of software development costs for our fourth quarter releases.

Operating expenses increased by 32% to $403 million driven by the addition of Nordeus, including its earn out as well as higher marketing and transaction costs. And GAAP net income was $111 million or $0.95 per share compared to $219 million or $1.88 per share in the fourth quarter of fiscal 2021. Turning to our fiscal 2022 results. Total net bookings were $3.41 billion as compared to $3.55 billion in the prior year. As we expected, throughout the year our engagement trends were notably higher than they were pre-pandemic. However, as the world began settling into a new normal, there was a moderation of the trends that benefited our industry during the height of the pandemic. As a result, digitally-delivered net bookings declined 2%, slightly outperforming our guidance of a 3% decline and accounted for 91% of the total. 68% of our console game sales were delivered digitally, up from 64% last year. And recurrent consumer spending declined 6%.

Non-GAAP adjusted unrestricted operating cash flow was $425 million as compared to our outlook of over $400 million. During fiscal 2022, we spent $159 million on capital expenditures. At fiscal year-end, our cash and short-term investments balance was approximately $2.6 billion. GAAP net revenue grew 4% to $3.5 billion while cost of goods sold was flat at $1.5 billion. Operating expenses increased 24% to $1.5 billion driven primarily by the additions of Playdots and Nordeus, including the revaluation of its earn out; higher personnel, stock compensation, marketing and IT expenses; and higher transaction costs. And GAAP net income was $418 million or $3.58 per share as compared to $589 million or $5.09 per share in the prior year. Today we provided our initial fiscal 2023 outlook for Take-Two on a standalone basis. We project net bookings to range from $3.75 billion to $3.85 billion, which is a new record level for the company and implies strong growth of 11% at the midpoint.

We have an exciting pipeline of releases that we expect to bring to market during the year including six immersive core titles, which is twice as many as we delivered in fiscal 2022. The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, Red Dead Redemption 2 and Red Dead Online, Tiny Tina's Wonderlands, Marvel's Midnight Suns, and PGA TOUR 2K23. We expect the net bookings breakdown from our labels to be roughly 60% 2K, 30% Rockstar Games, and 10% Private Division and T2 Mobile Games. And we forecast our geographic net bookings split to be about 60% United States and 40% International. We expect recurrent consumer spending to be flat compared to fiscal 2022 and represent 58% of net bookings, which is down from 64% last year due to a greater number of new releases. We project digitally-delivered net bookings to grow 10% and represent 91% of net bookings, which is in line with last year.

Our forecast assumes that 71% of console game sales will be delivered digitally, up from 68% last year. We expect to generate more than $350 million in non-GAAP adjusted unrestricted operating cash flow and we plan to deploy approximately $120 million for capital expenditures. We expect GAAP net revenue to range from $3.67 billion to $3.77 billion and cost of goods sold to range from $1.66 billion to $1.7 billion. Our total operating expenses are expected to range from $1.74 billion to $1.76 billion. At the midpoint, this represents a 17% increase over the prior year. As Karl mentioned, we have approximately 69 titles that we plan to deliver over the next three years and we will be investing behind our pipeline in key areas such as marketing, personnel, and IT. And we expect GAAP net income to range from $223 million to $252 million or $1.90 to $2.15 per share. For management reporting purposes, we expect our tax rate to be 16% throughout fiscal 2023.

Now moving on to our guidance for the fiscal first quarter. We project net bookings to range from $700 million to $750 million as compared to $711 million in the first quarter last year. The largest contributors to net bookings are expected to be NBA 2K22, Grand Theft Auto Online and Grand Theft Auto V, Tiny Tina's Wonderlands, Red Dead Redemption 2 and Red Dead Online, The Quarry, and WWE 2K22. We expect digitally-delivered net bookings to increase 2%. Our forecast assumes that 78% of console game sales will be delivered-digitally, up from 73% in the same period last year. We project recurrent consumer spending to decline by 10% as we believe that the momentum behind our own exciting titles that have not deployed significant live service offerings will continue into the first quarter. We expect GAAP net revenue to range from $810 million to $860 million and cost of goods sold to range from $307 million to $333 million.

Operating expenses are expected to range from $387 million to $397 million. At the midpoint, this represents a 25% increase over last year driven primarily by higher personnel and marketing expenses as well as transaction costs. And GAAP net income is expected to range from $93 million to $105 million or $0.80 to $0.90 per share. In closing, we have great confidence in our ability to drive accelerated growth into fiscal 2023 and beyond and we believe that our pending combination with Zynga will take our business to an even greater level of scale and profitability. As we execute on our strategic initiatives, we believe that we can deliver sustainable profitable growth for our shareholders.

Thank you. I'll now turn the call back to Strauss.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for delivering another outstanding year. And to our shareholders, I'd like to express our appreciation for your continued support.

We'll now take your questions. Operator?

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Operator

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Andrew Uerkwitz with Jefferies. Please proceed with your question.

Andrew Uerkwitz
Analyst at Jefferies Financial Group

Great. Thank you. Just two quick ones. The first one on RCS, you look like you're guiding that flat and it was down in fiscal 2022. Is that more a product of quantity or is there something you're seeing in the underlying engagement stats that give you comfort that lapping some tough COVID comps here in the first half are doable? Thank you.

Lainie Goldstein
Chief Financial Officer at Take-Two Interactive Software

So, the first year is definitely due to the comp against the year with COVID from last year. So, we had a really strong Q1 and so comping against that quarter was very difficult. And then this quarter, we were seeing a lot of people playing on the full game that we put out as well as some of our competitors. So, that also affected RCS in the quarter.

Andrew Uerkwitz
Analyst at Jefferies Financial Group

Got it. And then in the guide then, just trying to understand why the guide was flat and for the -- it just seems like it's still fairly tough. So, is it comfort coming back of more RCS for 2023 or something else?

Lainie Goldstein
Chief Financial Officer at Take-Two Interactive Software

So in Q1, we're expecting to be down by about 10% and that's the ongoing of what we're seeing in Q4, which is the players playing the full games of our games and some of our competitors. So, that's continuing. We've seen that in Q1 and we expect to see that for the full year. We expect to see it flat for the full year. So, some of our new games that are coming out don't have any recurrent consumer spending associated with it. We expect NBA to be up for the year and then GT Online and Red Dead Online we expect to be down for the year.

Andrew Uerkwitz
Analyst at Jefferies Financial Group

Got it. Thank you so much. And then, Strauss, you did a wonderful podcast earlier in the month I think with LionTree. In it you discussed M&A and the importance of listening to offers. Just out of curiosity with the changing valuations we've seen across the landscape and the market that we're in, what are your broader thoughts on M&A activity here at the current levels and volatility in the market?

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

Well, no one likes to see their stock price experience a drawdown, but we ultimately will always trade on our fundamentals and that's how we look at the company. So, we have a really strong company. We continue to perform and outperform expectations as we have in this quarter and this fiscal -- this past fiscal year. We've just issued initial guidance, which is a very positive look at our company and of the market. So, we remain in a very optimistic place and I think similarly situated companies probably feel the same way. When the overall market rerates, there's nothing that we can do about it nor something that we would wish to do about it. We don't need to access the capital markets at this price level. We're under-leveraged no matter how you look at it. We have a small amount of investment grade debt coming with the closing of the Zynga transaction and then we have a really powerful company that we expect to continue to fire on all cylinders. So, momentary changes in the market are kind of irrelevant to us.

Andrew Uerkwitz
Analyst at Jefferies Financial Group

Got it. Thank you guys so much.

Operator

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

Eric Handler
Analyst at MKM Partners

Thank you very much and I appreciate the question. Two questions. Strauss, maybe you could start off. Do you think there's any type of shift going on in preferences among gamers for more story mode type of play versus let's call it the live services type of play and people are just sort of craving that story mode a bit more lately?

Karl Slatoff
President at Take-Two Interactive Software

Hi. It's Karl. Actually I think that we never as an industry went away from the attractiveness of the story mode content. We've always said that we believe in that kind of content. We've always delivered on that as a company. It's the ultimate entertainment experience. And I think what you're seeing is you're just seeing some other games in the market capitalize on that. I think there are a number of them out there right now so maybe it looks that way. But when you look at it over time, story-driven content has always been a significant amount -- a significant portion of the activity and also the economy behind the industry and we expect that to be the case going forward.

Eric Handler
Analyst at MKM Partners

Great. Thanks. And just as a second question, comparing your guidance to what was in the S-4 from a few months back, I'm curious if there was -- when you look at the sort of puts and takes, it looks like the bookings guide is a little lower than your internal budget. The EPS guide is a little better than internal budgets. Anything you could talk about maybe what's changed on the margin since then?

Lainie Goldstein
Chief Financial Officer at Take-Two Interactive Software

The projections that we gave on the S-4 were not exactly our guidance because these numbers reflected our internal estimates as of a point in time, which was back in December 2021. So there's always some fluidity in our release slate, our marketing plans, the overall operating expense needs, and those can change our projections over time. Also like our net bookings guidance was affected by the Russia-Ukraine situation. So, those numbers are not included in our projections in our guidance right now. So, that really affected it. So, there's always shifts in our impact on our software development costs and marketing expenses, which also affected the bottom line. So, those are some of the differences between guidance and the S-4.

Eric Handler
Analyst at MKM Partners

Thanks, Lainie.

Operator

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

Matthew Thornton
Analyst at Truist Securities

[Technical Issues] hit on a little bit. But Lainie, I'm wondering if you can maybe quantify some of the discrete items that have kind of been going on in the last three months and what I'm getting at there is Russia as you alluded to as well as currency. How can we think about that headwind maybe versus where we were three months ago? And then maybe more broadly, I don't know if this is for Strauss or Karl, any latest thoughts on just where you think we are in the quote-unquote reopening? Are we at a normal run rate? And similarly just player behavior, obviously there's a lot going on again on the macro front. I'm kind of curious your thoughts on what you're seeing in the player behavior more broadly? Any color there would be very helpful. Thanks guys.

Lainie Goldstein
Chief Financial Officer at Take-Two Interactive Software

So for the first one, Russia and Ukraine is not a big material number for us, but it is something that did change between the S-4 and our guidance. Probably a bigger difference in the topline is more of some of the fluidity in our release schedule. In terms of the currency, it wasn't a huge change for us between those few months. We have a pretty big natural hedge. So, there really isn't a big change between then and now for us. When we set our guidance, we set it based on the spot rate at the time. So any major changes from the time that we set our forecast, that could be a difference going forward. But as of right now it's based on that spot rate.

Karl Slatoff
President at Take-Two Interactive Software

And in terms of the post-COVID outlook, it does feel like we basically are at -- in a normalized situation right now. And actually things have quite worked out basically as we thought they would. We expected that our audiences would stay with us and they have. And we also expected that we would see some level of pullback in terms of engagement amongst that audience, which we've seen some of that. And I think you can see that reflected across the entire industry. But at this point, I would characterize it as we sort of normalized, we've stabilized, and I think we're back on the growth trajectory that we were all anticipating a year-ago when we expect -- when we felt occurred this way.

Operator

Our next question comes from Mario Lu with Barclays. Please proceed with your question.

Mario Lu
Analyst at Barclays Bank

Great. Thanks for taking the question. I have two on GTA. So for GTA V, you mentioned that conversion rate came in above your expectations. So, is there a possibility of that subscription kind of being offered to the current gen players as well in the future? And then secondly, you mentioned that I believe the full-year guide for GTA recurring consumer spending is going to be down this year. So, how should we think about the cadence of update this year for GTA Online and going forward in terms of current gen versus next gen? Thanks.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

Yes. We haven't given any news about broadening the subscription offering. We're thrilled about how it's been rolled out so far. We're thrilled with the conversion rate. And it's clear that consumers really like the opportunity to engage with GTA Online and they value the -- what we're offering through a subscription. And with regard to ongoing content updates, Rockstar has said there's more content coming and we're excited about that.

Operator

Our next question comes from Colin Sebastian with Baird. Please proceed with your question.

Colin Sebastian
Analyst at Robert W. Baird & Co. Incorporated

All right. Thanks. Good afternoon, everybody. Maybe just a follow-up on the normalization of usage and engagement monetization trends. I guess we're looking at mounting concerns about a recession, maybe even stagflation. I think historically the industry has performed pretty well in economic slowdowns, downturns. But curious, Strauss, I guess how you're thinking about the macro environment? Are there scenarios where we could see an impact to the growth in investment strategy on the horizon? And related to that, on the mobile side, I mean there are concerns that the softening we saw in the March quarter might continue through the year. So, curious if that impacts at all your plans for Zynga integration and the synergies. Thanks.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

Thanks for your question. Look, people would like to claim that entertainment is countercyclical or immune to cyclicality. That is not the case. The entertainment business will be affected by an overall economic slowdown. However, we can be seen as resistant to such a slowdown. So for example if you go back to '08 and '09, the market actually grew in 2008 by 20%. It did decline in '09, but the 12% drop was less pronounced than many other business segments. And after September 11, the US gaming market actually grew by 42% in '01 and 11% in '02. So in the event of a consumer recession -- and I'm not going to opine on that because I'm not sure my opinion is very valuable. In such an event, I think we will be resistant but not immune, but we can withstand any such slowdown without a problem.

And look, if you put out great entertainment, people will come out for it and they'll come out in good times and in bad, sometimes they'll come out more in bad times. By the way, I don't think there's any evidence that we're going to have stagflation. Stagflation referred to a time when there was both high unemployment and high inflation and by high inflation, mortgage rates were over 16%. We're not in that ballpark. We're not close to that ballpark and we have very low unemployment rates in this country right now. So, stagflation doesn't seem to me to be a meaningful risk. Some kind of moderate recession I think -- I suppose is conceptually a risk, but it wouldn't have an impact on this business that we can perceive at the time. In terms of mobile games, T2 Mobile Games did just fine.

They're performing incredibly well and continue to perform well in the fourth quarter. So if that's any guide about how we're going to do, we feel just great about the pending combination with Zynga and we think there's wonderful opportunities there. And we think that some of the challenges, for example the post-IDFA world actually create opportunities for a company that has the kind of consumer database that we collectively have with Zynga and the data analytics that we have to help us navigate that database.

Operator

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

Omar Dessouky
Analyst at Bank of America Merrill Lynch

Hi. Thanks very much. There's been some debate in the market as to the size of the total addressable market for Grand Theft Auto VI, which was discussed in a blog post by Rockstar, because it will launch into the Gen 9 console cycle whereas the Grand Theft Auto V launched slightly before PlayStation 4 and Xbox One were launched. So, will such a graphically intensive game be as performance on Xbox One and PlayStation 4 or even the Nintendo Switch as it will be on Xbox X and PlayStation 5? And does streaming technology have the potential to make older generation console and mobile devices capable of a satisfactory performance for such a state-of-the-art game?

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

Well, in reverse order, there are no -- really aren't very many streaming platforms that are up and running right now. Stadia is still up and running even though they don't have that many titles and they have relatively small audience. We've been very supportive of Stadia, but it's a tiny portion of our business to be clear. And of course there's Xbox, but these are not meaningful markets right now. I'm not sure I understood the question. If you're asking like will the launch of the next update in the Grand Theft Auto series, which has been discussed by Rockstar in a blog post as you pointed out, have a salutary effect on the launch of upcoming platforms? Was that your question what you're talking about?

Omar Dessouky
Analyst at Bank of America Merrill Lynch

No. It's really the question of whether the installed base -- we should think about the installed base as the Xbox One -- sorry, Xbox One, PlayStation 4 plus Xbox X PlayStation 5 or only Xbox X PlayStation 5 in which case the TAM would be smaller?

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

So, Rockstar hasn't talked about any details at all about the next generation of Grand Theft Auto. So, there'll be more information to come. But I have no doubt that when that moment comes and there is another iteration that we'll be releasing to a very robust market.

Omar Dessouky
Analyst at Bank of America Merrill Lynch

Okay. Could I just ask you also a quick follow-up? In terms of your capitalized development expenses, do those typically accelerate as you head closer towards the launch of a big game like Grand Theft Auto VI or are they relatively flat over time?

Lainie Goldstein
Chief Financial Officer at Take-Two Interactive Software

It depends on what games are being worked on and what the -- how big the teams are that are working on the game. So over time the balance on the balance sheet will go up and down based on what titles are releasing and how the games are being developed. But it doesn't go in line with any one specific game. There's a lot of games being worked on. As Karl mentioned, there is a large amount of titles that are in the pipeline and most of those are capitalized other than our mobile titles.

Operator

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

Benjamin Soff
Analyst at Deutsche Bank Aktiengesellschaft

Hey, guys. Thanks for the question. So, just now that the FIFA license is officially kind of up for grabs. I wanted to gauge your interest in building out a soccer franchise either simulation or non-simulation. And if you've looked into it or thought about it, how do you see the different opportunities and challenges there? Thanks.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

Well, we noticed and we tend to be thoughtful about our business at all times. We're excited about building out our sports business and we don't have much else to say at the moment.

Operator

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

Brian Fitzgerald
Analyst at Wells Fargo Securities

Thank you. Tiny Tina's Assault on Dragon Keep was featured in the PS5 PlayStation Plus and it included a pre-order from Wonderland. So, just wondering if that Dragon's Keep engagement correspondent with pre-ordering eventually drove conversions? If that was a unique dynamic, if you -- if that was helpful to how the -- that particular marketing program works? And then, Strauss, you highlighted cross-play functionality with Tiny Tina. Is there anything notable to call out with respect to what you're seeing in the cross form -- platform play there either versus other prior games or other cohorts of players? Because you've mentioned a nice influx of those who had not previously played Borderlands games.

Karl Slatoff
President at Take-Two Interactive Software

I'll take the second part of the question first in terms of the cross-play. The cross-play component of Tiny Tina's Wonderlands is terrific and we're really excited about that. We think cross-play generally is great for the consumer. To have people being able to play against each other, with each other across console and PC. That's an ideal situation. And we do think that that ability has helped with Tiny Tina. I don't have any specific data to share of how many of the new people was because of cross-play, that part I don't have to share. But I can tell you obviously it's a good component and is very well executed by Gearbox. And I just -- could I ask you just for -- I didn't really quite understand the first part of the question about Assault on Dragons. What was the specific question there?

Brian Fitzgerald
Analyst at Wells Fargo Securities

So, there was -- if I recall correctly, there was a -- it was highlighted -- Assault on Dragon was highlighted in PS5 and the PlayStation Plus and it included a Wonderlands' pre-order screen. So, I'm just wondering if that engagement with Dragon Keep kind of built momentum and drove conversions in terms of people pre-ordering or even engaging with that and then eventually buying Wonderland.

Karl Slatoff
President at Take-Two Interactive Software

Yeah. I would -- again I don't have numbers -- specific numbers to share with you, but that was a significant marketing beat for us. Any time that we can reengage a consumer base into a franchise particularly to launch a new franchise, it's going to have a very positive effect. And obviously we were blessed to have Tiny Tina because that's one of the most beloved characters in the Borderlands series. So to have access to that, they put out some content prior to the release of Wonderlands. Obviously it had a positive impact on us and drove momentum prior.

Operator

Our next question comes from Matthew Cost with Morgan Stanley. Please proceed with your question.

Matthew Cost
Analyst at Morgan Stanley

Hi, everyone. Thanks for taking the questions. I guess just on the hiring front, you mentioned in the prepared remarks that you added 1,000 developers to the developer base this year. What are you seeing in the way of competition for those developers and wage inflation? And if you are seeing any amount of wage inflation, is that impacting your outlook for hiring for the rest of the year? And then on the M&A front, obviously you're still in the process of closing the Zynga deal, but it does seem like we're in a moment after many years of running the business with very little leverage and cash on the balance sheet like there are opportunities out there to go after assets at depressed valuation. So, I guess are you on the hunt post Zynga or more focused on kind of the integration effort in the near term? Thanks.

Karl Slatoff
President at Take-Two Interactive Software

Sure. In terms of the wage inflation, I think like many other companies, we are feeling the impacts of wage inflation and particularly since the labor market is pretty tight right now. That being said, we really do believe that we're very well positioned to attract and retain talent. We offer highly competitive compensation packages, benefit packages, many of which include profit sharing and equity. So when the company succeeds, our employees succeed and that is very well appreciated. And there's also the element of our culture where people come here because they like to work here. And they can -- and particularly on the creative side where they have the freedom to pursue their passions in a way that also enables them to enrich themselves at the same time. So yes, I would say everybody in the entire market is feeling some impact of the tight labor market. But I think generally speaking, we're pretty well-positioned because we consider that a competitive strength of ours.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

And on the M&A side, our story has mostly been an organic growth story for a very long period of time. We've selectively acquired companies that have great intellectual property and great teams. And then of course we acquired Social Point, Playdots, and Nordeus in order to enter the mobile business and most excitingly we expect to close our combination with Zynga next week. But over the 15-year history that this management team has been here at Take-Two, the bulk of our growth, the bulk of our success has been organically driven and I think that will continue going forward. And we have a great opportunity because combined with Zynga, we have the best collection of owned intellectual property for PC and console and mobile in the business and I think the most talented creative people, the most talented executives.

Of course I'm speaking from our perspective. But I believe that and I think we have to deliver on that promise and we will do so organically. I don't know what opportunities exist given what I hope will be a short-term rerating of interactive entertainment stocks. Ultimately, all securities will trade upon their fundamentals and the fundamentals in this business are quite strong and I think will continue to be strong. That said, we have the ability in a highly disciplined way to do more inorganic growth transactions and if they make sense to us, we will pursue them. But it's probably not the first order of business.

Operator

Our next question comes from the line of Matthew Thornton with Truist Securities. Please proceed with your question.

Matthew Thornton
Analyst at Truist Securities

Hey, good afternoon, guys. A couple of quick follow-ups. Just coming back to the capital allocation question there, Strauss. I think a couple of quarters back, it might have been the fiscal third quarter, you actually bought back some stock for the first time in several years. I know you guys have typically done that pretty opportunistically. So my first question here is given the pullback in the shares after you kind of close the Zynga deal, would buybacks or opportunistic buybacks be something you'd entertain or are you trying to perhaps bring leverage down faster? Just kind of any thoughts there? And then just secondly and relatedly, post close of Zynga, would you wait until the following quarter to issue pro forma guidance? Is that something you might entertain intra-quarter? Just any way for us to think about that would be helpful. Thanks again, everyone.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

Yes. We've said that we believe in returning capital to the shareholders when it makes sense economically and we've done buybacks on an opportunistic basis. Generally speaking, when we perceived there to be a deep value opportunity in the marketplace, we perceived such deep value at $158 a share. Sitting here today, we were wrong about that. But it's still this management team's view that that represents deep value of this company for what that's worth. We are heading into a transaction we have put leverage on the company for the first time ever. And so I think again buybacks won't be our first order of business, but we do retain the flexibility to pursue buybacks if we decide to do so.

Operator

Our next question comes from the line of Mike -- I'm sorry were you still...

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

Sorry. We still have Lainie to answer the second part of the question.

Operator

My apologies.

Lainie Goldstein
Chief Financial Officer at Take-Two Interactive Software

No problem. So for the guidance at Zynga, we plan to provide consolidated guidance when we report our Q1 results in early August.

Operator

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

Mike Hickey
Analyst at Benchmark

Hey, thank you. Hey, Strauss, Karl, Lainie, Nicole. Nice quarters, guys. Congratulations and thanks for taking my questions. Two questions. The first, I'm not sure how much you can speak to this. But sort of, Lainie, maybe your philosophy on guidance as it relates to mobile. Do you think there's much of a delta there in terms of what Zynga has provided to the Street historically? And then more I guess the higher view, when you look at the mobile market through the first quarter here, how are you reflecting on growth of mobile and is it meeting your expectations? And I have a follow-up.

Lainie Goldstein
Chief Financial Officer at Take-Two Interactive Software

So in terms of our guidance process in terms of mobile, we haven't closed the transaction yet. So, we'll start to work with Zynga closely and get a chance to get under the numbers with them and make sure we have a consistent approach towards how we plan all of our business. So, that's the plan right now.

Mike Hickey
Analyst at Benchmark

And then, Strauss, did you have a view just on mobile market growth if it's still tracking where you thought it would be or first quarter-end has changed your view at all?

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

We don't track growth statistics quarter to quarter. Long term we believe that there's a wonderful opportunity in interactive entertainment generally and that mobile will continue to be a rapidly growing segment of the marketplace.

Operator

Our next question comes from the line of Doug Creutz with Cowen and Company. Please proceed with your question.

Doug Creutz
Analyst at Cowen & Company

Hey, thanks. One of the Zynga's key executives recently left to go to be CEO of another company. Just wondered if you could give any update on your plans for how the mobile business is going to be run assuming that transaction closes. Thank you.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

It's a little early to have that conversation because the transaction has not closed yet. Zynga has been operating successfully as an independent company for approximately 15 years and they have highly experienced key personnel across all areas of their business. Under Frank Gibeau's leadership, Zynga has a deep bench of talent including many executives who aren't exactly public-facing in their roles, but they are running the business on a day-to-day basis. So, we're highly confident that there are plenty of talented executives at the -- what will become the Zynga division of Take-Two assuming everything goes according to plan. And we're very excited about the future together and we'll have much more to say about that company after the deal closes.

Doug Creutz
Analyst at Cowen & Company

Okay. Thank you.

Operator

Our next question comes from the line of Martin Yang with Oppenheimer. Please proceed with your question.

Martin Yang
Analyst at Oppenheimer & Company

Hi, good afternoon. Thank you for taking my question. This is more of a longer-term question for Strauss. Can you maybe share with us how would you characterize the impact of great individual creators? Is there any impact on the commercial outcome of the games and has that really changed since you started working in the industry?

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

Well, I think we have -- we've put more focus on creative talent here at Take-Two than perhaps any other company in the interactive entertainment business and our success has reflected that choice. It's an easy thing to say, it's a hard thing to do. We truly encourage the most creative people in the industry to come to our company and work on what they're passionate about and we make decisions that are in service of that approach, that strategy, and our goal to make great art as well as to make great hits. The work is done by teams. All the work here is done by teams, but the leadership is crucial. And we have great creative leadership across the board and we're really proud of that great creative leadership and grateful to them for the results that they continue to deliver here.

Operator

Our next question comes from Andrew Marok with Raymond James. Please proceed with your question.

Andrew Marok
Analyst at Raymond James & Associates

Hi. Thanks for taking my questions. You mentioned that you saw some success in the standalone GTA Online version. I guess who are the players that are getting into GTA Online at this point? How do they differ from the legacy GTA online players to the extent that you can provide quantitative guide around that as well? And then secondly, is there any update that you guys have to share maybe on your NFL partnership? Thank you.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

I think on the GTA players, I think what's most interesting is that the market continues to grow, that we've sold-in 165 million units of the title. Even though it was launched in 2013, the title has dominated now three console generations. And when we created a standalone version of Grand Theft Auto Online, lots of people showed up to play it. So, clearly the market is huge and continues to grow and I think Rockstar has done a great job in continuing to make the market accessible for people over a long period of time. But no, we don't have anything specifically to say about the particular people who've shown up even though we have a lot of good data. And we don't have anything right now to say about the NFL partnership although we're excited about it and looking forward to releases that will come in the future.

Operator

Our next question comes from Clay Griffin with MoffettNathanson. Please proceed with your question.

Clayton Griffin
Analyst at MoffettNathanson

Yes. Hi. Good afternoon. Just a point of clarification there. I know it was late in the quarter, but the standalone price for GTA Online, is that -- I'm assuming that's getting booked at RCS or maybe there's some nuance there? Just to confirm that. And then just I'm curious if you could maybe put some thoughts around just the strategy around that. I think Strauss, you've called the combination of the full gain online of tethered and free-to-play and just how successful that's been in the past obviously. But any thoughts around -- should we assume that that is kind of the MO I guess for future titles of this size or ilk?

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

Sorry, I apologize. If you can, what was your question about pricing?

Lainie Goldstein
Chief Financial Officer at Take-Two Interactive Software

Standalone.

Clayton Griffin
Analyst at MoffettNathanson

I was just curious if the standalone pricing for GTA Online, is that getting booked as recurring consumer spending or is that being booked as a full game, I guess, is the first question and the second question...

Lainie Goldstein
Chief Financial Officer at Take-Two Interactive Software

So, the standalone game itself is a full game. But if you're playing it online and buying virtual currency, that's RCS.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

And your second question? I'm sorry, I missed the second one as well.

Clayton Griffin
Analyst at MoffettNathanson

Sure. Just general thoughts on considering the relative success of tying GTA Online to GTA V, if we should expect that that's the kind of modus operandi for games of this stature for your biggest IP going forward.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

We have said that we expect to offer opportunities to engage with our titles on an ongoing basis after release. We aim to provide such opportunities and to monetize them when it makes sense. But there are all different ways to do that. That could be downloadable add-on content or that could be an online multiplayer game. It really depends on the title and as the labels get ready to market and release titles, that will generally be made clear. So, it varies title by title. There's not going to be just one singular approach going forward.

Operator

Our next question comes from Drew Crum with Stifel. Please proceed with your question.

Drew Crum
Analyst at Stifel Financial

Thanks. Hey, guys. Good afternoon. So, I know there's some commentary in the preamble about ramping up profitability in fiscal '24 and '25. Is that solely a function of scale or do you also anticipate slowing down the investment spend? And where will we see fluctuation in investment spending going forward? Thanks.

Lainie Goldstein
Chief Financial Officer at Take-Two Interactive Software

It's a combination of scale and also the investments other than direct marketing, we would expect those to slow down. The direct marketing will be in line with what titles come out. But the other expenses like headcount and IT expenses and rent, we would expect that to slow down.

Drew Crum
Analyst at Stifel Financial

Yes. Okay. Thanks.

Strauss Zelnick
Chairman & Chief Executive Officer at Take-Two Interactive Software

We want to thank you all for your questions today, for your attention, for joining us, and for your support. We really appreciate it. Thanks, all.

Operator

[Operator Closing Remarks]

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