Take-Two Interactive Software, Inc. (TTWO) Earnings

Management highlights

- **Quarterly Performance & Overall Strategic Position - The company started fiscal 2027 with strong results exceeding guidance, driven by outperformance of NBA 2K and the Grand Theft Auto series, putting the company on track for a milestone year anchored by the November 17 launch of Grand Theft Auto VI. - Management notes fiscal 2027 will be an inflection point for the company, establishing a new higher scale of business supported by a robust development pipeline, established hit franchises, and long-term strategic execution. - **Upcoming Content & Launch Pipeline - Upcoming key releases in the next quarter include NBA 2K27 (launches September 4), Man of Honor story expansion for Mafia: The Old Country (August 14), and the WrestleMania 42 pack for WWE 2K26 (August 19); full game details for NBA 2K27 will be revealed August 18. - Continued content updates are planned for existing titles: Season 8 for PGA TOUR 2K25 (late September), additional story content for Borderlands 4 (September), and seasonal content for WWE 2K26 this fall; WWE 2K27 and PGA TOUR 2K27 are currently in development. - New mobile title *Top Goal* is in soft launch, with recent additions of real-world soccer stars, 3D match simulation, and PvP gameplay. - **Franchise Health & Engagement - NBA 2K26 delivered record results, with 9% unit growth and 7% recurrent spending growth, driven by meaningful increases in user engagement across multiple metrics. - Grand Theft Auto Online's recent Quartz Center Heist release has been well received, successfully reactivating lapsed players 13 years after GTA Online's original launch, with ongoing strong engagement. - Pre-orders for Grand Theft Auto VI are off to an exceptional, unprecedented start, with consumer excitement building ahead of launch; an extended official look at the title will premiere on August 27, with timed exclusivity on Netflix followed by release on YouTube and other platforms 6 hours later. - *NBA 2K All-Star*, the company's mobile NBA title in China with Tencent, has surpassed 10 million registered users and delivers strong profit margins. Direct-to-consumer distribution on mobile is a growing driver of margin improvement across Zynga's portfolio. - **Strategic Priorities - International expansion into underpenetrated markets (including India, Africa, Latin America, Southeast Asia, the Middle East) is a core long-term priority, with the goal of flipping the company's current 80%/20% split of revenue from developed/international markets over the next 10 years, supported by in-house geopricing tools tailored to local market purchasing power. - The company continues to evaluate accretive M&A, with core criteria: acquisition of owned IP, addition of valuable teams and development tools, and immediate accretion to EBITDA and GAAP earnings, with a priority on cultural fit; the company maintains a conservative leverage posture and will be more active in pursuing deals once it reaches a net cash position, expected by the end of fiscal 2027. - AI tools are already integrated into development, with ongoing work to use AI for both innovation in product quality and efficiency; the company views AI as a tool to empower creative teams (not replace them), and any efficiency gains are reinvested into improving the scale and quality of game releases rather than reducing overall costs.

Guidance

- Management reiterated its full fiscal 2027 net bookings guidance range of $8 to $8.2 billion, representing ~20% year-over-year growth at the midpoint, driven primarily by Grand Theft Auto VI, NBA 2K, and established mobile franchises. Recurrent consumer spending is expected to be flat year-over-year and represent 64% of full-year net bookings. - Full-year GAAP net revenue is projected to be $7.9 to $8.1 billion, with cost of revenue expected to be $3.54 to $3.66 billion, and total operating expenses expected to be $4.15 to $4.17 billion; management-basis operating expense growth is projected at ~7% year-over-year, a slight downward revision from prior forecasts. - Capital expenditures for full fiscal 2027 are now projected at approximately $290 million, an increase from prior guidance due to a planned real estate purchase. Operating cash flow is still projected to exceed $1 billion, and the company remains on track to reach a net cash position by the end of the fiscal year. - For the second quarter of fiscal 2027, management projects net bookings of $1.62 to $1.67 billion, GAAP net revenue of $1.42 to $1.47 billion, and operating expenses of $1.01 to $1.02 billion. Recurrent consumer spending is projected to decline ~5% year-over-year, with growth from NBA 2K and Grand Theft Auto offset by an expected decline in mobile revenue due to tough year-over-year comparisons. Management-basis operating expenses are expected to decline ~5% year-over-year, as the prior year quarter included high marketing spend for the Borderlands 4 launch.

Segment performance

Overall first quarter fiscal 2027 net bookings came in at $1.39 billion, slightly above the prior guidance range of $1.32 to $1.37 billion. Recurrent consumer spending declined 1% year-over-year (better than the 3% decline expected), and represented 84% of total net bookings for the quarter. - **Rockstar Games (Grand Theft Auto / Red Dead Redemption series):** Net bookings grew 3% year-over-year. The Grand Theft Auto series led this growth, with Grand Theft Auto 5 cumulative sales reaching over 230 million units worldwide; recurrent consumer spending for the series grew 3% year-over-year, driven by new content including the Rockstar Mission Creator. For full fiscal 2027, Rockstar Games is expected to contribute 37% of total company net bookings. - **2K (NBA 2K / Borderlands / WWE / PGA TOUR / Civilization):** NBA 2K net bookings grew 7% year-over-year. NBA 2K26 closed a record year for the franchise, with cumulative sales over 12 million units (9% growth over NBA 2K25), and recurrent consumer spending grew 7% driven by higher user engagement. For full fiscal 2027, 2K is expected to contribute 29% of total company net bookings. - **Zynga (Mobile):** Mobile net bookings declined 7% year-over-year, in line with expectations due to tough comparisons to last year's launch of Color Block Jam. Key mobile franchises outperformed forecasts: Toon Blast bookings grew 8% year-over-year, Words with Friends grew 8%, Top 11 grew 15%, and Empires and Puzzles maintained steady momentum. For full fiscal 2027, Zynga is expected to contribute 34% of total company net bookings.

Risks & headwinds

- Pre-order demand for Grand Theft Auto VI is unprecedented, but pre-orders can be cancelled, and it is unclear how much of the strong pre-order demand represents pulled-forward sales that would otherwise occur after launch; management has not changed guidance to reflect early pre-order momentum and remains cautious until the game launches. - Mobile user acquisition costs are currently under pressure due to overspending by some competitors, which can crowd out cost-effective UA spending for Take-Two; the company only pursues UA spending when it delivers a significant multiple of lifetime value relative to cost. - Rising next-generation console hardware costs are a negative industry development that could limit hardware adoption, though management does not view this as a meaningful headwind for the company, as growth in PC gaming and game streaming will expand the overall available install base regardless of console pricing. - All forward-looking statements are subject to inherent uncertainty, and actual results may differ materially from projections based on a variety of factors detailed in the company's SEC filings.

Analyst Q&A

• Q: A peer noted a mobile market slowdown in recent months attributed to macro uncertainty—did Take-Two observe the same trend? /

  A: Management said they did not see broad consumer pullback in mobile. The 7% year-over-year mobile decline in the quarter is entirely due to tough comparisons to last year's successful launch of Color Block Jam. There is modest current pressure on user acquisition costs, which fluctuates in the market, but core engagement and performance for most mobile franchises remains strong, with multiple titles delivering double-digit year-over-year booking growth.

• Q: What is the strategy behind the Netflix timed exclusivity for the Grand Theft Auto VI extended trailer? Is this a one-off or the start of a broader partnership? /

  A: This is a first-of-its-kind marketing and distribution partnership with Netflix, a close existing partner of the company, arranged by Rockstar Games. The extended trailer will be available on YouTube and other platforms six hours after the initial Netflix release. While this specific arrangement is unique, Take-Two and Rockstar have existing licensing partnerships with Netflix, and management expects additional collaborative opportunities with Netflix and other platforms going forward, as the company aims to make its IP available wherever consumers want to engage with it.

• Q: With the announcement of an $80 base price for GTA VI but $70 for NBA 2K27, how does management approach AAA game pricing moving forward? /

  A: Management's core approach is to deliver far more value to consumers than the price charged. AAA game pricing has not kept pace with inflation over the past 20 years, so the $80 price point for GTA VI reflects the enormous scale and value Rockstar is delivering with the title. Pricing decisions will always be based on the value provided for each specific title, rather than a blanket price increase; the company prioritizes consumer satisfaction over maximizing price.

• Q: Management says streaming with low latency will be commercially viable within three years—why is this timeline realistic now after past failed streaming launches? /

  A: Management notes past streaming efforts were held back by latency issues, but enormous advances in hyperscaler and edge network technology have addressed core technical limitations. One major industry player is already rolling out a national edge network in the U.S. that will solve latency problems. Management does not expect overnight adoption, is not betting the entire company on streaming, but views it as a meaningful long-term opportunity that will expand the overall gaming install base by enabling console-quality play on non-gaming devices.

• Q: What is the company's approach to advertising outside of mobile, on open platforms and streaming? /

  A: Advertising is already a growing driver of monetization in mobile, allowing the company to monetize the ~80% of users that do not make in-app purchases, and the company has rolled out ad units to most of its mobile portfolio. On the console side, advertising is only appropriate when it is endemic to the in-game experience (such as arena advertising in NBA 2K, matching what viewers see in real basketball), and it remains a very small portion of console revenue. The company avoids intrusive advertising for paid premium AAA titles, consistent with its focus on delivering good consumer value.