TAKE TWO INTERACTIVE SOFTWARE INC Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Holiday Season Results: Net bookings of $1.37 billion were within guidance, with NBA 2K outperforming offsetting moderation in mobile franchises. Operating results surpassed expectations.
• NBA 2K: Phenomenal quarter with over 7 million units sold, strong recurrent consumer spending, daily and monthly active users growth. Expanded basketball franchise with various editions.
• Grand Theft Auto Series: Industry standard bearer, Grand Theft Auto V sold over 210M units, GTA Online had strong quarter with holiday update, GTA Plus membership up 10%.
• Red Dead Redemption: Highest concurrent players on Steam, Red Dead Online engaged audience with Halloween Pass.
• Mobile Business: Recurrent consumer spending grew mid-single digits, Tune Blast and Toy Blast had double-digit growth, Match Factory on track, but some franchises underperformed. Leveraged pop culture partnerships.
• Upcoming Launches: Sid Meier's Civilization VII launched in early access, PGA Tour 2K25, WWE 2K25, Mafia: The Old Country in summer, Grand Theft Auto VI in fall, Borderlands 4 before year-end.

Segment Performance

• NBA 2K: Delivered strong performance with net bookings growing over 30%, recurring consumer spending rose 9%, accounting for 79% of net bookings. Sold over 7 million units, with recurrent consumer spending up over 30%, daily active users up nearly 20%, and monthly active users up nearly 10%.
• Mobile: Recurrent consumer spending grew mid-single digits. Tune Blast and Toy Blast had double-digit growth. Match Factory is performing well and on track to be Zynga's second-largest title by year-end. Empires and Puzzles underperformed. Mobile increased 6% driven by Match Factory and strength in Tune Blast, but below low double-digit growth guidance due to hyper-casual portfolio and Empires and Puzzles underperformance.
• Grand Theft Auto series: Grand Theft Auto V sold over 210 million units worldwide. GTA Online had a strong quarter with holiday update, and GTA Plus membership increased 10% year-over-year.
• Red Dead Redemption: Currently has highest level of concurrent players on Steam, and Red Dead Online engaged audience with Halloween Pass.
• Breakdown: Net bookings for third quarter were $1.37 billion, within guidance range. GAAP net revenue was $1.36 billion, flat year-over-year. Cost of revenue declined 13% to $600 million. Operating expenses increased 10% to $892 million, with a shift in timing of expenses benefiting the quarter.

Guidance

• Fiscal 2025 Net Bookings: Reiterated guidance of $5.55 to $5.65 billion, 5% growth over fiscal 2024. Recurring consumer spending forecast raised to 5% growth, accounting for 78% of net bookings. Mobile expected to grow low single digits. GAAP net revenue range $5.57B to $5.67B. Cost of revenue range $2.41B to $2.44B. Total operating expenses range $3.77B to $3.79B.
• Fourth Quarter: Net bookings projected $1.48B to $1.58B, GAAP net revenue $1.52B to $1.62B. Operating expenses $900M to $920M, with management basis expected to decline ~2% year-over-year.

Risks

• Mobile Business Trends: Continuation of current mobile trends affecting fourth quarter results.
• Marketing Expenses Impact: In mobile business, high marketing spend for user acquisition burdens current results, affecting short-term profitability.
• Franchise Performance: Some mobile franchises like Empires and Puzzles underperformed, posing risks to overall mobile segment performance.
• Forward-Looking Statements: Actual results may vary significantly from forward-looking statements based on various factors described in SEC filings.

Question and Answer

Q: When you originally bought Zynga, part of the thesis was revenue synergies. Do you feel closer to realizing those?

A: Working on interesting projects not announced yet. Direct-to-consumer business with Zynga has been a significant success.

Q: Is Match Factory still on track to be profitable by end of fiscal 2025?

A: Towards end of year, starting to turn profitable, game doing better as it stays in market.

Q: How much of NBA 2K's rebound is comp effect vs underlying success?

A: Benefiting from gen eight to gen nine transition, but also ongoing innovation and quality of the game.

Q: How does approach to building excitement for slower release franchises differ?

A: Market as brand new title, focus on innovation and engaging consumers, not resting on prior success.

Q: Evaluation of Netflix partnership for WWE?

A: Evaluate based on benefiting consumers, want to be where consumers are, not limited to platforms.

Q: Thoughts on $1.9B capitalized software on balance sheet?

A: Capitalized software based on technological feasibility of titles, amortized over lifetime of titles, no change in accounting policies.

Q: Momentum of Roblox app platform?

A: Roblox is competitive, hard to imagine Take-Two content there, but would contemplate if reason exists.

Q: Impact of mid-quarter slips at competitors on NBA 2K?

A: Focused on delivering best experience, engagement is key, not focused on competitors' slips but on own execution.