Take-Two FY3Q results down as NBA 2K24 and mobile ads fall short

Take-Two Interactive reported results for the third fiscal quarter ended December 31 that fell short of its expectations as mobile ads and NBA 2K24 revenues were lower than expected.

As a result of the shortfall, Take-Two said that it is planning a cost-reduction program that is more extensive than the one it undertook last year in the wake of its $12.7 billion acquisition of Zynga. That language pretty much spells layoffs are coming, as they have for much of the game industry lately.

Fortunately for Take-Two, its Rockstar Games label is planning to launch Grand Theft Auto VI, most likely in the 2025 fiscal year, which ends March 31, 2025. Rockstar released a trailer for the game that hit 93 million views on YouTube in its first 24 hours. The previous GTAV launched more than 10 years ago.

In after-hours trading, Take-Two’s stock is down 5.9% to $159.50 a share. Take-Two is valued at $28.8 billion.

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As of December 31, Take-Two’s headcount was over 12,200, including over 9,500 in-house development studio staff. A year ago, Take-Two reduced some of its headcount as part of a $50 million cost-reduction program.

Net bookings for the quarter were $1.34 billion, down 3% from $1.38 billion for the same quarter a year ago. Take-Two had a new launch with Zynga’s Match Factory! in the quarter, but most of the revenue came in from existing titles.

Take-Two said Grand Theft Auto V (now at 195 million copies sold) and Grand Theft Auto Online, Red Dead Redemption series, and Toon Blast all came in above expectations.

Take-Two Interactive chief executive Strauss Zelnick.

“We achieved solid third quarter results, including Net Bookings of $1.3 billion. Grand Theft Auto V and Grand Theft Auto Online, the Red Dead Redemption series, and Zynga’s in-app purchases, led by Toon Blast, exceeded our expectations, as we launched engaging new content, partnerships, and activations,” said Strauss Zelnick, chairman and CEO of Take-Two. “This was partially offset by some softness in mobile advertising and sales for NBA 2K24. We are reducing our outlook for the year to reflect these factors, as well as a planned release moving out of the fourth quarter, and increased marketing for Zynga’s new hit mobile game, Match Factory!, which we believe will enable us to scale the title meaningfully. Our revised Net Bookings forecast is $5.25 to $5.3 billion.”

Today, Take-Two is shaving about $200 million in bookings off from its expected year-end net bookings.

Zelnick added, “Our strategy is anchored in creativity, innovation, and efficiency. We are currently working on a significant cost reduction program across our entire business to maximize our margins, while still investing for growth. These measures are incremental to, and more robust than, our prior cost reduction program, and we aim to achieve greater operating leverage as we roll out our outstanding release schedule.”

And Zelnick reminded us that Take-Two always has its eye on the long term.

“We have always managed Take-Two for the long-term. Our company’s potential is vast and unique, driven by our creative talent, our owned and controlled IP, and our groundbreaking pipeline for fiscal 2025 and beyond. As we focus on our strategic priorities, we are confident that we will grow our Net Bookings, enhance our profitability, and continue to deliver value for our shareholders,” Zelnick said.

Michael Pachter, an analyst at Wedbush Securities, said in an email to GamesBeat, “The big takeaway is that they delayed an unannounced title out of this fiscal year into next FY and lowered guidance by $200 million (roughly), then they said next year was ‘just over’ $7 billion. They had previously said next year was ‘$8 billion’ (in August), then said ‘just under’ $8 billion (in November) and now say ‘just over’ $7 billion with a shift of the unannounced $200 million title into next year.  That means without the shift, next year’s expectations dropped by $1 billion.”

He added, “The only conclusion you can reach is no GTA VI next fiscal year.  I have no reason to believe it has slipped out of calendar 2025, but it’s reasonable to assume it will launch in September, October or November, just like 13 out of the last 14 games from Rockstar.  The one exception to that was GTA IV, which launched in April 2008 after having been delayed from its scheduled launch in November 2007.”

Zelnick interview

GTA VI's main characters.
GTA VI’s main characters.

In a short interview about the earnings, I asked Zelnick about the prospect of layoffs.

“We have a three-party strategy as you know. Which is to be the most creative, the most innovative and the most efficient company in the entertainment industry,” Zelnick said in an interview with GamesBeat.”We pride ourselves on that strategy. And after many years of unbridled industry growth, we think it is a good time to take a look at our cost profile. Our biggest line item of expense actually is not labor costs. It’s actually marketing. So, there is plenty of room for optimization in areas outside of labor. That’s obviously where we will start at least to begin with.”

I asked if GenAI would help make the company more efficient.

“Unquestionably. I want to be clear. I don’t think advances in generative AI are going to take away the jobs that people want to do. I think that generative AI is much more likely to get rid of the work no one wants to do,” Zelnick said. “The lower value work. And the history of technology and productivity tools is that it frees people up to do much more interesting jobs. And that’s what I think will happen here.”

As for NBA 2K24, he said,”Basically, we’re looking at as a timing issue. NBA 2k24 is a hugely successful title. It’s the No. 1 sports title in North America. It’s sold in over 7 million units. And the bookings of NBA 2K24 are expected to be in line with those of NBA 2K23.”

He added, “However, in the period, we saw some softness in the Gen 8 SKU. [There is] lots of enthusiasm in the Gen 9 SKU. And that’s why we’ve reported the results here. That the guide down, by the way, is, in large part driven by great news, which is the success of Match Factory, which is turning into a really significant hit. And we want to feed the user acquisition expense in the quarter, which of course is not fully recovered the quarter. We also moved a title out of the year into fiscal 25. But that’s just the timing matter. So, you know, the three key elements here, which are NBA 2K24, sales, which will come back in the fullness of time, a title moving, which will be released in the new fiscal year, and Match Factory where we expect to earn a multiple of what we’re spending on user acquisition in the quarter. This is all somewhere between neutral and good news.”

He noted there was no update on Grand Theft Auto VI’s launch window, as that sort of announcement falls to Rockstar.

As for the layoffs and general funk in the game industry, Zelnick said, “Look, I think there’s some really good news in the industry. We have some big titles performing, we got a lot of great news around here, Grand Theft Auto V has sold in over 195 million units, Red Dead Redemption sold over 61 million units.”

He added, “And the success of multiple titles in Zynga, which is a really the first time in years that we end our competitors are beginning to see new IP success in mobile. So there’s lots of good news.”

And he said, “But the market is not what it was during the pandemic. It’s still under some pressure. Consumers today are still under some pressure. And all of us are taking steps to become more efficient, which is as it should be. This is an industry in growth, but it’s not linear, upward sloping curves every month, and so perfectly reasonable for an industry that’s been on a bit of a binge to stop and regroup.”

I asked when the game industry funk might end. He said, “As I said, in many ways, things are looking up. We are excited about Match Factory! We couldn’t be more excited than we are about our pipeline. I think the consumer is returning steadily. And I think the consumer will be in a much better place, broadly, by the end of this year.”

In an analyst call, Zelnick said one of the hardest things to do in the mobile game industry is to launch a new hit. That’s why he said he is so excited about Zynga’s Match Factory!.

Third quarter highlights

Sugartown is Zynga's first Web3 game. Interesting books on the couch.
Sugartown is Zynga’s first Web3 game.

Total Net Bookings decreased 3% to $1.34 billion, as compared to $1.38 billion during last year’s fiscal third quarter.

Net Bookings from recurrent consumer spending decreased 7% and accounted for 75% of total Net bookings. The largest contributors to net bookings were NBA 2K24, Grand Theft Auto Online and Grand Theft Auto V, Toon Blast, Empires & Puzzles, the hyper-casual mobile portfolio, Red Dead Redemption 2 and Red Dead Online, Words With Friends, Grand Theft Auto: The Trilogy – The Definitive Edition, and Merge Dragons!.

GAAP net revenue decreased 3% to $1.37 billion, as compared to $1.41 billion in last year’s fiscal third quarter. Recurrent consumer spending decreased 7% and accounted for 76% of total GAAP net revenue.
The GAAP net loss was $91.6 million, or 54 cents per share, as compared to $153.4 million, or 91 cents per share, for the comparable period last year. The GAAP results include an impairment charge of $53.4 million related to intangible assets.

Q3 FY24 results

Red Dead Redemption 2 is an influencer's dream.
Red Dead Redemption 2 is an influencer’s dream.

Take-Two said the quarterly results were solid. It noted that recurrent consumer spending (RCS) declined 7% for the period and accounted for 75% of net bookings. This was slightly less than the company’s outlook, driven by weakness in mobile advertising and NBA 2K24, which was largely due to the effect of lower unit sales on its in-game monetization.

Zelnick said that the NBA 2K24 shortfall was in part due to a timing issue, and he noted that the team is working hard to lift results through events and promotions and more content. Overall, Take-Two expects NBA 2K24 lifetime net bookings to be in-line with NBA 2K23.

RCS for GTA Online virtual currency and GTA+ membership was up notably. During Q3, the company launched several mobile titles, including Top Troops, Match Factory!, and NBA 2K24 Arcade Edition for Apple Arcade, as well as Borderlands 3 Ultimate Edition for Switch.

Cost savings initiative and revised outlook for FY24

Zynga owns Rollic.
Zynga owns Rollic.

Due to the weakness Take-Two experienced in mobile ads and NBA 2K, a planned release moving out of Q4, and increased marketing for Zynga’s new hit mobile title, Match Factory, Take-Two is lowering the FY24 outlook.

While the timing of Match Factory’s user acquisition expense will reduce profitability in FY24, Take-Two said this investment will allow it to grow its audience meaningfully and increase the lifetime value of the Match Factory franchise. Take-Two reiterated it manages for the long term.

Zelnick said the cost reductions are likely to hit staffing, but he also pointed out that cost reductions can come in other ways, such as lower user acquisition and marketing costs. Asked about AI, he said that the company hopes that AI will help make the company more efficient, but he said he wanted to be careful to point out that it does not mean that it will lead to a reduction in jobs that people want. Rather, he noted AI will take care of mundane tasks that nobody wants to do.

Zelnick said it was prudent to take a look at costs again, given the industry-wide situation. Overall, Take-Two said its teams are always looking for ways in which they can operate at the highest level of efficiency, which is one of the firm’s core tenets. The cost reductions this year will be “more robust” than the $50 million program last year.

Take-Two labels

A beach in Vice City in the GTA VI trailer.
A beach in Vice City in the GTA VI trailer.

Take-Two said Rockstar’s GTA V sales exceeded expectations, with the total now hitting 195 million sold worldwide. During the quarter, Rockstar released its holiday update for GTA Online, The Chop Shop, which captured the highest number of active users in several years.

The GTA series is also benefiting meaningfully from excitement surrounding Rockstar’s announcement of GTA VI and the release of its first trailer, which at 93 million views in 24 hours, broke YouTube’s records for a non-music video launch and along with partner channels, became the biggest video debut ever.

Rockstar’s recent partnership with Netflix to launch the GTA Trilogy was also a resounding success, quickly yielding the highest rate of installs and engagement on the subscription service’s game platform.

Rockstar’s membership program, GTA+, continues to grow rapidly, powered by enhanced benefits for members, including a rotating assortment of classic Rockstar titles.

Red Dead Redemption 2 also exceeded expectations, with a total of 61 million units sold to date.

The company said NBA 2K24 sold in over seven million copies, but that was lower than expected. The Gen 9 version of the game is growing at a double-digit percent increase, thanks to better gameplay and wider console availability. But there are declines in demand for Gen 8 versions.

For Zynga, Take-Two said it was pleased with Peak’s Match Factory!, which debuted on iOS in November and Android in late December. Based on excellent metrics, Take-Two sees strong long-term potential for the title and are planning to invest in new features and a robust marketing campaign to capitalize on its popularity with consumers and to scale it further. While this is increasing costs, Zelnick said he viewed it as good news.

Zynga’s other recent release, Top Troops, increased its engagement by more than 10% over last quarter, propelled by the launch of new features and semi-monthly battles. Looking ahead, the team is focusing on new brand collaborations, player competitions, and social and community engagements.

While Zynga’s in-app purchases exceeded expectations, ad revenues did not. That was due to some changes that the company is implementing in the hyper-casual business, including a heightened focus on profitability and the launch of new features that deliver blended monetization.

Outlook for FY24

Back to Vice City, or Miami, for GTA6
Back to Vice City, or Miami, for GTA6

With one more quarter to go in the fiscal year, Take-Two said it was lowering our outlook to reflect the softness it is currently experiencing in mobile advertising and NBA 2K24, a planned release moving out of Q4, and increased marketing for Zynga’s new hit mobile title, Match Factory. Overall, the company expects to hit net bookings of $5.25 billion to $5.3 billion for the fiscal year, compared to last quarter’s expectations of $5.45 billion $5.55 billion.

Our revised Net Bookings forecast is $5.25 to $5.3B. Those bookings will come out to roughly 51% Zynga, 30% 2K, and 19% Rockstar Games. Take-Two said before it expects fiscal year 2025, which ends March 31, 2025, to hit $8 billion in bookings. That tells us Grand Theft Auto VI is coming out in that year. However, now Take-Two expects the number to be more like $7 billion — still great, but lower than before.

About 60% of net bookings are expected to be in the U.S. versus 40% international. It expects RCS growth of 1% compared to fiscal year 2023. Total operating expenses are now expected to range from $3.55 billion to $3.56 billion as compared to $3.45 billion last year.

An analyst asked about the impact of the Disney-Epic deal, where Disney will invest $1.5 billion in Epic Games and build out a Disney online universe, Zelnick said, “I only know what I read. They are investing in a leading company in epic. They talked of creating a Fortnite/Disney ecosystem. I don’t know what that means. I am not betting against my friends at Epic or Disney.”

In response to analyst question on Xbox strategy, Take-Two’s Strauss Zelnick said he looks forward to hearing about the business strategy. And given the market cap in the last few years for Microsoft, “You don’t want to bet against that management team.”

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