Take-Two Interactive Software, Inc.
Q3 2022 Earnings Call Transcript
Published:
- Operator:
- Greetings. Welcome to the Take-Two Q3 Full Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Nicole Shevins, Senior Vice President of IR and Corporate Communications. You may begin.
- Nicole Shevins:
- Good afternoon. Thank you for joining our conference call to discuss our results for the third quarter of fiscal year 2022 ended December 31, 2021. 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 managements, 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 the reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. In addition, we have posted on 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 take2games.com. And now, I will turn the call over to Strauss.
- Strauss Zelnick:
- Thanks, Nicole. Good afternoon and thank you for joining us today. I am pleased to report that we delivered another strong quarter, highlighted by net bookings of $866 million, which exceeded our expectations and increased 6% over the prior year. Our outstanding holiday season results were driven by our new and existing titles, as well as strong ongoing engagement from our player communities that continue to immerse themselves in their favorite experiences and exciting new content updates. We continue to position our company to deliver on its long-term pipeline, build scale and gain market share. During the quarter, we grew our pool of creative talent with the addition of more than 300 developers. This includes our highly complementary acquisitions of elite3D and Roll7. Based in Valencia, Spain, elite3D is one of the world’s leading creative studios that is dedicated to innovative 2D and 3D artwork for the interactive entertainment industry. elite3D will form a second office for 2K’s 31st Union studio and serve as a new publishing location for 2K’s Global Services division. Roll7 is the BAFTA-award winning studio behind OlliOlli World, which is launching tomorrow. Going forward, the team will help support Private Division’s mission to bring games to market from the industry’s top creative studios, as well as to broaden the label’s portfolio of owned intellectual property and internal development capabilities. Our most significant recent development was our agreement to combine with Zynga, which we expect to close during the first quarter of our fiscal 2023. We are very excited by the prospect of this transformative combination, which will significantly diversify our business, establish us as a leader in mobile, the fastest growing segment of the interactive entertainment industry and greatly enhance our positioning as one of the world’s top three pure-play publishers of interactive entertainment. We believe there will be tremendous strategic and financial benefits for our company and we have already identified $100 million of annual cost synergies that we expect to achieve within the first two years post-closing and over $500 million of annual revenue opportunities that we can deliver over time. We look forward to welcoming the teams at Zynga into the Take-Two family in the coming months. Turning to our third quarter results, our better than expected performance was driven primarily by Grand Theft Auto
- Karl Slatoff:
- Thanks, Strauss. I’d like to thank our teams for delivering another outstanding quarter, driven by their continued commitment to excellence and dedication to our business. I will start by discussing our announced offerings planned for the remainder of this fiscal year. Tomorrow, Private Division and our recently acquired Roll7 studio will launch OlliOlli World on Nintendo Switch, Xbox and PlayStation consoles and Steam. This skateboarding action-platformer has been eagerly awaited by fans and received significant critical praise for its unique art style and tight gameplay mechanics. Reviews for OlliOlli World have been extremely positive, with multiple sites recommending or calling the title an essential purchase and the game currently earning a score of 85 on OpenCritic and 84 on Metacritic. We are thrilled to add this popular series to our portfolio and to pursue exciting new projects with the talented team at Roll7. In early March, 2K and Visual Concepts will launch WWE 2K22, which we believe will set a new benchmark in quality for the series. The game offers more features and enhancements than any prior WWE 2K release, including a redesigned gameplay engine, new controls, foundational improvements, upgraded visuals and an array of features specifically requested by our passionate player base. WWE 2K22 will hit different, giving players complete control over the game’s universe, including a new look and feel, accessible but challenging gameplay and significant replay value. Rey Mysterio, one of the most renowned and respected WWE icons of all time, will grace the cover of this year’s game in true Lucha Libre fashion. We can’t wait for players to step into the ring with WWE 2K22 and experience all the groundbreaking enhancements on which our teams have been tirelessly working. On March 15th, Rockstar Games will launch Grand Theft Auto V for PlayStation 5 and Xbox Series X|S, bringing the blockbuster entertainment experience to an unprecedented third console generation. This new release features new graphics mode, excuse me, features new graphics modes with up to 4K resolution, up to 60 frames per second, texture and draw distance upgrades, HDR options and ray tracing, as well as faster loading times, immersive 3D audio, platform-specific features and much more. We are also excited for new players to join the thriving Grand Theft Auto Online community on the latest hardware when the standalone offering is released in March, with Grand Theft Auto Online free on PlayStation 5 for the first three months. PlayStation 4 and Xbox One players eager to continue their journey on the newest generation of hardware will be able to transfer both their Grand Theft Auto V Story Mode progress and their current Grand Theft Auto Online characters and progression to PlayStation 5 and Xbox Series X|S with a one-time migration at launch. On March 25th, 2K and Gearbox Software will launch an exciting new entry from the Borderlands universe, Tiny Tina’s Wonderlands, the highly anticipated, fantasy-fueled and all-new take on the looter-shooter genre. During The Game Awards in December, 2K debuted a story trailer introduced on-stage by members of Tiny Tina’s Wonderlands’ all-star celebrity cast. On the heels of this star-studded event, player excitement for Tiny Tina’s Wonderlands is at an all-time high. We expect the excitement to continue to build as we grant access to media and content creators for extended previews and reviews, and reveal new gameplay details in the coming weeks. We are looking forward to wrapping up our fiscal year with this tent pole release. Looking ahead to fiscal year 2023, Rockstar Games will launch Grand Theft Auto
- Lainie Goldstein:
- Thanks, Karl, and good afternoon, everyone. Today, I will discuss our third quarter results and then review our financial outlook for our fiscal year 2022 and fourth quarter. Please note that additional details regarding our actual results and outlook are contained in our press release. As Jeff mentioned, our holiday results were outstanding, driven by strong engagement across our key franchises. Net bookings were $856 million, which was above our guidance of $800 million to $850 million and up 6% as compared to last year. Our outperformance was primarily driven by Grand Theft Auto
- Strauss Zelnick:
- Thanks, Lainie and Karl. On behalf of our entire management team, I’d like to thank our colleagues for delivering another outstanding, and to our shareholders, I want to express our appreciation for your continued support. We will now take your questions. Operator?
- Operator:
- Our first question is from Mario Lu with Barclays. Please proceed with your question.
- Mario Lu:
- Great. Thanks for taking the questions. Maybe first on NBA 2K, you guys mentioned that DAUs and bookings were up 10% year-on-year. So just wondering if you could dig a little bit deeper into whether this growth was due to macro-based factors or new modes to the game, anything that you can point to that suggests that this growth is a sustainable long-term? Thanks.
- Karl Slatoff:
- Hey, Mario. It’s Karl. I am not sure that there’s any real macro issues that are going on that I would attribute to the game, I am sure, obviously, the NBA is having an incredibly successful and is having growth. So that is -- that always helps and we are thrilled with that partnership. The games look great. I mean, the game is really out of the gate. It performed fantastically well. I think people are reacting first and foremost to the quality of the game and also to the expansive amount of content in the game and we are just really focused on driving engagement. And I think every year, the team at Visual Concepts and 2K continues to add more and more content, more modes and actually enable those modes to work more seamlessly together with innovations such as the city, neighborhood, et cetera. So really, for us, it’s about the quality of the game and driving engagement through offering more and more and better content and that’s really what we see driving growth. And we are not finished. I mean, there’s -- we are not nowhere near saturation point at this point. There’s a lot of greenfield in front of us and as long as we continue to deliver on the quality of the content then we expect that growth to continue for the foreseeable future.
- Mario Lu:
- Got it. Thanks, Karl. And then maybe one on GTA, so, yeah, playing devil’s advocate here a little bit. One of the main drivers of our performance this quarter you guys mentioned was The Trilogy. But I believe there were a number of bugs at launch that affected gameplay. So one, how this issue has been fixed, and then two, more importantly, has there been any changes made to the QA process to ensure this does not happen to future launches such as GTA enhanced next month and the next entry in the series thereafter? Thanks.
- Strauss Zelnick:
- Thanks for the question. Yes. We are totally focused on quality here and we always want to deliver the best possible experience. Very occasionally, we fall short, and I think, The Trilogy was an example of that and the title was launched with some issues. We have addressed many of them. There are more fixes to come. Going forward, we remain highly focused on quality and we are exceedingly confident in all of our upcoming releases.
- Mario Lu:
- Okay. Thanks, Strauss.
- Operator:
- Our next question is from Matthew Cost with Morgan Stanley. Please proceed with your question.
- Matthew Cost:
- Hi, everyone. Thanks for taking the questions. I have two. So, I guess, on the 14% CAGR guidance, I think, it implies something like $9 billion of revenue for the combined entity in 2024? I guess that seems to imply a pretty significant amount of topline growth kind of to the core Take-Two business, excluding Zynga. So I guess what would you call out is kind of the biggest most important drivers over the next two years to get to that higher revenue base and which is the most important ones to get there? And then, I guess, secondarily on Zynga, you have talked about the opportunity to drive revenue synergies by maybe using the tools that Zynga to bring some of your tent pole IPs onto mobile in a bigger way than they have been in the past. How long do you think that would take? What does it look like? How much investment would it take to get there? Thanks.
- Lainie Goldstein:
- Hi, Matthew. I will start with the 40% CAGR and when we are talking about talking about K2 pipeline of titles. We haven’t given any detail deeper than that, but we have been talking about the growth of our pipeline over the last couple of years and the 20 titles per year that we have been growing over time and that’s really what’s in those numbers. And we have talked about more immersive core titles and how we were supporting the pipeline of titles and that’s really where that growth is coming from.
- Strauss Zelnick:
- And with regard to bringing Take-Two’s core intellectual property to mobile with Zynga’s help. Look, we think that’s one of many great opportunities. We have already said that we expect to achieve $100 million in cost synergies annually over the next couple of years. Additionally, we have identified at least $500 million of annual run rate revenue synergies, many of which are unrelated to new game launches, many of which are unrelated to bringing Take-Two IP to mobile. However, that is an opportunity and while we haven’t identified any heroics within there, we do think it’s an interesting opportunity on a selective basis in the coming years. The actual investment is not significant compared to our core investment in console and PCIP.
- Matthew Cost:
- Thank you.
- Operator:
- Our next question is from Colin Sebastian with Baird. Please proceed with your question.
- Colin Sebastian:
- Thanks and good afternoon, guys. I guess, first off, I am just wondering for, if you have any industry level observations on the quarter that just passed, several high profile new releases in the industry underperformed expectations. Just wondering if you -- there was a common denominator that you saw that might explain that or if they were really just title specific? And then secondly, on the mobile business and I know we are looking past the close of the acquisition, but just curious to learn a little bit more about the roadmap for converting a bunch of your really strong console and PC franchises to mobile, how quickly you think that can develop?
- Strauss Zelnick:
- Thanks for your question. Look, this is -- it’s really hard to make hits in any entertainment industry. It’s really hard to make hit video games. And now and then we fall short, now and then our competitors fall short. We don’t believe there’s any trend in the industry. We just think that over time as entertainment industries mature, consumer’s expectations always increase and they should. So it’s always our goal to do better with each iteration of a franchise or with each launch of a new intellectual property. And one of things we are really proud of in our track record is, with regard to our franchises and we have 11 franchises, for example, that have sold over 5 million units with an individual release, each iteration has always sold more than the prior iteration, which is not always true for the industry and lately has really not been true for the industry, but it is true for us. But it will only remain true for us if we continue to focus on quality mightily and that’s job number one around here. In terms of bringing Take-Two’s core intellectual properties to mobile, that remains a very interesting opportunity. As I said earlier, we have identified around $500 million of annual run rate revenue synergies to be achieved in the coming years and the combination with Zynga, in addition to $100 million of annual run rate cost synergies and only a small portion of those synergies on the revenue side are attributable to new releases based on core Take-Two IP. So we have not identified any heroics, we know it will take some time. The financial investment in the context of our investing in the console and PC titles is not significant, because obviously, the creation of the mobile title is not as heavy a lift. Equally, the heat ratios are not as strong in the mobile space. So I think we have a sober view of where we can go in the future and we are really excited that we think Zynga’s extraordinary developers and their extraordinary publishing abilities will enhance our ability to bring core intellectual property to the mobile market.
- Colin Sebastian:
- All right. Thanks, Strauss.
- Operator:
- Our next question is from Doug Creutz with Cowen & Co. Please proceed with your question.
- Doug Creutz:
- Hey. Thanks. A couple of questions on RCS. First, if you could just confirm what the RCS growth rate would have been in an organic basis for that Nordeus? And then, secondly, just to remind, I know the Tiny Tina’s is shipping with the premium edition that includes access to the Season Pass. How will that impact your RCS bookings in the fiscal fourth quarter? Thanks.
- Lainie Goldstein:
- Look, our RCS, I don’t -- we don’t break that out with Nordeus. So it’s -- for the quarter, we had 2% up versus slight increase, but I don’t have it broken out with the Nordeus. But in total, for the year, we expect RCS to be slightly down by about 5% and we originally expected it to be 15%. So RCS has been pretty strong for the year and beating our expectations for the year so far. So we are pretty happy with the performance for RCS for the year. And for Tiny Tina’s, we are not breaking out the Premium Edition and how much that will impact to RCS. So we are not giving that level of detail either.
- Doug Creutz:
- Well, I am not asking for details, just conceptually, if you sell a Premium Edition Pass that $30 incremental by the presumably some of that does benefit your RCS revenue in the quarter, correct?
- Lainie Goldstein:
- Some of that will be added into the RCS.
- Doug Creutz:
- Okay. Thanks.
- Operator:
- Our next question is from Martin Yang with Oppenheimer. Please proceed with your question.
- Martin Yang:
- Hi. Thank you for taking my question. I was under the impression that GTA V Enhanced is not available for purchase yet. Can you confirm that? And how do you think about the pricing strategy for the GTA Enhanced relative to GTA 5 Premium, do you intend to use pricing to differentiate the different value proposition between the upcoming Enhanced edition and the current edition?
- Karl Slatoff:
- So the GTA Enhanced, so the next gen versions of GTA V are not, in fact, available for purchase yet, but they will be. And in terms of pricing, we haven’t discussed any pricing models around this presumably for us .
- Martin Yang:
- So, conceptually, how would you market the Enhanced edition versus the Premium edition? So besides the graphic changes and content, is there any reasons you would give the upcoming potential buyers to purchase the Premium edition also?
- Strauss Zelnick:
- Yeah. It’s an Enhanced version for Gen 9 consoles and there will be a lot of upgrades and plenty of reason to purchase it. And Rockstar, obviously, we will be talking about that in the marketing materials.
- Operator:
- Thank you. Our next question is from Drew Crum with Stifel. Please proceed with your question.
- Drew Crum:
- Okay. Thanks. Hey, guys. Good afternoon. Share with us where the company is in terms of returning the office or studio and your confidence in your label’s ability to hit the title count you presented in the slide deck, do you see ongoing work from home as a risk to that? And then separately, yeah, I think, in past quarters, you guys have said that, you expect fiscal 2023 to see a reacceleration in growth, does that guidance still hold? Thanks.
- Strauss Zelnick:
- Yes. Look, return to office is sort of location by location. Question depending on the state of affairs in each location and what the local authorities are saying, and obviously, we comply with all local regulations. The expectation is that we are even back now or we will be back in the coming months. In any case, the company’s proven that we can be very effective without regard to where people are working from. We have had great success in the context of remote work and while I think all of us were anxious to get back to the office as soon as we possibly can, we are also mindful of the science and the circumstances. We haven’t had a quality lapse, we haven’t had a timing lapse, we haven’t had a financial lapse and we don’t expect to.
- Lainie Goldstein:
- In terms of about fiscal year 2023, so it’s a little early for us to start to give detailed guidance for next year, but we plan to share that on our year-end earnings call in May. But what I can tell you that on a standalone basis, we do continue to believe that we will achieve sequential net bookings growth in fiscal year 2023, driven by some of the exciting releases that our labels have been working on. And at the same time, we will make continued investments next year in marketing, talent and IT and space expansion, as we prepare for some of the major launches that our teams have underway, which we project will enable us to deliver record levels of operating performance in the next few years.
- Operator:
- Our next question is from Matthew Thornton with Truist Securities. Please proceed with your question.
- Matthew Thornton:
- Hey. Good afternoon, everyone. It’s obviously been -- 2022 has been an interesting year, and Strauss, I was just wondering if we can get maybe your latest thoughts on maybe where we are in terms of reopening, obviously, we had data privacy changes that had some impact on the mobile sector, just kind of your thoughts as to maybe where we are there? And then just hiring and retention has been challenging, and I don’t think that’s gaming specific, I think, that’s broad brush. But just curious to get your kind of latest take on some of those countervailing forces this year? Thanks.
- Strauss Zelnick:
- Well, in terms of reopening, as I just said, certain number of our offices are fully open, others will be opening in the coming months, depending on what happens in the marketplaces. We will listen to local authorities, we will pay attention to the science and we are mostly sensitive to the health and well-being of our colleagues around the world. However, my belief is that we will largely be back in office within the next couple of months. But I think the broader point is that, working remotely has not been an issue for the company in terms of quality or performance. So we all have to be back in the office. Now, our team today who was on this call, we are all together in the office today and we like it that way. In terms of data privacy, we have not had any issues coming out from the change in IDFA and we have an extraordinary customer database. And in the combination with Zynga, we expect to have more than 1 billion customer records, which gives us some massive opportunity from a marketing point of view despite the change in IDFA. So we feel just fine about being able to market, and at the same time, to maintain customer’s privacy, which is an important value of ours. With regard to hiring, we brought on 300 new developers in the quarter. We continue to grow and grow rapidly. And that’s been a good news story because we think people really like working at this company. And with regard to retention, it’s an even better story. I think we have one of the lowest attrition rates in the industry, if not the lowest. I know our attrition rate is about half that of the industry average. We earn the right to say that every single day. We are really proud of our culture. It’s of paramount importance to us.
- Matthew Thornton:
- And Strauss, just one point of clarification, I guess, on the reopening point, I was kind of curious maybe from the player side, just where do you think we are in terms of engagement trends, are we kind of back to a, quote-unquote, norm. I am just curious your latest thoughts there? Thanks again.
- Strauss Zelnick:
- Yeah. I think -- I don’t think we are seeing enhanced demand because of the pandemic. I think we are seeing normalized demand at this point.
- Operator:
- Our next question is from Brian Fitzgerald with Wells Fargo. Please proceed with your question.
- Brian Fitzgerald:
- Thanks. We want to ask about platforms a little bit. Maybe like Stadia, Google is reportedly diminishing the gaming focus there and maybe they just never had enough critical mass in terms of subs. Is there just a limit in terms of I think market opportunity for that type of device or experience or yet another platform in the market? Maybe gamers are more excited about Enhanced versions for the Gen 9 platforms versus cost? And then maybe a related topic, how do you view the recent market activity and the notion exclusive titles or features or release windows, is cross-platforming really just diminishing the need actually the ability to have exclusive?
- Strauss Zelnick:
- On the first point, look, there is always a marketing story du jour in this business and we are usually very sober about them. And a couple of years ago, the marketing story du jour was how cloud gaming would completely transform the industry and multiply demand by 20x. And we said on these calls was we would love to subscribe to that view, but we didn’t subscribe to that view that we thought streaming and cloud distribution was super interesting but probably wouldn’t change the market size materially and that’s exactly what we have seen. It’s super interesting and it’s not changing the market size materially. So there’s broad distribution for our products now for those who want them. And I don’t think that anything will occur on the platform side that will significantly change the marketplace going forward. The marketplace will change by virtue of putting out hits or not putting out hits. I think you alluded to that. So as between platform-driven growth or product-driven growth, I am going with product-driven growth, which means those who are great will do great and those who are good will have problems. It’s hard for me to opine about exclusive titles. I think in the event that a platform company acquires a label and that label’s intellectual property, one could imagine those titles becoming exclusive in certain circumstances. I think outside of that, it’s less likely, although, there may be short term exclusivity deals still, as there always have been and I do think cross-platform play is the wave of the future and you are going to see it more and more, because consumers will demand it.
- Brian Fitzgerald:
- Thanks, Strauss.
- Operator:
- Our next question is from Benjamin Soff with Deutsche Bank. Please proceed with your question.
- Benjamin Soff:
- Hi, everyone. Thanks for the question. I’d like to ask a little bit about RCS. It was sort of in line with your expectations whereas over the past few quarters you posted more meaningful outperformance. So the question is, were there any surprises either positive or negative that impacted RCS this quarter? And I have got a follow up after that.
- Lainie Goldstein:
- So for RCS this quarter, NBA 2K22 outperformed, as well as Red Dead Online and GTA Online was in line with our strong expectations. We had some mobile titles that were modestly came in below our expectations. So, net-net, we were slightly above our expectations, but when we had forecasted for this quarter, we knew that Q3, Q2 we had been so much higher, so we put some strong expectations on the page. So that’s why we didn’t oversee it as much as we did last quarter.
- Benjamin Soff:
- Got it. And then just how should we think about the trajectory of margins for the business over time? Specifically, what are the puts and takes that we should be mindful of as you guys bring the market a much larger number of games in the coming years? Thanks.
- Lainie Goldstein:
- So in terms of our bottomline margins, our expectation is, as we build scale for the business is for our bottomline margins to continue to expand. So this year and next year, we have some investments that we are doing in terms of our operating expenses to drive our topline in terms of our organic growth and our pipeline of titles as we have been talking about. And as that continues to build, our expectations are for our bottomline margins to continue to expand and we have seen that on year where we have had some big hits and we continue to expect to have those and we expect to have some record years in the next couple of years, and with that, we would expect to see our bottomline margins expand.
- Operator:
- Our next question is from Eric Handler with MKM Partners. Please proceed with your question.
- Eric Handler:
- Yes. Good afternoon and thanks for the question. I wanted to talk a little bit about Red Dead Redemption 2. It looks like you sold on a quarter-over-quarter basis an incremental 4 million units, your best quarter in a little bit quite some time. I am curious, was there anything special that led to that increase in unit sales or was this sort of seasonality around the holidays? And secondly, I am just curious what you are seeing from new cohort spending on Red Dead Online versus sort of existing cohort spending?
- Lainie Goldstein:
- So, for Red Dead Redemption 2, we had a lot of holiday promos during the Christmas season and that really drove a lot of the units, as well as we had a series of updates. So a lot of people were playing the game, so that really drove a lot of those units. And in terms of the new cohort spending, we don’t have any real details on that.
- Eric Handler:
- Okay. Thank you.
- Operator:
- Our next question is from Mike Hickey with The Benchmark Company. Please proceed with your question.
- Mike Hickey:
- Hey, Strauss, Karl, Lainie, congrats on the quarter, guys. Thanks for taking my questions. Just two, I am not sure if you have given us the engine on this, but the GTA Trilogy from mobile, is that free-to-play or is that a Premium offering? And then, second question, just looking at sort of Microsoft’s acquisition of Activision, maybe Sony’s acquisition of, excuse me, acquisition of Bungie, thinking about sort of the rise of subscription plans over time, thinking sort of three years to five years. How you think that sort of changes the competitive landscape, maybe in particular for sort of middling budget games if they can still be competitive outside of that subscription plan that’s obviously playing with a lot of content? Thanks, guys.
- Strauss Zelnick:
- So we haven’t discussed pricing for Trilogy for mobile yet. And on the competitive landscape, hard to know really, I think, there probably puts and calls. I think assuming the Microsoft acquisition of Activision closes. That means they will be really two very powerful leading pure-play interactive entertainment companies and we will be one of them And I think that that probably means there are some advantages in terms of attracting talent and being able to invest in really great experiences and to market them powerfully. At the same time, a platform enterprise having an even more robust product slate, there will be benefits. And again, perhaps, there will be some detriments. I think we are very focused on that which we can control and we tend not spend a lot of time worrying about things that are out of our control, what’s within our control is making hits. And as long as we maintain our approach, which is try to be the most creative, the most innovative and the most efficient company in the business, as long as we focus mightily on quality, we do well. And if we have a lapse, if we miss a step, if we divert our attention from that strategy, we don’t do as well. So we have our work cut out for us and we are focused on that work.
- Mike Hickey:
- Thanks, guys.
- Operator:
- Our next question is from Stephen Ju with Credit Suisse. Please proceed with your question.
- Stephen Ju:
- Okay. Thank you so much. So, Strauss and Karl, I want to put you on the spot a little bit. It seems like there has been continues to be a lot of potential for Private Division publishing opportunities for the company. But there doesn’t seem to be a ton of studios out there that you may want to look to acquire maybe. So can you square that dynamic with us? Is it just that access to capital was easy and for the most part, these independent studios value their freedom and maybe want to remain that way? Thanks.
- Strauss Zelnick:
- Well, the good news is that Private Division’s business model doesn’t require us to own the studios we are in business with, in fact, to the contrary, Private Division was set up to offer fantastic publishing, marketing services and financing to creators who wanted to stay independent of the larger enterprises. And Michael Morris and the team have done a great job building a business that does just that. At the same time, we are able to own certain intellectual properties like Kerbal Space Program and we have just announced that we acquired Roll7, which makes our OlliOlli World, which is being launched tomorrow incidentally and has great Metacritic scores on Switch and we couldn’t be more excited about it. So I think right now, Private Division is able really to offer opportunities for those who want to stay independent and opportunities for those who want to be part of the Private Division system. We obviously have plenty of capital to deploy when the opportunity presents itself to own intellectual property and the sky’s the limit. It’s still early days for Private Division. We are really excited about what will come in the future.
- Stephen Ju:
- Thank you.
- Operator:
- Our next question is from Andrew Marok with Raymond James. Please proceed with your question.
- Andrew Marok:
- Hi. Thanks for taking my question. With the performance of the contract so far and its greater emphasis on single player, I guess, how does that inform your roadmap for future GTA Online content releases and does it necessarily say anything about the appetite for single player experiences more broadly? Thanks.
- Strauss Zelnick:
- There was a time when a couple of our competitors were taking the position that single player was dead. We never took that position. We know that there’s a role for a single player. I believe there will be a role going forward. Then there are certain games that are meant to be only multiplayer experiences. Rockstar is known for storytelling, and yes, Rockstar is also known for these fantastic open world experiences. They clearly do both really well. And the contract shows, as you just said that, consumers are really excited about Rockstar storytelling ability, and at the same time, we had a great quarter with Grand Theft Auto Online. So there’s a lot of excitement there. So the answer is sort of all of the above.
- Operator:
- Our next question is from David Kornacki with J.P. Morgan. Please proceed with your question.
- David Kornacki:
- Thank you. Just to follow up on a GTA Trilogy question from earlier. I believe word for the game was largely outsourced, and I think, you have noted, for remaster support sometimes that’s best for from a resource standpoint. My question is does the expense of Trilogy lead you to rethink this model at all or is this just an isolated case? Thanks.
- Strauss Zelnick:
- We have had precious few quality lapses at this company. So any time that we have fallen short from a quality point of view, it has been an isolated case and we aim to keep it that way. However, we are not changing our business model.
- David Kornacki:
- Thank you.
- Operator:
- Our next question is from Clay Griffin with MoffettNathanson LLC. Please proceed with your question.
- Clay Griffin:
- Hi. Good evening. Thanks for taking my question. Strauss, on the Zynga M&A call, you noted kind of one of the key strategic benefits of the deal that now you can address a market that was previously not available to you, i.e., outside the console market, the high-end kind of AAA gaming. I suppose, like, yeah, how do you view that taking shape? I mean, obviously, that market has access to more games now. It seems like implicit assumption is that you feel that there’s demand for a kind of what we might call the core Take-Two game experience. But just curious if you view kind of the experience of the games that you are thinking about when you think about that market opportunity if there’s any kind of delineation between what you do now, obviously, with AAA games and mobile is our white space kind of in between those two things where you think that’s where the real opportunity is? Thanks.
- Karl Slatoff:
- Hey, Clay. It’s Karl. I think, look, we have been big supporters and big fans of the mobile market for quite some time. I think that exhibited in our acquisition strategy over the past few years, and obviously, with our announced acquisition of Zynga. So it’s actually -- it’s really exciting for us and it’s not just about the casual space or the mid-core space or the core space, we actually think the mobile market is got for all of us as it relates to that. It’s becoming more sophisticated. The technology is getting better. There’s more cross-platform opportunities. There are more examples of the market for mid-core and core franchises having success. Obviously, Call of Duty is a perfect example of that, Fortnite as well. So we really do think that there’s an opportunity for us to play along the entire spectrum of mobile opportunities, which is hyper casual, which we have never really been involved with that much to casual, to midcourt, to even core experiences. And look, down the line, I mean, the cloud -- one of the benefits of cloud should that ever come about, which we do hope that it is, that it does take some of the stress off of the remote device and allows a lot of the intelligence to be done in the cloud and that enables folks to tap into that market all the more easier. In other words, you don’t have to buy a console or high-end PC in order to play sophisticated games. So we really don’t think there’s any limitation at all in the mobile space for any of our content, whether it would be hyper all the way from hyper casual to our most core assets.
- Clay Griffin:
- Makes sense. And do you think that that takes shape primarily by the way -- in the way of life services games or do you feel like that there’s obviously opportunity in kind of the Red Dead Redemption type games as well?
- Karl Slatoff:
- Yeah. I don’t --look, obviously, most of the mobile space right now is more on the life services business, so there’s clearly an opportunity there. But I wouldn’t say that, single player story content doesn’t have a role on mobile either. I would -- again I wouldn’t count on either one of those categories.
- Clay Griffin:
- Okay. Thanks very much.
- Operator:
- We have reached the end of the question-and-answer session and I will now turn the call over to Strauss Zelnick, Chairman and CEO for closing remarks.
- Strauss Zelnick:
- Thanks so much for joining today. We are really grateful for all of our colleagues for delivering another stellar quarter and for the great outlook going forward. Thank you to our shareholders for your continued support and have a great evening.
- Operator:
- This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.
Other Take-Two Interactive Software, Inc. earnings call transcripts:
- Q4 (2024) TTWO earnings call transcript
- Q3 (2024) TTWO earnings call transcript
- Q2 (2024) TTWO earnings call transcript
- Q1 (2024) TTWO earnings call transcript
- Q4 (2023) TTWO earnings call transcript
- Q3 (2023) TTWO earnings call transcript
- Q2 (2023) TTWO earnings call transcript
- Q1 (2023) TTWO earnings call transcript
- Q4 (2022) TTWO earnings call transcript
- Q1 (2022) TTWO earnings call transcript