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    TTWO
    Earnings call· Dec 2024(Q3 FY25)

    TAKE TWO INTERACTIVE SOFTWARE INC TTWO

    Feb 6, 2025 Source

    Executive summary

    Take-Two Q3 FY25 — Strong NBA 2K Performance and Robust Pipeline Drive Optimistic Outlook

    Take-Two delivered solid Q3 FY25 results, driven by exceptional performance from NBA 2K and operating results surpassing expectations due to expense timing. Despite moderation in some mobile franchises, the company reiterated its full-year net bookings guidance and anticipates record net bookings in fiscal years 2026 and 2027, fueled by a strong upcoming game pipeline including Grand Theft Auto VI.

    Highlights

    5

    • Net bookings of $1.37 billion were within the guidance range.

    • Operating results surpassed expectations due to NBA 2K outperformance and a favorable shift in expense timing.

    • NBA 2K sold in over 7 million units, with recurrent consumer spending up over 30%, daily active users up nearly 20%, and monthly active users up nearly 10%.

    • GTA+ membership increased 10% year-over-year.

    • Zynga's Match Factory! is performing very well and is on track to become the second largest title by net bookings by the end of fiscal year 2025.

    Concerns

    3

    • Moderation in some mobile franchises, including the hyper-casual portfolio and Empires & Puzzles, led to mobile recurrent consumer spending being below guidance.

    • Grand Theft Auto Online experienced a decline.

    • A shift of some operating expenses into the fourth quarter is anticipated to affect the period.

    Guidance & targets

    20
    CategoryTargetConfidence
    Fiscal 2025 Net Bookings
    $5.55 billion to $5.65 billion
    high materiality
    High
    Fiscal 2025 Recurrent Consumer Spending (RCS) Growth
    5% growth
    medium materiality
    High
    Fiscal 2025 NBA 2K Growth
    low double digits
    medium materiality
    High
    Fiscal 2025 Mobile Growth
    low single digits
    medium materiality
    High
    Fiscal 2025 Grand Theft Auto Online Performance
    decline
    medium materiality
    High
    Fiscal 2025 Net Bookings Breakdown by Label
    Zynga 49%, 2K 34%, Rockstar Games 17%
    low materiality
    High
    Fiscal 2025 Geographic Net Bookings Split
    60% United States and 40% international
    low materiality
    High
    Fiscal 2025 Non-GAAP Adjusted Unrestricted Operating Cash Flow
    outflow of $150 million
    high materiality
    High
    Fiscal 2025 Capital Expenditures
    approximately $140 million
    medium materiality
    High
    Fiscal 2025 GAAP Net Revenue
    $5.57 billion to $5.67 billion
    high materiality
    High
    Fiscal 2025 Cost of Revenue
    $2.41 billion to $2.44 billion
    medium materiality
    High
    Fiscal 2025 Total Operating Expenses
    $3.77 billion to $3.79 billion
    high materiality
    High
    Fiscal 2025 Operating Expense Growth (Management Basis)
    approximately 10% year-over-year
    medium materiality
    High
    Q4 FY25 Net Bookings
    $1.48 billion to $1.58 billion
    high materiality
    High
    Q4 FY25 Recurrent Consumer Spending (RCS) Increase
    approximately 3%
    medium materiality
    High
    Q4 FY25 NBA 2K Recurrent Consumer Spending (RCS) Increase
    high teens percentage increase
    medium materiality
    High
    Q4 FY25 GAAP Net Revenue
    $1.52 billion to $1.62 billion
    high materiality
    High
    Q4 FY25 Operating Expenses
    $900 million to $920 million
    high materiality
    High
    Q4 FY25 Operating Expense Growth (Management Basis)
    decline approximately 2% year-over-year
    medium materiality
    High
    Net Bookings
    sequential increases and record levels
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Zynga (Mobile)
    Zynga's mobile business contributed significantly to projected FY25 net bookings. While overall mobile recurrent consumer spending grew 6% YoY, it was below guidance due to underperformance in hyper-casual and Empires & Puzzles. Match Factory! is a strong performer and expected to turn profitable by year-end FY25.
    Net Bookings Contribution (FY25 Projected): 49%Recurrent Consumer Spending Growth (Q3 FY25): 6% YoYMatch Factory! Ranking (FY25 Projected): Second largest title by net bookings
    		————
    2K
    2K is a major contributor to projected FY25 net bookings, driven by the phenomenal performance of NBA 2K, which saw over 30% growth in recurrent consumer spending.
    Net Bookings Contribution (FY25 Projected): 34%NBA 2K Recurrent Consumer Spending Growth (Q3 FY25): Over 30% YoY
    		————
    Rockstar Games
    Rockstar Games is expected to contribute 17% to FY25 net bookings. Grand Theft Auto Online experienced a decline in the third quarter.
    Net Bookings Contribution (FY25 Projected): 17%Grand Theft Auto Online Performance (Q3 FY25): Declined
    		————

    Operational metrics

    12
    Net Bookings
    $1.37 billionwithin guidance range
    Q3 FY25

    Achieved within the guidance range of $1.35 billion to $1.4 billion.

    Recurrent Consumer Spending (RCS) Growth
    9%YoY
    Q3 FY25

    In line with guidance, accounting for 79% of net bookings.

    NBA 2K Recurrent Consumer Spending Growth
    over 30%YoY
    Q3 FY25

    Greatly surpassed forecast, led by new features and innovation.

    Mobile Recurrent Consumer Spending Growth
    6%YoY
    Q3 FY25

    Driven by Match Factory! and strength in Toon Blast, Toy Blast, and Words With Friends, but below guidance of low double-digit growth.

    NBA 2K Daily Active Users (DAU) Growth
    nearly 20%YoY
    Q3 FY25

    Compared to last year, reflecting strong engagement.

    NBA 2K Monthly Active Users (MAU) Growth
    nearly 10%YoY
    Q3 FY25

    Compared to last year, reflecting strong engagement.

    Direct-to-Consumer (D2C) Conversion
    strong double-digit
    Holiday Season

    Achieved in several major titles during the holiday season.

    GAAP Cost of Revenue
    $600 milliondeclined 13%
    Q3 FY25

    Declined 13% YoY as prior year included an impairment charge related to acquired intangibles.

    GAAP Operating Expenses
    $892 millionincreased 10%
    Q3 FY25

    Increased 10% YoY.

    Operating Expenses (Management Basis) Growth
    8%YoY
    Q3 FY25

    Favorable to forecast largely due to a shift in timing of expenses into Q4.

    Operating Expenses (Management Basis) Growth excluding incremental marketing and Gearbox
    low single digitsYoY
    FY25

    Expected growth for the full fiscal year.

    Capitalized Software on Balance Sheet
    $1.9 billion
    Q3 FY25

    Represents capitalized software for games based on technological feasibility, amortized over the lifetime of titles upon release. No change in accounting policies.

    Industry KPIs

    2
    MetricValueDetails
    Paid members subscribers10%%
    Content spend title performanceover 7 millionunits

    Product announcements

    7
    ProductTypeDetails
    Sid Meier's Civilization VIIlaunch
    PGA TOUR 2K25launch
    WWE 2K25launch
    WWE 2K (mobile)launch
    Mafia: The Old Countrylaunch
    Borderlands 4launch
    CSR 3launch

    Deals & partnerships

    1
    NetflixCollaboration to bring WWE 2K exclusively to mobile devices.

    2K and Netflix are partnering to launch WWE 2K exclusively on mobile devices this fall. The specific economics of the deal were not disclosed.

    Risks & headwinds

    3
    Moderation in Mobile FranchisesQ3 FY25, continuing into Q4 FY25

    Mobile recurrent consumer spending below guidance of low double-digit growth; Empires & Puzzles and hyper-casual portfolio underperformed.

    Mitigation: Zynga is addressing challenges in Empires & Puzzles with new event types, heroes, and in-game rewards; continuing to launch new mobile titles and brand extensions.

    Grand Theft Auto Online DeclineQ3 FY25, continuing into Q4 FY25

    Declined in Q3 FY25.

    Mitigation: Management expects this decline to continue, but the overall franchise remains strong with GTA V sales and GTA+ growth.

    Shift in Operating ExpensesQ4 FY25

    Shift of some operating expenses from Q3 FY25 into Q4 FY25.

    Mitigation: This shift is factored into Q4 guidance, with management expecting a normalized level of marketing for Match Factory! and savings from cost reduction efforts to lead to a 2% YoY decline in Q4 operating expenses (management basis).

    What to watch in Q4 FY25

    5

    Match Factory! Profitability

    end of fiscal year 2025
    CurrentContinuing to do a lot of marketing
    TargetTurn profitable

    Why it matters

    Verifying the profitability of this key mobile title will indicate the success of Zynga's investment in new hits and its contribution to overall mobile segment performance.

    So Match Factory!, towards the end of the year, is going to start to turn profitable. The title is doing extremely well. We're continuing to do a lot of marketing for the title. So it definitely has gone towards the very end of the year where it's turning profitable, but the game is continuing to do better and better as the game stays in the market.

    Q&A highlights

    7

    Inquiring about the realization of revenue synergies from the Zynga acquisition, specifically marrying existing IP to mobile, and if this is a key component of the optimistic outlook.

    Strauss Zelnick clarified that while bringing core IP to mobile is an opportunity, the biggest mobile hits are typically native. He highlighted the successful development of the direct-to-consumer business within mobile as a realized revenue synergy, which has become a significant contributor.

    “What I did identify as an area of revenue synergies, though, has come to fruition, which is building our direct-to-consumer business inside our mobile business, which was a combined project between Take-Two and Zynga that we kicked off very early, and that has turned into a very significant business, generating meaningful incremental contribution.”

    asked by Doug Creutz · answered by Strauss Zelnick

    2 min read6 chapters

    Detailed Narrative

    01

    Q3 Performance Highlights

    Take-Two achieved solid third-quarter results, with net bookings of $1.37 billion falling within the guidance range. The performance was significantly bolstered by NBA 2K's outperformance, which helped to offset moderation observed in some mobile franchises. Operating results surpassed expectations, primarily due to the strong showing of NBA 2K and a favorable shift in the timing of📎 expenses into the next quarter.

    02

    Upcoming Game Pipeline and Strategic Outlook

    Calendar year 2025 is anticipated to be one of Take-Two's strongest ever, featuring major releases such as Sid Meier's Civilization VII, Mafia: The Old Country, Grand Theft Auto VI, and Borderlands 4. The company expresses high optimism for the commercial potential of these titles, expecting them to have a transformative effect on the business. Management is highly confident in achieving sequential increases and record levels of net bookings in fiscal years 2026 and 2027.

    03

    NBA 2K Franchise Success

    NBA 2K delivered a phenomenal quarter, selling in over 7 million units to date. Engagement metrics were exceptionally strong compared to the previous year, with recurrent consumer spending up over 30%, daily active users up nearly 20%, and monthly active users up nearly 10%. This success is attributed to community-inspired enhancements to gameplay, major technological updates, and the addition of new game modes, solidifying its position in basketball culture.

    04

    Mobile Business Dynamics and Zynga's Performance

    Recurrent consumer spending in mobile grew mid-single digits, though this was slightly below plan due to underperformance in the hyper-casual mobile portfolio and Empires & Puzzles. However, Zynga's Match Factory! is performing very well and is projected to become the second-largest title by net bookings by the end of fiscal year 2025. Toon Blast and Toy Blast also showed double-digit growth, and Zynga continues to leverage pop culture partnerships and grow its direct-to-consumer offerings.

    05

    Grand Theft Auto and Red Dead Redemption Franchises

    The Grand Theft Auto series continues to be an industry standard-bearer, with Grand Theft Auto V having sold over 210 million units worldwide. GTA Online delivered a strong quarter, driven by its holiday update, and GTA+ membership saw a 10% year-over-year increase. Red Dead Redemption 2 has sold over 70 million units and recently experienced its highest level of concurrent players on Steam, further engaging its audience with seasonal content.

    06

    Capital Allocation and Future Financial Goals

    Looking ahead, Take-Two expects to generate strong cash flow from its upcoming pipeline over the next couple of years. The company's capital allocation plans include paying down debt, but also remain open to acquisition opportunities, which could adjust the timing of📎 these plans. Management is optimistic that the future will lead to new financial goals, including record scale, enhanced profitability, and significant shareholder value.

    AI-generated summary of the company’s earnings call. Not investment advice.