Take Two Interactive Software (TTWO) Q3 FY26 earnings call: guidance and Q&A

The equity markets are punishing video game stocks due to fears about AI. Is this an accurate reflection of the threats and opportunities for Take-Two?

Strauss Zelnick expressed confusion about market fears, stating that the video game business has always been built on machine learning and AI. He highlighted that Take-Two is actively embracing generative AI with hundreds of pilots, expecting it to drive efficiencies, reduce costs, and free up creators for more innovative tasks, aligning with the company's strategy of being creative, innovative, and efficient.

“The video game business since its inception was built on the back of machine learning and artificial intelligence. We create our games in computers with technology. And ever since questions began about generative AI about 18 months ago, I've been incredibly enthusiastic about what the future can bring.”

asked by Doug Creutz · answered by Strauss Zelnick

Mobile has had a strong run for seven quarters. What initiatives or 'bold beats' are resonating and keeping these games relevant?

Strauss Zelnick attributed the mobile success to creating new hits, fostering top talent, strong marketing, and a robust balance sheet. He noted that while the mobile market experienced a post-pandemic downturn, it has since rebounded, providing tailwinds. He emphasized that Zynga's ability to consistently produce hits is unique in the industry.

“What do I think is going on? Look, I think we are actually making hits, and that is still pretty unusual in the mobile business. The hardest thing to do is create new hits in the mobile business. And Zynga has proven an ability to do so by doing what we do, which is creating a home for the best talent in the business, encouraging them to pursue their passions and supporting them in marketing with an A+ structure and a really strong balance sheet.”

asked by Eric Handler · answered by Strauss Zelnick

What were the learnings from the 'Safehouse in the Hills' update for GTA Online, and how is Take-Two thinking about capital allocation with a growing cash balance?

Strauss Zelnick stated that the 'Safehouse in the Hills' update demonstrated that delivering great material drives consumer engagement. He noted that anticipation for GTA VI is also boosting engagement with GTA V and Online. Regarding capital allocation, he reiterated three priorities: supporting organic growth, selective and accretive inorganic growth, and returning capital to shareholders through opportunistic buybacks, citing a recent buyback at $158/share as a good example.

“So what we learned from A Safehouse in the Hills' update is that when you deliver great material, consumers show up. And Rockstar always aims to do the best possible work. Some of the content updates have performed better than others, and this one has been nothing short of stellar.”

asked by Colin Sebastian · answered by Strauss Zelnick

What is resonating with NBA 2K players, and what are the biggest opportunities for the franchise's next leg of growth (international, user base, monetization)?

Karl Slatoff attributed NBA 2K's success to the development team's 'perpetual diligence,' constant communication with consumers, and continuous refinement of the game. He highlighted new features like 'cruise' mode as contributing to engagement. For future growth, he sees significant international expansion opportunities due to the NBA's global reach, as well as continued growth in North America by expanding the user base and enhancing monetization through higher engagement.

“Those things don't come easy. And I think the best way to describe why this works for us is because it's the way that VC and 2K run their business, which is really in the state of perpetual diligence. They're constantly communicating with the consumer, seeing what the consumer is doing, watching how they play, seeing what works, doesn't work and refining the game year after year.”

asked by Christopher Schoell · answered by Karl Slatoff

Can you compare tools like Genie to proprietary game engines and what they can/cannot do for game development?

Karl Slatoff clarified that Genie is not a game engine and is early in its iteration, making direct comparisons difficult. He stated that Genie appears more like a 'procedurally generated interactive video' with limitations. He emphasized that game development involves many elements beyond world creation, such as storyline, emotional connection, and mission structure, which AI tools like Genie do not currently address. He believes such tools could make a small component of their work more efficient.

“Genie is not a game engine. And I would -- it's very exciting technology. And I think it's -- the question is how can it benefit our creators. And I think there will be a moment in time where that will become more defined. It certainly doesn't replace the creative process.”

asked by Andrew Marok · answered by Karl Slatoff

Mobile advertising has grown year-over-year for the second time since acquiring Zynga. What's driving this, and what's the continued opportunity?

Strauss Zelnick explained that the growth stems from selectively adding ad units to games where they were previously absent and Zynga's smart monetization strategies. He highlighted the opportunity to monetize the majority of users who do not pay for in-game content, without creating friction in the experience. The goal is to deliver great entertainment while monetizing effectively to fund future development.

“It's pretty simple. When we took over Zynga, there weren't a lot of ad units in most of the games, and we have selectively added ad units pretty much across the board, not entirely, certain games, don't merit that. Also, I think Zynga has been very smart about the way they go about monetizing that advertising, and there really is much more opportunity there without interfering with the experience at all.”

asked by Edward Alter · answered by Strauss Zelnick

With Zynga comprising a significant portion of revenue, how much of App Store fees are addressable through third-party solutions or DTC, and what are the savings/timeline?

Karl Slatoff stated that the company primarily handles DTC efforts in-house and is not commenting on third-party solutions. He noted that DTC is still early, with not all large games having DTC components, but sees significant growth ahead. He emphasized that DTC improves margins and benefits from a favorable legislative environment, expecting third-party take rates to decline.

“So I'm not really going to comment on third-party solutions. And the fact is a lot of our D2C efforts, we really do in-house at this point. That's not to say that third-party solutions can't be helpful now or in the future. But primarily, this is an internally driven thing for us.”

asked by Omar Dessouky · answered by Karl Slatoff