Take-Two Interactive Software Q1 2025 Earnings Call Transcript

Thanks for the question, Doug. So yeah, obviously, we did -- we have noticed the success with college football and it's just exciting [Indecipherable] the industry. We take a note of that. And we obviously do have a history with college [Indecipherable] as well with College Hoops 2K. And we're always listening to our community and their interest to see if there's something that we might be able to do in the future. That's across the board, not necessarily just with how -- but generally speaking. Nothing to announce now, but obviously, it did -- we did take notice of it.

Thanks, Colin. First of all, where we would be in dev would be title specific. So at this stage of the game, it really would vary depending on the title. There's really no cookie cutter answer to your question. But in any case, it's not the kind of insight that we would give with regard to any specific development that's going on at the company.

And in terms of the increase in the opex, it's mostly driven by the acquisition of Gearbox and to a lesser extent, higher marketing, personnel and occupancy expenses.

So look, we deeply value our talent relationships. And historically, we worked very successfully with all of the unions, including SAG-AFTRA. We continue to work hard to come to a resolution on this current situation. In fact, the common ground on 24 out of 25 proposals, so I'm pretty confident that we can we can get to a deal that will be mutually beneficial. At the same time, we don't expect any impact whatsoever on our titles that are in development. If the strike went on for a very long time, obviously, that would affect us and that wouldn't be [Indecipherable] for us or for the industry, but we're cautiously optimistic that we'll be able to find common ground and that's certainly our goal.

We certainly -- we don't get any benefit from the situation.

Thanks for the question, Drew. In terms of the question about college football, no, we're not expecting -- we're not seeing any significant or any impact on our NBA title based on the success of [Indecipherable]. Look, we're always competing for the customers' mind share and welfare across all titles. So I don't necessarily think it's necessarily a sport issue for us, but we're not anticipating any effect on in NBA 2K25.

And for the RCS full year, it's being driven by Match Factory! and Toon Blast. So that's why we're able to keep the full year.

Yeah.

Clear.

Yeah. So teams are doing fantastic.

Look, we are very happy with the [Indecipherable] for Star Wars: Hunters, it was a really ambitious title, I think the team at Natural Motion has done a great job. And I think the Zynga label actually has been really excited to launch this cross-platform title, based on beloved IP. And it's early yet to see how it will perform. So the jury is out, but it's off to a really good start. And I do think this successful development does potentially inform other titles, but each title stands alone. And as you know, it is our preference to focus on intellectual properties that we own.

So we had a slight miss in Q1. That was driven by fewer active users in center this year, which was driven by lower sales of units due to the Gen8 unit. But when we look at the full year, we expect it overall to be [Indecipherable] and a lot of that is driven by NBA 2K24. We still have the same expectations that we did for NBA 2K25 as we did at the beginning of the year.

We've been very open-minded and we certainly are very excited about many things that our users are delivering in their engagement with our titles and other people's titles. Obviously, we're excited about what we see in the modern community for PTA. And we think that's pretty exciting. At the end of the day, payment companies need to bring great entertainment to consumers. That is the starting point. And I'm not a believer that the industry will [Indecipherable] into a UGC-driven industry.

However, for certain titles, for example, Roblox, they are really more platforms than they are in individual entertainment titles. Ad I think at this company, we pride ourselves on making the best entertainment of any sort [Indecipherable] and if consumers want to add to that and enhance that for their own use, generally speaking, we would like to enable that behavior, generally speaking, protective of our intellectual property. We're protective of other people's intellectual properties. But we do think that, that can be a positive addition to the industry. I don't think it will define either our company or the industry, however.

So for the quarter for GTA, and we saw some -- the title declined for net bookings in RCS, I'm sorry, what was the second title that you asked about?

Well, I don't have '24 versus '23, but in general, NBA 2K declined in the quarter.

[Technical Issues] As drawdowns go, it was not a terrible drawdown. The unemployment rate at 4.2% or 4.4% is still very low unemployment. 114,000 jobs or so were added in the period, which is solid. As you know, people have left the workforce. So I'm not particularly worried from one report that we're heading into some kind of consumer recession, I don't see it. Now I'm also not in the business of predicting that sort of thing. But the metrics don't support that.

Generally speaking, the entertainment business is pretty resilient in such a situation. Of course, the business is not countercyclical, and in some massive downturn, we, of course, would be negatively affected, but I just don't see that on the horizon. So not a current concern for us, and we're awfully well positioned. As you know, our industry is back in growth mode, console businesses for software that is up low-single digits, mobile's up mid-single digits. So there are tailwinds and our mobile business is really performing with all these new great titles, which we referenced today, and we're really excited about our console pipeline as well, which we think will continue to perform.

Obviously, we're announcing a quarter where we're right on track with very consistent results that are squarely within or better than guidance and consensus. We've reiterated our guidance for the year, and we've said that we expect tremendous growth in fiscal '26 and '27. So we're about as optimistic as we can be without overstating the case something that we try really hard not to do.

Specifically, with regard to hardware, I saw the same stats that you did, and it looks like if you just measure four years in, last time, this time seems to be like there's a bit of slowing. And the report I saw said where -- we are the pro devices and the like. But everything always changes. Four years ago, PC wasn't anywhere near as meaningful as it is today for console type releases. That's a big growth market.

And no, I don't think what consumers are saying is they're good with Gen 8 and don't care about Gen 9. We saw the exact contrary with regard to two where Gen 8 actually was not a high performer and performed worse than we expected Gen 9 has been incredibly powerful. So I think the Gen 9 platforms will continue to perform. I think you'll continue to see meaningful growth in that installed base. And I wouldn't put too much weight on a particular period of time.

I was asked earlier today by someone what's next on the hardware side? And my attitude is we're not in the hardware business, and I wouldn't even know how to answer that question. But what's next on the entertainment side, on the software side, is we've got a bunch of great titles in market, great live services and great new titles coming. We have the best pipeline we've ever had, and it's close to coming to fruition, we feel really great about that.

Yeah, there's a lot there. Look, we're in the software business. We have the Number 1 mobile software manager title in Top 11. We're really happy that we do. And we're also very mindful that it's incredibly difficult to build a great sim experience for console. It takes a long time. And that if you do it right, your users are very loyal and very embedded. I would just now with regards to the FIFA license that does not bring along with it, right, doesn't come with players, teams or leagues. So it's not as simple, for example, is negotiating with the NFL or the NBA or MLB, where -- at most, you have to negotiate with league and a players association.

So for anyone who would want to compete in a straight-ahead sim environment for soccer, you wouldn't just have to address one particular brand license. If there's a whole lot more than that. And I think from our point of view, we have a great sports portfolio led by NBA 2K. We have WWE 2K, which is growing and profitable, really robust. We've superb partner in 2K a great partner at the NBA with the NBA and the NBA Players Association with great partners, the NFL and the NFL Players Association, we're in the tennis business. We're in the golf business. So and the list goes on, I'm sure we will make more announcements in due course.

It really varies title by title. There are certain titles that really aren't built for much advertising. They're really more meant for in-app purchases. There are titles that can be both -- and then there are titles that really have to be ad driven. We have all of those. And we want to make sure that we do offer appropriate ad units where they do make sense, and that has been a very significant area of growth for Zynga since the acquisition, and I think that will continue.

What we want to make sure is that we monetize all of the engagement. This is -- historically, the mobile business has been one where you monetized a very small part of the engagement. And that -- we don't think that ought to be the case. We think that if consumers engage there ought to be a way to monetize through advertising through in-app purchases potentially through both as long as it's a really high-quality experience. I think that's a completely separate topic from a direct-to-consumer offering. And that has been an area of enormous growth for many of our titles. But again, not all of them, obviously, if the title is only ad-driven, that's not a relevant opportunity. We still really value our retail partners for distribution and marketing. We intend to stay in business with them. Our strategy is to be where the consumer is. We don't intend to cut anyone off. We'll try to own 100% of the business. However, when it makes sense to go direct-to-consumer, we will, and that has presented an enormous margin opportunity for us.

So I think we come to [Phonetic] '26 and '27 and we look at the pipeline and bring it to fruition. We really have been working very hard in terms of reducing our cost structure of the organization and looking at places that we could be more and more efficient. So we have announced a couple of cost-cutting initiatives that we've been doing over the last couple of years and looking at ways to streamline our costs between our corporate departments and our label, as well as look for areas that we can continue to improve. Also looking at our pipeline, looking at titles that we think will be the most commercially successful. So we've been doing a lot of that this past year, and we'll see an annualization of those costs in fiscal year '26. So that will improve our margins, and we expect to continue to look for those opportunities in the future, which will continue to improve our margins in '26 and '27 as well.

So we're actually really excited about the summer release for detail online this year, and it was a fantastic result for us. In terms of comparing them directly to the -- typically, we don't even really compare the releases. They're all very different. They had -- and we have different expectations and they have different deliveries. This was very strong for us, and it certainly helped us exceed our expectations for the quarter. But in terms of giving a direct comparison between this one and the last one, that's not something that we're prepared to do.

I just want to thank our team that delivered these great results, as always. We believe we have the best and most talented creative teams in the business, and we're so grateful that we do, we have a phenomenally talented executive leadership team as well. We have 100 colleagues all around the world who work really hard every day. in service of delivering the best entertainment to our consumers. That's what they deserve, and that's what we aim to give them. Thank you for joining us today. We're really optimistic about the rest of the year and the years ahead.