Take-Two Interactive Software, Inc.

Hello, everyone. Thank you for joining us, and welcome to the Take-Two Interactive Software first quarter fiscal year 2027 results conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Nicole Shevins, SVP Investor Relations and Corporate Communications. Nicole, please go ahead.

Good morning. Thank you for joining our conference call to discuss our results for the first quarter of fiscal year 2027 and to June 30, 2026. 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 management, 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 addition, we have posted to 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 TakeTwoGames.com. And now I'll turn the call over to Strauss.

Thanks, Nicole. Good morning and thank you for joining us today. Fiscal 2027 is off to an excellent start, led by the power of our diverse portfolio and the strong, consistent execution of our strategy at all of our labels. We delivered first quarter net bookings of approximately $1.39 billion, which was slightly above the high end of our guidance range, primarily due to the outperformance of MBA 2K and the Grand Theft Auto series. We're reiterating our fiscal 2027 outlook for net bookings of $8 to $8.2 billion, which reflects both ongoing positive trends in our business and our high degree of confidence around the November 19th release of Grand Theft Auto VI. We expect to sustain this new level of scale and generate strong cash flows for the next several years as we release our robust development pipeline, capitalize on incremental opportunities within our highly established hit franchises and continue to apply our proven long-term approach to managing the company. Now, turning to highlights for the period. NBA 2K26's performance was outstanding and concluded a record year for the franchise. To date, the title has sold in over 12 million units, reflecting 9% growth compared to NBA 2K25. Engagement was up meaningfully during the quarter, with recurrent consumer spending growing 7%, driven by a 15% increase in average daily active users, a 25% increase in my career daily active users, and a 35% increase in average games played per user. The achievements of this year's iteration of the series are a testament to Visual Concept's ability continually to deliver new, innovative ways for fans to stay engaged and our live service execution remains a cornerstone of NBA 2K's sustained success. During the quarter, 2K also supported Borderlands 4, Sid Meier's Civilization 7 and WWE 2K26 with an array of new offerings, which enhanced player engagement and sentiment. The Grand Theft Auto series once again exceeded expectations, and to date, Grand Theft Auto 5 has sold in over 230 million units worldwide. Recurrent consumer spending for the series grew 3%, and GTA Plus continues to thrive, all led by a series of content offerings, including the addition of the Rockstar Mission Creator, an all-new suite of innovative and in-depth tools empowering the player community to bring missions to life. Global excitement for the launch of Grand Theft Auto VI continues to build, with the title having an exceptional start to pre-orders. With Rockstar Games' recent announcement of Grand Theft Auto VI and extended look coming on August 27th, we believe the consumer's passion and anticipation for the next evolution of this iconic series will grow further leading up to the title's November 19th release. Turning to our mobile business, Zynga performed in line with our expectations and we're pleased that many of our forever franchises continue to resonate with players. Net bookings for Tomb Blast grew 8% over last year. The title was supported by a new marketing campaign featuring Emmy nominated actor Giancarlo Esposito. Empires and Puzzles maintained steady momentum, anchored by a successful ninth anniversary campaign and the introduction of new heroes and character abilities. Words with Friends exceeded our forecast with net bookings growing 8% year over year, led by strong ad performance and higher player engagement with several features, including Dice Challenge, the title's latest permanent one-on-one game mode. Top 11 surpassed our expectations with net bookings increasing 15% year over year as fans enjoyed a special in-game event featuring player versus environment matches in 10 international locations. 2K's mobile offerings continue to perform well, with strong downloads and engagement across key titles. NBA 2K All-Star, our mobile title in China in partnership with Tencent, surpassed 10 million registered users since launching last year and is yielding strong profit margins. Our mobile direct-to-consumer channel remains a significant driver of revenue and margin enhancement, with many of Zynga's titles offering this feature and further growth anticipated. Guided by our core pillars to be the most creative, innovative, and efficient entertainment company in the world, our 13,000 colleagues share a singular vision for excellence and hit creation. Each day, we strive to bring joy to our player communities and value to our shareholders. I'd like to express my gratitude to our teams for their immense passion and unwavering commitment to our mission to make the most captivating and engaging experiences in the entertainment business. We believe that fiscal 2027 will be an inflection point for Take-Two, one that will write an exciting new chapter in our history and provide the foundation for new levels of success and the creation of groundbreaking entertainment experiences. I'll now turn the call over to Karl.

Thanks, Strauss. I'd like to thank our teams for delivering a great start to the year and setting the stage for the most exciting pipeline in our company's history. and I'll discuss our recent and upcoming releases. On July 8th, 2K and HB Studios launched Season 7 for PGA TOUR 2K25, a free update which added the 154th Open Championship at Royal Bercow Golf Club. The team is planning to launch Season 8 in late September and is hard at work on this year's release of PGA TOUR 2K27. 2K will share more details in the coming months. On July 14th, Rockstar Games launched the Quartz Center Heist for GTA Online, which introduced an all-new blockbuster heist targeting Los Santos' premier cultural institution with an array of artwork for the taking. On July 30th, 2K and Gearbox launched Bounty Pack 4, Murders and Acquisitions for Borderlands 4, which includes a new story mission and cosmetic items. Fans can look forward to even more action in September when Gearbox releases additional content, including the title's next story pack. On August 14th, 2K and Hangar 13 will release the Man of Honor story expansion for Mafia the Old Country. With Hangar 13's industry-leading capabilities and narrative-driven action titles, players will enjoy two new story chapters and all new content for the game's free ride mode. 2K and Visual Concepts will launch the WrestleMania 42 pack for WWE 2K26 on August 19th, followed by new seasons as part of the ringside pass during the fall. WWE 2K27 is currently in development and 2K will provide updates later this year. On September 4th, 2K and Visual Concepts will launch NBA 2K27, the next installment of our industry-leading basketball simulation that provides the most realistic and authentic NBA experience in interactive entertainment. This year, Victor Wimbinyama of the San Antonio Spurs will be on the cover of the Standard Edition, Kaitlyn Clark of the Indiana Fever will be on the cover of the Deluxe Edition, and Chicago Bulls legend Derrick Rose will be on the cover of the Ultra Edition, with early access available as part of the Deluxe and Ultra Editions. Last week, a first-look trailer of NBA 2K27's gameplay was revealed, and the response has been positive, with fans and the media expressing excitement over the title's improved graphics and enhanced player movement and presentation. 2K will share more about the game soon, including the NBA 2K27 preseason breakdown full game reveal on August 18th. Zynga will continue to focus on enhancing its existing mobile portfolio with bold beats and updates, as well as releasing new titles, including Top Goal, which is currently in soft launch. The title recently introduced real-world soccer stars, as well as enhanced 3D match simulation and player versus player gameplay. In closing, we are deeply excited about this year, highlighted by the November 19th launch of Grand Theft Auto VI, which will usher in a new era of growth for our company and returns for our shareholders. We remain steadfast in our mission and commitment to delivering the highest quality entertainment experiences that captivate and engage audiences throughout the world. I'll now turn the call over to Lainie.

Thanks, Karl, and good morning, everyone. We achieved excellent first quarter results driven by our powerful franchises, industry-leading talent, and unwavering commitment to our strategic vision. I'd like to thank our teams for their hard work, which has enabled us to reach this exciting point within our company's history. Turn into our results. We delivered first quarter net bookings of $1.39 billion, which was slightly above our guidance range of $1.32 to $1.37 billion. This primarily reflected better than expected performance from MBA 2K and the Grand Theft Auto series. Recurrent consumer spending declined 1% for the period, which was favorable to our guidance of a 3% decline and accounted for 84% of net bookings. MBA2K grew 7%, the Grand Theft Auto series rose 3%, and as expected, mobile declined 7% over last year. Gap net revenue increased 2% to $1.5 billion, while cost of revenue rose 17% to $651 million, and included a $43 million impairment charge related to the decision not to proceed with an unannounced title from a third-party developer. Operating expenses were flat at $918 million. On a management basis, operating expenses declined 1% year-over-year, which was favorable to our forecast of 3% growth due to timing of marketing expenses across our labels. With the ongoing positive trends in our business and excitement around the November 19th release of Grand Theft Auto VI, we are reiterating our fiscal 2027 Net Bookings Outlook range of $8 to $8.2 billion, which represents approximately 20% growth over fiscal 2026 at the midpoint. The largest contributors to net bookings are expected to be the Grand Theft Auto series, NBA 2K, Toon Blast, Mash Factory, Empires and Puzzles, Words with Friends, the Red Dead Redemption series, WWE 2K, Color Block Jam, and Zynga Program. We continue to expect recurring consumer spending to be in line with fiscal 2026 and to represent 64% of net bookings. The underlying drivers remain unchanged. The NBA 2K projected to grow by single digits. The Grand Theft Auto series expected to be up and mobile expected to be down due to last year's success of Color Block Jam and our assumption that trends will moderate for several of Zynga's mature mobile titles. We now expect the net bookings breakdown from our labels to be roughly 37% Rockstar Games, 34% Zynga, and 29% 2K. We continue to forecast operating cash flow in excess of $1 billion, and we remain on track to be in a net cash position by the end of the fiscal year. We now plan to deploy approximately $290 million of capital expenditures, which is up from our prior forecast due to a planned real estate purchase. We continue to expect gap net revenue to range from $7.9 to $8.1 billion, while we now expect cost of revenue to range from $3.54 to $3.66 billion. Our total operating expenses are now expected to range from $4.15 to $4.17 billion. On a management basis, we expect operating expense growth of approximately 7% year-over-year, which is down slightly from our prior forecast. Now moving on to our guidance for the fiscal second quarter. We project net bookings to range from $1.62 to $1.67 billion, compared to $1.96 billion in the second quarter last year. Our release slate for the quarter includes NBA 2K27, as well as new content updates for various titles. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Match Factory, Empires and Puzzles, Words with Friends, Color Block Jam, the Borderlands franchise, the Red Dead Redemption series, and Zynga Poker. We project our current consumer spending to decline by approximately 5%, which assumes growth for NBA 2K and the Grand Theft Auto series, while mobile is expected to be down. We expect GapNet revenue to range from $1.42 to $1.47 billion. Operating expenses are planned to range from $1.01 to $1.02 billion. On a management basis, operating expenses are expected to decline by approximately 5% year-over-year, as last year included significant marketing expenses for the launch of Borderlands 4. Looking ahead, fiscal 2027 is on track to be a milestone year for our company, led by the release of Grand Theft Auto 6. We have great ambitions as our teams have carefully curated new opportunities that we believe will sustain this new level of scale for the foreseeable future, including live service enhancements, franchise extensions, a launch of new IP and international expansion. In addition, we will continue to evaluate a creative M&A. As we bring these opportunities to fruition, we are confident in our ability to enhance our financial profile further and generate strong cash flows, setting us on a path to deliver continued growth and long-term shareholder returns. Thank you. I'll now turn the call back to Strauss.

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for an excellent start to what is poised to be an outstanding year for Take-Two. And to our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Doug Krutz with TD Cohen. Your line is open. Please go ahead.

Thank you. One of your peers that reported previously suggested that there had been some slowdown in the mobile market in Q2, which they attributed to macro uncertainty. Just wondered if you saw the same thing, if you saw different things. Any commentary you could offer would be helpful.

No, it's really not what we're seeing. Our results have been affected by how Colorblock Jam is doing versus last year in terms of copying because it was a new title last year. But apart from that, we've delivered some really good news in mobile. There's no doubt there's a bit of pressure on user acquisition at the moment. And I think that that comes and goes in the marketplace. But no, we don't feel like the consumer is pulling back at all.

Great. Thank you.

Your next question comes from the line of Andrew Marock with Raymond James. Your line is open. Please go ahead.

Hi, thanks for taking my questions. Maybe one on the GTA 6 extended look. I guess if you could give us a little bit more color on the thinking that went into the decision to go with Netflix for the timed exclusivity rather than just the traditional route of releasing it on a free platform like YouTube or through Rockstar Socials.

You know, this is the first of its kind partnership with Netflix. They're a great marketing partner for us and distribution partner, as you know. We also work with virtually every social media outlet on earth. This is part of Rockstar Games marketing strategy. We're excited for everyone to see an extended look of Grand Theft Auto 6. I'm not prepared to tell you how it's going to go, but I feel really good about it. And of course, six hours after the initial launch on Netflix, it will be available on Rockstar Games channel on YouTube and I think ultimately many other outlets.

Great, thank you. Maybe one more if I could. Not that you needed any other tailwinds into GTA 6 launch excitement, but can you talk a little bit about the Court Center update for GTA Online and maybe how that's been in terms of bringing in some lapsed players ahead of the GTA 6 launch. Thank you.

We're actually very pleased how things are going right now. We typically don't give specific details about how releases are doing, but I can tell you that right now we're very pleased with how things are going. And like all the Rockstar releases, they're exciting, they're well received by players, and they always bring in, they always reactivate folks. So far, so good.

Your next question comes from the line of Brian Pitts with BMO Capital Markets. Your line is open. Please go ahead.

Thanks for the question. You recently announced the $80 base game for GTA 6, but ultimately decided to leave NBA 2K27 base pricing at $70. As you think about going forward, base pricing, help us understand how you're thinking about being able to price games at a more premium price with more traditional AAA games. gain prices around the $70 price point. Thank you.

Look, you know, we've said this many, many, many times. Our goal is to deliver way more value to consumers than what we charge them. and you know the truth is that the real cost of a AAA video game is a whole lot lower today than it was 20 years ago. Pricing has not kept pace with inflation and our goal is to continue to over deliver for our consumers because how you feel about any experience is the intersection of the experience itself and what you paid for it. So you know to say that we expect that Grand Theft Auto VI will be an incredible bargain as experiences go is a gross understatement because Rockstar Games is known for over delivering. And when people engage with our titles, and Karl just answered a question about GTA Online, remember we're 13 years after GTA Online was launched and people are still highly engaged. We have record setting engagement at times. So that's our goal. Our goal is not to maximize price. So in this case, I think what we've decided to do makes a whole lot of sense in the context of what we're delivering. And that's the lens through which we'll look going forward as well. Thanks, Shas.

Your next question comes from the line of Eric Handler with Roth Capital. Your line is open. Please go ahead. A gentle reminder to unmute locally.

Sorry about that. Good morning. I apologize for having to unmute. Strauss, I wonder if you could give a little bit of background on the decision to go with Netflix for the extended trailer launch. Did they approach you? Did you approach them? I assume for exclusivity, they probably paid a little bit of a premium to get that.

You know, Netflix is a close partner of the company and, you know, we have tight relationships up and down the line. So we're always in conversation about things that we can do together. And this is a groundbreaking partnership that Rockstar arranged with our friends at Netflix and really excited about how it's going to come about. I wouldn't normally give detail on sort of the nature of the back and forth or the terms of the arrangements.

Okay, thanks. And then as a follow-up, with chip costs rising so much and the input costs for hardware rising significantly, there's talks about the next-gen consoles maybe getting delayed. I know you're a software company and you produce for whatever is out there, but I'm curious about your big-picture thoughts on the industry, just given the rising cost of hardware.

Look, the rising cost of hardware is not a good thing, and we wouldn't argue that it is. I don't think it will slow us down any because we believe we're delivering experiences that people want. However, a lower price point for hardware would be a good thing because there'd be more hardware in people's hands. So I cannot argue this is a positive, but equally, we don't see it as a headwind either. And going forward, look, Two things that I think are relevant. Probably the most relevant thing is the world continues to move to open systems, and that will continue. So 20 years ago, when we showed up here at Take-Two, for a console release that was available on PC at launch, PC would represent 1% to 2% of the overall sales. Today, that can be 40% or 50% in a similar situation. And I believe that's going to grow because people have PCs that have outboard controllers. they work great as game machines, and I think that will continue. Number two, with the advent of streaming, which we really do believe is around the corner in terms of having something that's low latency and really works well for consumers, machines that weren't game machines before will become game machines. So without regard to what happens in the console business, which is a consequence to us, of course, We see the overall installed base as a practical matter growing materially. And if you believe in streaming, to be clear, we really do. And I'm happy to put a timeline on it. I think we'll be in commercial streaming mode within three years. And by commercial, I mean low latency. I mean, that can 10x the effect of installed base. Now, it doesn't mean we're going to 10x our revenue, and we wouldn't project that we would, but because obviously your avid consumers already had access to video game machines. But I do think it creates great opportunity for titles that are broadly desirable, even outside of core markets. And we do have titles like that, obviously. The third thing is that interactive entertainment, and the most important thing, remains America's pastime and the world's pastime. It is the fastest growing part of the entertainment business. That's going to continue as the cohort ages and grows. All we need to do is the hardest thing you can do, which is continue to make hits.

Thank you.

Your next question comes from the line of Colin Sebastian with Baird. Your line is open. Please go ahead.

Thanks. Good morning. I appreciate the questions. I guess on NBA, the next game coming up here shortly, I mean following another strong year for the franchise, what do you think is going to be part of this game that might differentiate or provide You know, the opportunity to grow the franchise another year. And then secondly, on an unrelated topic, just curious on any update to how your studios are deploying AI tools internally. I know we've talked about this quite a bit, but the technology seems to be developing fairly quickly. So, you know, are those tools capturing any additional value and perhaps maybe more measurable efficiency? So any commentary on that would be helpful.

Thank you. So in terms of NBA, obviously NBA 2K26 performance was outstanding. It was a record for us, both on units and engagement. And I think that's the key. And we get the question, the same question almost every quarter, certainly every year about how high can high be and how the growth is. And every time we get the question, we answer it the same way. And it's really is, I don't want to say it's unlimited, but there's still a huge amount of growth potential in the NBA franchise. And that would be coming both from increased units, geographic expansion, et cetera, and bringing more customers back year over year. There's still a lot of wood to chop there and also more and more engagement. So we continue to refine that. And what really drives that is the folks at Visual Concepts and 2K and their efforts to year upon year to innovate. And it's really hard to do that on an annual release. And yet somehow through the brilliance and hard work of the team, They're able to do it. So I would just answer it the same way we had before, which is the growth is going to be coming from the same place it always does. And that's through the innovation, the creativity of the teams. We did announce some fun things in terms of cover athletes for NBA 2K27. I'm going to leave all the exciting news about what's next for that title with 2K, which was August 18th, I think, is when there's going to be more of a reveal.

And with regard to your question about AI, you know, we are first and foremost an entertainment company and always have been. However, we're an entertainment company that creates its entertainment in computers and always has. So this company, you know, its products and its approach was built on AI and machine learning well before it became, you know, Buzz Ward-Dujour. So, you know, we're dyed in the wool adopters of new technology to the extent that it enhances our ability to do what we do. And we have a three-part strategy, two parts of which are innovation and efficiency. So we have projects that sort of fall into both the basic research and the applied research buckets here to see the basic research side, the art of the possible, and the applied research side, how we can and many more. The Spoke Entertainment Products, and we aim to make the best ones in the world. And technology should make it easier for our incredibly creative people to innovate. But for better or for worse, and I happen to think it's very much for the better, those tools are not going to replace anyone. So unlike some of our competitors who are announcing opportunities to save hundreds of millions of dollars with AI, I've said since the beginning, The history of new technology in the interactive entertainment business is efficiencies are creative, are indeed creative, but then we find ways to do bigger and bigger things. We actually don't reduce the cost of doing those things, but we can meaningfully increase the quality. What does meaningfully increase the quality mean for us? It means making bigger and bigger Our job is not to lead in technology. Our job is to lead in entertainment. And as it happens, we use technology to try to do that.

Great.

Thank you.

Your next question comes from the line of Chris Scholl with UBS. Your line is open. Please go ahead.

Great. Thank you. In the slides and prepared remarks, you mentioned international expansion and evaluating accretive M&A. Can you just walk us through the opportunities you see overseas for your franchises that are maybe untapped today? And for M&A, remind us of the criteria you use when evaluating deals, the types of assets you would be most interested in, and any particular regions where you feel like you would like to scale your operations. Thank you.

Yeah, we've been very focused here on increasing our international footprint. As you know, companies like Take-Two, and there aren't many of us, but there are some, basically derive about 80% of their revenue from the US, Western Europe, and one or two countries in Asia. The rest of the world's really underrepresented, even though they love video games, of course, and even though they have devices, typically low-res, low-capable mobile devices, but devices nonetheless. So for example, despite the number of people in India Our revenue out of India is really, really tiny, and people in India love mobile video games. Same is true for Africa, a massive market, but our revenue footprint is very low. And we're also underrepresented in places like Latin America, obviously Russia, much of the Middle East, and much of Asia, although we do have a significant amount of business in China and a select of other countries. South Korea, Taiwan, for example, growing business in Indonesia, a little business in Vietnam. So it's been an enormous strategic priority for us to begin to build up in these underrepresented territories in a way that appeals to local consumers. We have a geopricing tool for that purpose because different markets have a different ability to pay. That's a tool that we created in-house that allows us to experiment in a way that doesn't infect other parts of our business and other parts of the world. and in certain instances, we're working on properties that may only appeal to some of those markets very selectively. So my goal is that in the next 10 years, we flip the percentage of our revenue that comes from the US and international markets in the other direction because we've grown the overall business. And if we don't invest here now, we run the risk of being behind in 10 years. So it's an area of enormous focus. Turning to your second question about M&A, we've always looked at inorganic growth through the same sort of three categories. First, are we buying owned intellectual property? Secondly, are we buying tools and teams that are valuable? And third, is the transaction immediately accretive to EBITDA and to gap earnings? And generally speaking, our acquisitions have ticked all those boxes. Then we have the broader rubric, is there a cultural fit? We've done many small tuck-in acquisitions, and then we've obviously done one very, very large acquisition. And I'm proud to say that unlike the history for most corporations, public corporations, our track record is excellent. I think virtually all of our deals have worked out, if you define worked out as being accretive and long-lasting. And certainly the Zynga deal has been terrifically successful, as has the Gearbox deal, you know, our most recent larger transactions. So we'll continue to look at the world that way, and in terms of areas in which we're not represented, thankfully we don't really have that anymore. We're a big mobile company, we're a big console and PC company, so we don't have any must-haves, but there are certainly some nice-to-haves, and we think some opportunities will come our way We also, to finish the thought, have this allergy to being overleveraged. And, you know, we have very, very light net leverage now. We expect to be in the net cash position in about 30 seconds. Sorry, not exactly 30 seconds, but you get what I mean. And once we're back in the net cash position, I think, you know, that would be the time when we'd be more likely to think about an inorganic opportunity.

That was very helpful. Thank you.

Your next question comes from the line of Mike Hickey with Stonex. Your line is open. Please go ahead.

Hey, Strauss, Karl, Lainie, Nicole, great core guys. Thanks for taking our questions. First one, Strauss, you mentioned in your prepared remarks that you think 27 will be an inflection point in your company's history. Obviously, that's a strong statement. I'm sure there's an obvious answer as well. I am curious sort of what that means to you exactly. when you say that and maybe details and why you believe that. And we've got a quick follow-up.

Well, it's a great, it's obviously a great question. And I think the point is that if you look historically at big, really, really big releases for this company, I'm thinking obviously of Grand Theft Auto and Red Dead. You know, they didn't just affect us positively for a quarter. you know, they had ongoing effects on our company. And we also have this massive pipeline that's we think quite extraordinary and we have live services and we have a catalog. So if you believe, as I said, I do, before that there are opportunities in terms of organic growth because the market is growing and because we're trying to extend it to other markets and we have a pipeline and we have a huge, what we believe is a huge release coming up, There's a lot of fuel for the fire.

Nice. As a follow-up to the streaming comment, I think you said that you think we could have a commercial streaming solution within three years that would solve the latency problem. Strauss, it feels like we've been down this road at least twice. But I'm curious to hear that. Obviously, the TAM's exciting it 10 times. I've heard that before. but it's never really materialized. So is there something that you're seeing different today in terms of the tech solution or some change that's sort of giving you better visibility that could actually have a real streaming solution in the future? Because obviously that would be a sea change to the industry.

It is a very fair and accurate comment. And even when we supported Stadia some years ago, We talked at the same time we were supporting Stadia about concerns about latency. And you're right, certain things remain perpetually in the future, like nuclear fusion, which is perpetually 30 years away, although people think it's not now. I hope it's not. I don't think that's the case here because of enormous advances in hyperscaler networks. and advances in edge network technology. And I think, for example, there's one player in the market that's looking at rolling out a significant edge network that would address latency, at least in the US. And I picked three years kind of because we know it's not tomorrow, but I don't think it's five years, but of course I could be wrong. And we're not betting any of our company on this. We just see it as another one of the many embedded call options in our security.

Thanks, guys. Good luck.

Your next question comes from the line of Alec Brandolo with Wells Fargo. Your line is open. Please go ahead.

Yeah, hey, thanks so much. Appreciate the question. Maybe two from me. Can you help us, maybe walk us through the thinking behind the GTA 6 premium SKU mix? I think Red Dead Redemption 2 launched with three SKUs. GTA 6 only had two. And you didn't offer early access in the premium SKU, which I think has been a big part of the hook or the upsell driver on some of the other titles over the last several years. And then maybe secondly, encouraging to hear pre-order data for GTA 6 is strong. I guess I'd love to get your perspective as someone that's been in the industry a long time. How do you think about the incrementality of pre-order units as they flow in? Is it possible that kind of hype around the game is pulling forward sales that you otherwise would have earned post-release into pre-release and the strong data won't prove to be that incremental? Thanks.

Yeah, we don't tend to give a lot of color around pricing or additions. We leave that to our labels, but I think Rockstar feels that offering a phenomenal value at $80 makes sense for some consumers, and then offering incremental value at a modestly increased price makes sense for consumers. and given the hype around this title, I think we could have made any number of other pricing choices. But as I said earlier, our focus is on delivering way, way, way more value than what we charge for something. And with regard to pre-orders, our pre-orders are exceptional. No one's ever seen anything like this before at Take-Two or in the industry. That said, you could absolutely be right. We just don't know. So could demand be pulled forward and you know one of the reasons that we're not changing our guidance is to be clear you know we haven't sold one unit yet you can cancel a pre-order so you know we around here like we're sort of allergic to victory laps but one thing we certainly don't do is take a victory lap before we run the event so you know the news is great so far we're incredibly excited we couldn't be more excited than we are and yet we are realistic and at best cautiously optimistic and we're going to leave it at that until the thing occurs.

Thank you.

Your next question comes from the line of Matthew Cost with Morgan Stanley. Your line is open. Please go ahead.

Good morning. Thanks for taking the question. I was wondering if you could comment on Sony's decision to get rid of physical disc sales for new games in the beginning of 2028. Will that have a material impact on your gross margins, or will you continue to sell boxed download codes at a similar gross margin, presumably at a similar scale going forward? And then secondly, if you could just comment on your progress shifting towards direct payments inside of the Zynga business and if that's still something that is currently increasing and has a significant runway ahead. Thank you.

Thanks for your questions. I'm not going to comment on Sony's own decision, but in terms of our decision, look, our business is well over 90% digitally distributed as is. It's already a digital business. So in certain instances, especially if it's a big game, you know, disks, and note I said disks, don't really make sense for the consumer. Also, most instances, you have to register online. to play anyhow. So if you're already connected, who cares? If you download digitally, it's all the same and it's much more convenient. So that's where the world is going in our opinion. And I think Sony understands that. We certainly understand that. It doesn't mean that we won't have physical editions now and then. I'm sure we will in the same way that there's still vinyl in the recorded music business. But in other instances, it just won't make sense. on direct to consumer. Yes, that remains growth business for us. We are not direct to consumer across our entire mobile portfolio yet, but we're getting closer and we are seeing growth there. We have not. We don't talk about the actual percentage and we don't talk about our goals in terms of the percentage of our business. What we want to do is be where the consumer is. So we will support and continue to support all third party distributors who You know, treat us appropriately and with which we can make sound economic arrangements. At the same time, we'll offer direct-to-consumer opportunities for consumers who want to avail themselves with those. There is no doubt that our direct-to-consumer business has had a material effect positive on our margins in the mobile business. Great. Thank you.

Your next question comes from the line of Jason Bazinet with Citi. Your line is open. Please go ahead.

As you can imagine, the buy side is doing everything they can to sort of monitor these pre-orders to gauge sort of demand for GTA. I don't know if there's anything you could share from a historical perspective as experts on, you know, sort of ranges or how people should sort of think about pre-orders in terms of, you know, what bookings ultimately are for a title. I think it would be helpful just because I like that.

Ring fencing of dimensionalization, which is another way of saying, how many units are you going to sell? The answer is, I don't know, and I'm not going to tell you. But I can say that the level of pre-orders is unprecedented and astonishing, and we're very grateful for that. but they are so unprecedented that we just don't know how it'll translate into sales. And which was the question I answered earlier, we genuinely don't know. And we just don't believe in claiming victory before it occurs.

Thank you.

Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open, please go ahead.

Thanks so much for taking the question. Strauss, I wanted to know if you could opine about any evolution in your thinking about mobile gaming and being more tied into AAA quality of content when you think about the advances in mobile silicon and processing. And a second part of the question would be, with Grand Theft Auto and the community you have there, how should we be thinking about either engagement or maybe even gameplay components of Grand Theft Auto that could be an extension of the launch later this year. Thanks so much.

Yeah, you're 100% right that if you believe in Moore's Law, what we'll be able to do with mobile games will grow materially, if not exponentially. and what I said earlier about streaming basically means that all games will become mobile games, if you wish. But I think and I haven't used the word mobile all the time as a result. When we talk about mobile versus console, we're really not talking about where you consume the title or on what device. We're talking about two different types of interactive entertainment. What we call a console or PC title is big and you spend hours on it and often you consume it on a big screen. We call mobile is light experience. Typically an avid consumer of a mobile game will play that game five to seven times a day for around nine minutes per session. It's a very different consumption experience. A console experience is akin to sitting down and watching a movie or binge watching a series for an evening. A mobile experience is something you do when you have a few moments free and you want to relax and enjoy and be entertained. and so the change in technology that will allow a console experience effectively to become a mobile experience probably broadens the market. But I don't think means that casual or hyper-casual or semi-casual or AA games necessarily go away. I think there's gonna be a need and a desire for all different kinds of interactive entertainment. And as technology enhances the art of the possible, There'll be new formats that are delivered. An example of that that's not interactive, but an example of a new format that digital technology has enabled is micro dramas. And that's huge business in China and a growing business in the US. It didn't exist five years ago. So there's some moral equivalent thereof in interactive entertainment. And one of the things that we think about here is the unknown unknown. What's the next thing that's coming in interactive entertainment? Thank you.

Your next question comes from the line of Ron Song with Wolf Research. Your line is open. Please go ahead.

Good morning. Can you guys share any updates on your thoughts about advertising's place in Take-Two, especially with a continued shift to open platforms and streaming? You've been clear that it makes less sense for the consumers who are paying $70 plus for a AAA game, but how can you strategically employ advertising beyond mobile games in a way that's not overly intrusive? Thanks.

Yeah, advertising is a growing part of our mobile business. We've rolled out ad units in many of our titles that previously did not have them. And our view really is, look, if you're going to engage with one of our mobile titles, we ought to be able to monetize that engagement in some way. So if you only engage with in-app payments, you're monetizing, pardon me, less than 20% of the audience typically, often quite a bit less than 20%. But if you have advertising as an option, you could monetize 100% of the audience in one form or another. So that has been a big part of our strategy in mobile, and we have rolled out advertising units in most but not all of our titles so far. On the console side, look, you're correct in quoting me as saying if you're paying you know premium price you probably shouldn't be subject to advertising unless the advertising is sort of endemic to the title so when you go to a basketball game or watch a basketball game on television you know you're accustomed to seeing advertising in and around that game you know advertising in the arena for example and in our video game you'll see that too and and that's appropriate and we are able to monetize that it is a relatively small part of the console business would be the case.

Your next question comes from the line of Martin Yang with Oppenheimer. Your line is open. Please go ahead.

Hi. Thank you for taking my question. Two questions. One on the Netflix partnership. Do you think this is a one-off deal or this more creative use of Rockstar IP signals a broader framework for licensing Rockstar content in the longer term, especially when you consider there will be numerous ways to share derivative content of gameplay after the game launches?

While this particular partnership is groundbreaking and unique, Rockstar has licensed content to Netflix before, as has the rest of Take-Two. We have a close partnership with Netflix, and they are in the video game business, and we're very happy to be their partner. And I'm sure there'll be plenty of things that we can do with Netflix and many other outlets in the future. So we want to be ubiquitous. We want to be where our customers are. We believe the best and biggest collection of owned intellectual property in the interactive entertainment business. And wherever you are, when you wake up, if you want to engage with our content, we want you to be able to do so.

The question on GTA Online, more recently we see a higher frequency of content updates. Does that require you putting additional resources into GTA Online development team, or you're really just spreading out, cutting historically larger, less frequent updates into smaller chunks?

You know, generally speaking, our update cadence for GTA Online has been pretty stable. And, you know, some of the updates have been amazing. Some have been less successful. But generally speaking, consumers really love them. But the cadence hasn't really changed. And we do apply significant resources to that. And, you know, we expect to continue to support GTA Online going forward.

Your next question comes from the line of Jim Callahan with Piper Sandler. Your line is open. Please go ahead.

Hi, thanks for taking the questions. I guess one on kind of GTA 6 pre-orders. It sounds like the demand for the deluxe edition has been extremely strong. Any comment we can kind of provide on what that could look like, what maybe the mix kind of looks like as we get closer to release of the game would be helpful. Thank you.

Look, I think that Rockstar got it right in terms of the pricing of this standard edition and the pricing of the deluxe edition. And I think there's no doubt that consumers are really excited about both. And I think depending on your own ability to pay and how avid a consumer you are, you can choose between them. The pre-orders have been exceptional and we're happy with the mix as well.

Okay, that's great. And then maybe just a follow-up on the user acquisition cost comment on mobile. I guess kind of how do we parse that out from what overall engagement looks like broadly on mobile? Any comment there would be helpful. Thank you.

Engagement is fine. And as I said, we're very happy with what we see in the marketplace. You know, we have some titles that are just doing incredibly well. We have a tougher year over year comp on Color Block Jam. So that has affected our numbers. But that's really a comping issue, not a performance issue. So give people what they want. They show up for it. And we have some titles that just continue to do great, like Toon Blast and, you know, Match Factory and Words with Friends and Empires and Puzzles and many other big titles. So the consumer is there. That said, user acquisition costs are a reflection of any number of things at any given time, including what else is going on in the market and what our competitors are doing. And in certain instances, we'll have competitors who, from our point of view, are vastly overspending in UA, and that'll make it less economic for us to spend. So we really pay attention to how much we spend on UA and how that fits with the lifetime value of the property. And we want to make sure that Every nickel that we spend in marketing comes back at a significant multiple. And some of our competitors don't seem to look at the world that way. And if there are a bunch of them in a given period of time, that can crowd us out of the market. Sometimes it happens.

Very helpful. Thank you.

There are no further questions at this time. I will now turn the call back to Strauss Zelnick for closing remarks.

The first thing and the most important thing is that we all want to reiterate our enormous gratitude to our 13,000 colleagues around the world who work hard every day to deliver the best entertainment properties to consumers wherever they are, whatever devices they have and whatever interests they have. And more often than not, our teams brilliantly succeed at that task. That's everything. That's the whole shoot and match. And we are aware of that. And as I said, highly grateful for that. We're also really excited about what we believe the future will bring for our company and for our colleagues. And all of that should translate into enormous benefits for our shareholders. We have a wonderful year that we're in process of and things are going really well. And we have great expectations for the upcoming launch of the GTA 6, NBA 2K, WWE and lots of other titles coming from both the console and the mobile side. And as I said, we expect that this will offer in a new period of success at a different and enhanced level for Take-Two. So we couldn't feel more optimistic than we do. We have big smiles on our faces, and yet we know we have to wake up every day and do the hard work to deliver. That's our goal. Thank you so much for joining us today.

This concludes today's call. Thank you for attending. You may now disconnect.