Take-Two’s bookings grew 53% to $1.5 billion in September quarter but lowers outlook

Take-Two Interactive said its bookings grew 53% to $1.5 billion in the second fiscal quarter ended September 30.

During the quarter, the New York company saw continued sales of Grand Theft Auto V, a blockbuster game launched in 2013, as cumulative sales grew to 170 million. However, the company lowered its guidance in the current third fiscal quarter ending December 31 (the all-important fourth calendar quarter) and the full fiscal year as it is wary of macroeconomic and geopolitical events.

The company said it saw healthy player engagement in the quarter, driven by new game releases, post-launch content updates and updates for many mobile titles — even as consumers continued to navigate the effects of macroeconomic and geopolitical havoc during FYQ2.

Net bookings came within Take-Two’s own guidance, but it was slightly short of the $1.52 billion that analysts were expecting, according to Zacks. Take-Two said the Grand Theft Auto V sales exceeded its expectations in the quarter. Foreign currency exchange rates negatively affected net bookings by 1%.

“We posted another consecutive quarter of solid results, with net bookings of $1.5 billion, underscoring our ability to launch exciting new games and content updates across our portfolio,” said Strauss Zelnick, chairman and CEO of Take-Two, in a statement. “We continue to make excellent progress with our integration of Zynga, and we remain highly optimistic about the vast, long-term growth potential for the mobile industry, which is expected to reach over $160 billion in gross bookings within the next four years.”

He added, “We now expect to deliver net bookings of $5.4 to $5.5 billion in fiscal 2023. Our reduced forecast reflects shifts in our pipeline, fluctuations in foreign exchange rates and a more cautious view of the current macroeconomic backdrop, particularly in mobile. Despite these headwinds and their effect on our guidance for the year, we remain highly confident in our diverse and extensive development pipeline that we expect will deliver us sequential years of growth and record performance. Take-Two has a proven
strategy and consistent track record of success, driven by our core tenets: We aspire to be the most creative, the most innovative and the most efficient entertainment company in the world. As we strive to capitalize on the numerous opportunities ahead of us, we are committed to creating significant long-term value for our shareholders.”

In an analyst call and our interview, Zelnick said that he expects three months to six months more of economic pressure from the broader economy, though he couched that by saying, “It’s just one person’s opinion.” He noted the company has one of the most robust pipelines in the game industry.

“We call it as we see it and we’re known for that,” he added.

He also said the company has faced delays with titles in the past and its focus is always on quality. He said the company has a reputation as a “hit machine.”

During the period, recurrent consumer spending rose 76% and accounted for 80% of net bookings. NBA 2K and Rollic’s hyper-casual mobile portfolio (acquired after the $12.7 billion purchase of Zynga earlier this year) outperformed the company’s plans, while Take-Two experienced some softness across other parts of its portfolio as the interactive entertainment industry faced continued headwinds. Zelnick in our interview that was part of the reason that the company downgraded its expectations for FYQ3 and the full fiscal year.

Digitally-delivered net bookings increased 62% and accounted for 94% of the total. During the quarter, 73% of console game sales were delivered digitally, up from 65% last year.

Zynga details

The company disclosed a few details about the integration of Zynga, which was acquired 100 days ago at the end of August. Take-Two said it is optimistic about the “vast, long-term growth potential for the mobile industry,” which is expected to hit $160 billion in gross bookings in the next four years.

Zynga’s president, Frank Gibeau, and his leadership team have evaluated the mobile portfolio (Take-Two games included), including existing games and titles in development, and they have identified numerous opportunities to enhance overall company performance.

These initiatives include reorganizing several teams; sharing development tools, resources and best practices across mobile studios; conceptualizing new bold beats; and leveraging Zynga’s publishing platform, which is now stronger following the recent acquisition of Storemaven.

Take-Two said Zynga remains committed to delivering $500 million of annual net bookings opportunities over time. The Zynga team has been working with Take-Two’s other labels to explore potential creative projects. As part of this process, the companies have identified certain underrepresented genres in the mobile portfolio.

The companies said they expect to deliver $100 million in annual cost savings within the first two years after the deal’s closing, but it did not offer more detail. Sometimes that means layoffs, but Zelnick said in an interview that there are other things that achieve cost savings such as bringing much more volume to negotiations for franchise licenses.

Zynga continued to experience strong engagement amongst its active players, and Take-Two believes that it is maintaining market share on a global basis. The mobile business delivered mid-teens growth in advertising bookings on a year-over-year basis, outperforming the broader industry.

During the quarter, Take-Two closed the Playdots mobile game studio in New York as part of its integration efforts and it moved some of the staff to another studio.

Asked about mobile gaming’s chances of hitting $160 billion in the next four years, Zelnick said, “I think the cohort continues to grow people like playing mobile games. They’re an adjunct to other forms of entertainment. They fit neatly into parts of your day that aren’t otherwise occupied by entertainment. Because I think the average avid mobile user will play a game nine times during the day for about nine minutes each time, that’s obviously very different than the way you consume console and PC titles. So you could be waiting for a bus or on the subway, or you know, at home with friends and have a little bit of downtime. People find it relaxing and engaging.”

He added, “It’s a very different experience on console video games. So we think it’s complimentary to our business. It’s complimentary to our core demographic. And we do believe it’ll continue to grow more rapidly than the overall interactive entertainment business. And of course, interactive entertainment is you know, Dean is the most rapidly growing part of the entertainment business.”

NBA 2K23

On September 9, 2K and Visual Concepts launched NBA 2K23, with the title earning an 80-plus Metacritic rating at launch. NBA 2K23 has sold-in nearly five million units, alongside significant growth in virtual currency sales and a higher average selling price compared to NBA 2K22.

Player engagement has been very strong, with more than two million daily active users and 4% growth in average days played. Take-Two believes it will continue to grow as the title becomes a year-round experience. The NBA 2K22 Arcade Edition is still the No. 1 game on Apple Arcade, and a new 2K23 Arcade title just debuted.

NBA 2K Online in China continues to be the No. 1 PC online sports game in the country with nearly 59 million registered users.

In our interview, Zelnick said that NBA 2K is starting to live up to its goal of becoming a year-round experience. He noted virtual currency sales are up, engagement is up, and Take-Two feels “really good about the title.”

Grand Theft Auto V / Grand Theft Auto Online

Grand Theft Auto V exceeded the company’s expectations, and to date, has sold-in more than 170 million units worldwide.

Starting July 26, Grand Theft Auto Online launched its latest major update, The Criminal Enterprises, introducing expanded gameplay across the Criminal Careers of Executives, Bikers, Nightclub Owners and Gunrunners, as well as the opportunity to work with federal agents to uncover a criminal conspiracy in the new Operation Paper Trail series of Contact Missions.

This major update also delivered increased payouts across a wide array of activities and several other player-requested features. The Criminal Enterprises was very well received, and Take-Two said it has seen millions of players engaging with significant new features such as the ability to run Sell Missions in Private Lobbies, New Weapon Wheel Controls, and more.

In addition, Rockstar Games GTA+ subscription service continues to grow its members. Regarding the leak of Grand Theft Auto 6 visuals and other details, Zelnick said he was “terribly disappointed” but he does not believe anything material was stolen and that it has not affected the development schedule.

Asked about Grand Theft Auto V’s continuing sales, Zelnick said, “It’s pretty amazing. After all these years.” He noted that the Criminal Enterprises update on July 26 was energizing the community.

“But the truth is, you know, we’re always positively surprised by Grand Theft Auto Five, this titles almost 10 years old, and it keeps on selling,” Zelnick said.

Red Dead Redemption 2 and more

Red Dead Redemption 2 is continuing to impress, with sell-in of more than 46 million units worldwide to-date and more active players in this second quarter than we have seen for the comparable period in previous years.

On October 14, 2K and HB Studios launched PGA Tour 2K23, the latest entry in the golf simulation franchise. Tiger Woods is in the game as a playable in-game pro and he was an executive director for the development team.

The game features several new additions and improvements, including an enhanced roster of male and female pros.

On October 21, 2K and Gearbox Software released New Tales from the Borderlands, a choice-based, narrative adventure game that is a successor to the Telltale Games title.

On November 2, Private Division and Roll7 released Finding the Flowzone, the second and final DLC expansion for the critically acclaimed skateboarding action-platformer, OlliOlli World.

Outlook for FY23

Take-Two lowered its net bookings of $5.4 to $5.5 billion in Fiscal 2023, down from the previous estimate of $5.8 billion to $5.9 billion.

About 70% of the downward revision reflects lowered expectations for the mobile business and shifts in the release slate, while the balance reflects an updated view for the rest of our portfolio, based on current business trends across the interactive entertainment industry. The guidance reflects $50 million of foreign currency exchange headwinds.

The largest contributors to net bookings are expected to be NBA 2K, GTA Online and GTA V, Empires & Puzzles, Rollic’s hyper-casual mobile portfolio, Toon Blast and Red Dead Redemption 2 and Red Dead Online.

The company expects the net bookings breakdown from labels to be 45% Zynga (which includes former T2 mobile titles), 36% 2K, 18% Rockstar Games and 1% Private Division.

The company expects its geographic net bookings split to be about 60% United States and 40% international. It now expects recurrent consumer spending to grow by approximately 90% and represent 77% of total net bookings.

Digitally-delivered net bookings are expected to grow by approximately 70% and represent 96% of the total. The forecast assumes that 75% of console game sales will be delivered-digitally, up from 68% last year.

Despite these headwinds and their effect on guidance for the year, Take-Two said it remains highly confident in its diverse and extensive development pipeline that it expects will deliver sequential years of growth and record performance.

As for upcoming games, Marvel’s Midnight Suns launches from 2K and Firaxis Games on December 2. Kerbal Space Program 2 will debut on February 24 from Private Division and Intercept Games. During the fourth quarter, 2K and Visual Concepts will launch WWE 2K23.

GAAP net revenue increased 62% to $1.4 billion, as compared to $858.2 million in last year’s fiscal second quarter. Recurrent consumer spending (which is generated from ongoing consumer engagement and includes virtual currency, add-on content, in game purchases and in-game advertising) increased 95% and accounted for 79% of total GAAP net revenue.

Digitally-delivered GAAP net revenue increased 69% to $1.3 billion, as compared to $779.1 million in last year’s fiscal second quarter, and accounted for 95% of total GAAP net revenue. The largest contributors to GAAP net revenue were NBA 2K22 and NBA 2K23; Grand Theft Auto Online and Grand Theft Auto V; Empires & Puzzles; Rollic’s hyper-casual portfolio; Toon Blast; Red Dead Redemption 2 and Red Dead Online; Words With FriendsTM; Merge Dragons; and Toy Blast.

GAAP net loss was $257.0 million, or $1.54 per share, as compared to net income of $10.2 million, or 0.09 per diluted share, for the comparable period last year. Take-Two has cash and investments of $1.3 billion and debt of $3.3 billion. Take-Two said the majority of its global offices have reopened.

For the third fiscal quarter ending December 31, Take-Two expects GAAP net revenue is expected to range from $1.43 to $1.48 billion. The GAAP net loss is expected to range from $160 to $142 million. GAAP net loss per share is expected to range from 95 cents to 85 cents. Net bookings (operational metric) are expected to range from $1.41 to $1.46 billion, and non-GAAP EBITDA is expected to range from $164 to $185 million.

“As we previewed, Take Two is managing some challenges in the mobile and core portfolio related to broader monetization headwinds, exacerbated by FX issues and some shifts in the release slate,” said Colin Sebastian, an analyst at RW Baird, in a research note. “While we were not surprised by the relative underperformance vs. competitors that have significant new titles in the market, management remains committed to growing bookings next year — admittedly an easier target after reducing guidance. However, we are adjusting our estimates assuming a FY25 launch of GTA VI, mostly to be more conservative with the outlook.”