Q2 2023 Take-Two Interactive Software Inc Earnings Call
Good afternoon, and welcome to the take two interactive software second quarter fiscal year 'twenty 'twenty three earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during this call.
France. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to our host Nicole Chevron's Senior Vice President of Investor Relations and corporate communications. Thank you you may begin.
Good afternoon. Thank you for joining our conference call to discuss our results for the second quarter fiscal year 2023 and September 30th.
Today's call will be led by Strauss Zelnick take two's, Chairman and Chief Executive Officer, Karl <unk>, Our President and Mike Goldstein, Our Chief Financial Officer 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.
Given me 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 order to evaluate our operating performance.
Our press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. 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 maybe.
Maybe obtained from our website I cant give gamespot com.
And now I'll turn the call over to Strauss. Thanks, Nicole Good afternoon, and thank you for joining US today I'm pleased to report that we delivered another consecutive quarter of solid results with net bookings of $145 billion.
We experienced healthy player engagement driven by exciting new game releases post launch content updates.
Old beats for many of our mobile offerings, even if consumers continue to navigate the effects of various macroeconomic and geopolitical factors.
We made excellent progress with our integration of Zynga.
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.
Some of our key achievements in the period include successfully reached our 100 day integration milestone at the end of August .
Zynga President Frank Gibeau, and his leadership team have evaluated our mobile portfolio, including existing existing games titles in development and have identified numerous opportunities to enhance our performance.
Initiatives include reorganizing several teams sharing development tools resources and best practices across our mobile studios conceptualizing, new bold beats and leveraging Zynga is highly valuable populous publishing platform, which is now even stronger following the recent acquisition of storm event.
We're also starting to expand our direct to consumer efforts more meaningfully across our mobile portfolio further to enhance profitability.
We remain committed to delivering $500 million of annual net bookings opportunities overtime.
The zynga teams have been working with our other labels to explore potential creative projects as part of this process, we've identified certain underrepresented hours in our mobile portfolio that we believe.
We can pursue more aggressively over time.
Our efforts to deliver cost synergies are tracking extremely well and we're now confident that we can achieve over a $100 million of annual savings within the first two years post close.
I'd like to thank Frank and his leadership team and all of our new colleagues at once again for helping to make our combination happening. So seamlessly we're thrilled to have zynga as part of our take two family.
Turning to our second quarter results, our net bookings performance was within our guidance range led by Grand theft auto five which exceeded our expectations.
Date has sold in more than a 170 million units worldwide.
Starting to like 26 Grand Theft Auto online launched its latest major update to criminal enterprises, introducing expanded game player across the criminal careers of executives bikers nightclub owners and gun runners as well as the opportunity to work with federal agents to uncover a criminal conspiracy and the new operation.
Paper Trail series of contact Commission.
The update also featured a range of new vehicles more including the new community series showcasing some of the most fun and unique experiences created by players across the globe.
This major update also delivered a host of overall improvements to the gameplay experience, including increased payouts across a wide array of activities and several other player requested futures.
The criminal enterprises was very well received and we've seen millions of players engaging with significant new features such as the ability to run sell missions and private lobbyists, new weapon wheel controls and more.
In addition, Rockstar games G T. A plus subscription service continues to grow with members who enjoy a rotation of numerous exclusive game benefits, including vehicles upgrades and gear every month.
On September nine two K and visual concepts successfully launched M. B a two K 23 with the fight of learning in 80, plus better credit grading and watch and receiving praise for raising the bar on the top selling sports title in the U S.
Todays M. B a two K 23 has sold in nearly 5 million units.
Alongside significant growth in virtual currency sales.
Higher average selling price compared to N V H U K 22.
Player engagement has been very strong with more than 2 million daily active users and 4% growth in average days played.
We believe that M. B, a two K 23 will continue to grow its audience as the title provides a year round experience for its perfect community of players throughout the world.
I'd like to congratulate the teams at UK and visual concepts for once again, delivering such a stellar basketball experience.
The franchise its momentum extends beyond the core console experience with N D. H U K 22 Arcade addition for Apple arcade remaining the number one game on the platform and our recent launch of M. B, a two K twenty-three arcane edition offering many new features and improvements.
Furthermore, M D H O K online in China continues to be the number one PC online sports game in the country with nearly 59 million registered users.
Red Dead redemption, two is continuing to impress with selling of more than 46 million units worldwide to date and more active players in this second quarter than we've seen for the comparable period in previous years.
K supported WWE UK 'twenty, two and tiny Chinas Wonderland final downloadable content packs for each title, which were made available individually and as part of the game season passes.
During the quarter recurrent consumer spending rose, 76% and accounted for 80% of net bookings.
Zynga continues to experience strong engagement among its active players and we believe that we're maintaining our market share globally.
Our mobile business delivered mid teens growth in advertising bookings on a year over year basis outperforming the broader industry.
At the same time in App purchases continue to be under some pressure due to current macroeconomic conditions.
Some key highlights from our mobile offerings. During the quarter include the Reliv business remains very strong and exceeded our plan, notably Rollick surpassed 2 billion lifetime downloads worldwide and is now watch 19 titles that have reached the number one or number two most downloaded game position in the U S App store.
Several of Zynga is titled celebrated milestones, including the second anniversary of Harry Potter puzzles isn't spells the 10th anniversary of Farmville, and the 15th anniversary of Zynga poker.
Each of these anniversaries was supported with an array of in game events and unique content offerings.
Zinc unveiled several high profile brand integrations, including social Point's partnership with AMC networks to walking dead and Dragon City, and Monster Legends CSR choose Dubuque Pagani, new multimillion dollar Utopia Hypercard and game of Thrones slots Casino launched a new in game event week of the Dragon in.
But H B O S. New fantasy series household the Dragon.
Turning to our outlook, we now expect to deliver net bookings of five 4% to $5 $5 billion in fiscal 2023, our reduced forecast reflects shifts in our pipeline fluctuations in FX rates and a more cautious view of the car America macroeconomic backdrop, particularly in mobile.
We will provide more detail on our outlook shortly.
Despite these headwinds and their effect on our guidance for the year, we remain highly confident in our diverse an extensive development pipeline that we expect will deliver a sequential growth.
And record performance over the next several years take two has a proven strategy consistent track record of success driven by our core tenants, we aspire to be the most creative the most.
Innovative most efficient entertainment company in the World.
As we strive to capitalize on the numerous opportunities ahead of US we're committed to creating significant long term value for our shareholders.
I'll now turn the call over to Carl.
Thanks Pat.
I'd like to begin by thanking our team for delivering another strong quarter, which reflects our ability to captivate and engage audiences is consistently delivering the highest quality entertainment experiences across all platforms.
And I will discuss our recent releases.
Symbicort King <unk> launched PGA tour TK 23 latest venturing in our bulk stimulation franchise, a positive sentiment and great critical acclaim, including Gamespot point entitle the best stimulation golf game ever made.
Towards that 23 pictures stop icon and all kinds of sports Great Tiger Woods and celebrate his legacy introducing him as both the playbook and gain trial and an executive director, who advise the games development team.
The game features several new additions.
An improvement, including an enhanced roster of male and female prowess the ability to play NBA League as Michael Jordan, and Steph Curry, a top golf node, a deeper array of personalization options and gere licensed courses and the ability to design original courses and multiplayer offerings.
AMC Studios will continue to support the game with additional prowess and courses as well as our pace and the clubhouse pass.
Okay.
On October 21st two can gearbox stop aren't really new tales from the Borderlands a choice based narrative adventure game.
Yes, Sir so that the love Telltale games titles.
Our franchise has always been an incredible canvas for storytelling and we are pleased to add this new offering to the portfolio.
On November 2nd Private Division and we're all seven really finding the flows on the second and final DLC.
Critically acclaimed skateboarding action platform Hollywood Beverly.
That release has received praise from critics, including Bureau, Gamer, who commended finding the flow down.
Ill get back in this magnificent game and stating that the expansion is completely Brad.
Now I will discuss our announced offerings for the balance of fiscal 2023 and beyond.
On December 2nd two came for access Gamespot launched Marvel been nice times on Windows eight Xbox series X.
And Playstation side.
Yes, that's one Playstation four and Nintendo switch Bearishness will follow at a later date.
In support of the upcoming launch to date has produced five short videos centers being released weekly on Marvel Entertainment Youtube Channel, which provides the black backstory and how the games League character well it became the mother of gainers and how superheroes like blade Magic Ghost rider and income in Norway came together.
The young Corp at midnight.
Okay, we will have more to share on the game.
During the fourth quarter two came visual concepts will launch WWE to take 23 building. Upon the success of <unk> 22, which had nearly 450 million matches played and 10 million hours of game content viewed on Twitch.
We look forward to the series once again redefining interactive entertainment within the squared circle.
Grateful to have such a supportive and collaborative partnership with WWE and she said well have more to share about WWE took a 23 in the coming months.
On February 24, private division and intercept Gainesville loss Kerbal space program, two the sequel to the beloved rocket building seven.
And early access for PCR Steams epic game store and other digital storefronts.
Can't speak too will bring an array of content at the loss of early access making this the most digitally attract FASB game yet.
Again will also feature and protocols and user onboarding to provide players with the necessary knowledge to excel at baseline.
Sales from the ground up KFC till also introduced the ability to customize and paint vehicles, leading his deeper personalization and expression everyday.
Those are purchase can't speak to an early access will help inform the future development of the game by providing feedback directly tenants that games, leading up to the full launch of the title we can't wait for incredibly passionate KFC community to take flight unless they want to take a survey.
Throughout the balance of the fiscal year Rockstar games will continue to support Grand theft Auto online with additional major content update alongside popular annual seasonal theme seasonal themed offerings and more.
And mobile thing is while its studio will continue to release, a consistent cadence of titles.
The other studios remain hard at work on a variety of offerings, including several titles that are currently in soft launch and expect it to release in fiscal year 2024.
Turning to esports the NVA showcase league is currently gearing up for its sixth season, so tip off in spring 2023 last months The League announced a landmark agreement with Australia's National Basketball League to launch an expansion team and L. D Ahs gaining that.
Not only is this the first time in Australia professional Sports League has joined our global E Sports League, but it also marks our third expansion came from outside of North America.
Remain very excited about the continued growth and success of the MBA Chipotle.
In closing we believe it takes to come to the best talent in our industry across all segments of interactive entertainment.
With an expanding portfolio of the most exciting and commercially successful.
On the intellectual property and the ability to deliver deeply engaging and captivating entertainment experiences to a broad array of audiences around the world. We believe that we are well positioned to deliver long term value for our shareholders I'll now turn the call over to Lanny.
Thanks, Carl and good afternoon, everyone today I'll discuss the key highlights from our second quarter before reviewing our guidance for fiscal year 2023, and your third question.
Please note that our second quarter results include our combination of Zynga, which affect the comparability of our results relative to last year additional details regarding our actual results and outlook are contained in our press release.
As Jeff mentioned, our combination with <unk> is tracking very well and the progress we're making against our integration milestone with the Napa things and cost synergy realization that we are working toward highly complementary company culture with great confidence that over the long term our portfolio is poised to benefit from the significant expected growth in mobile game.
Any evolving player dynamics towards more immersive mobile content and our massive combined scale, which will enable our teams to cross promote titles and the genre tool to connected Media's Eric.
During the quarter, we identified additional cost savings opportunities and we now feel confident that we can deliver over $100 million of annual synergies within the first two years, both cloud Theyre also reevaluating other efficiencies across our core businesses by ensuring that we have the appropriate resources to deliver on our significant growth.
Yes.
Our second quarter results were solid and we delivered net bookings of $1 5 million reflected in our prior guidance range.
And in foreign currency exchange rates negatively affected our net bookings by approximately 1% with consumers navigating ongoing macroeconomic uncertainties, we believe that our financial performance truly demonstrates the incredible quality of our games and the significant value that our interactive entertainment experiences to.
Our players.
During the period recurring consumer spending rose, 76% and accounted for 80% of net bookings.
And the 8-K and relics hyper casual is novel portfolio outperformed our plan all the ferrington softness across other parts of our portfolio at the interactive entertainment industry faced continued headwinds.
Digitally delivered net bookings increased 62% and accounted for 94% at the charter.
During the quarter, 73% of console games, which is I forget your leg up from 65% last year.
GAAP net revenue increased 62% to $1 $4 billion and cost of revenue increased 56% to $714 million.
Yeah.
Operating expenses increased by 144% to $932 million.
Really driven by the addition of Zynga is this acquisition and higher personnel costs, which is partly offset by lower console and PC marketing expenses.
And GAAP net loss was $257 million or $1.54 per share, which was impacted by $320 million of amortization of acquired intangible and $37 million of business acquisition costs.
Our management tax rate for the period was 18% as compared to 16% in the prior year as a result of our combination with Zynga.
We ended the quarter with over $1 $3 billion of cash and short term investments and $3 $3 billion of debt.
Change that guidance are they giving it our full fiscal year expectations.
As Jeff mentioned, we are revising our guidance, we now expect to deliver naphtha in the pipeline for the $5 $5 billion.
Approximately 70% of the downward revision reflects lower than expectation for our mobile business and shifts in our 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, our guidance reflects $50 million of FX headwind.
The largest contributors to net bookings are expected to be NBA T. K band, that's better online and grant identify empires <unk> puzzles rocks hyper casual marvell portfolio, Kim Black and Red dead redemption, two and Red dead online.
We expect the net bookings breakdown from our labor to be 45%, which includes a former TT Marvel title, 36% U K, 18% Rockstar games, and 1% private division, we forecast our geographic net bookings, but can you about 60% United States and 40% International.
We now expect our current consumer spending to grow by approximately 90% and represented 77% with total net bookings.
Turning to deliver net bookings are expected to grow by approximately 70% and represent 96% at the total.
Our forecast assumes 75, but I felt himself will be delivered digitally up from 68% last year.
We expect to generate more than $650 million and non-GAAP adjusted unrestricted operating cash flow and we used that to deploy approximately $160 million for capital expenditures.
We expect GAAP net revenue to range from $5 41 to 551 billion.
Cost of revenue to range from $2 six $1 billion to $2.64 billion, which includes approximately $694 million the amortization of acquired intangible.
Total operating expenses are expected to range from three four to $3 $42 billion as compared to $1 $5 billion last year. This increase reflects the inclusion of Zynga business acquisition costs and higher personnel marketing and 90 expenses, which we anticipate will be slightly offset by our expected cost synergy.
In light of the current economic backdrop, we continue to monitor our cost prudently to find potential areas of savings. This year I'll be mindful of the resources, we need to support a robust multiyear release schedule.
And we expect a GAAP net loss of engines in the Sunshine 31 $674 million or.
The $3 95 to $4 22 per share, which assumes a basic share count of $159 8 million shares.
Our revised forecast includes an increase in amortization for intangible assets acquired from being half based on updated valuation estimate.
We expect that the management tax rate to be 18% throughout the year.
Now moving to our guidance for the fiscal third quarter.
We project net bookings to range from 1.5 lines of $146 billion compared to $866 million in the third quarter of last year.
The largest contributors to net bookings are expected to be NBA T K Grand theft auto online and Grand theft, terrified empires, <unk> puzzles box hyper casual novel portfolio and team blast. We project. The accounting team are standing to grow approximately 125% and digitally delivered net bookings to increase approximately 80%.
Our forecast assumes at 72% of console games out well because every digitally at 63% last year.
We expect GAAP net revenue to range $1.43 billion to $148 billion and cost of revenue to range from $690 million to $710 million, which includes approximately $198 million of amortization of acquired intangible.
Operating expenses are expected to range from 897% to $907 million.
At the midpoint this represents a 126% increase over last year.
It's reflecting what I'm, saying that business.
Additional costs and higher marketing, but she's been able to actually offset by the realization of some of our anticipated cost synergies and cost saving efforts and GAAP net loss is expected to range from $140 million to $260 million or <unk> 95 per share, which assumes a basic share count of 167 7 million.
Jerry.
Yeah.
In closing, we continue to focus on our execution against an uncertain economic backdrop, and we are highly optimistic about our future growth trajectory.
Long term development pipeline is stronger than ever and we are excited to deliver a high profile people and engage new batteries that have the potential to enhance our financial profile. Even further at the same time, we are confident in our ability to create significant shareholder value as we continue our integration of dania and collaborating our new creative projects leveraging our combined.
And scale unlocking greater potential than their mobile platform and engine entering new business model and geography. Thank you I'll now turn the call back to Jack Thanks, Lenny and Karl on behalf of our entire management team I'd like to thank our colleagues for delivering another solid quarter and to our shareholders I want to express our appreciation for your continued support.
Port.
We'll now take your questions operator.
Thank you and at this time, we'll be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Our first question comes from Eric Handler with M. Cam partners. Please go ahead.
Good afternoon, and thanks for the question I Wonder if you could just give us a little bit of insight into the mobile business do you feel like we're sort of close to stabilization.
For that business and you know we've been hearing everything a lot of different things about what's going on in mobile now specifically top games are doing well, it's the smaller games that are having some problems.
Are you seeing issues with maintaining do you use or is it spending any insight you can give would be greatly appreciated.
Yeah.
Look engagement is very stable, we got a lot of terrific hit titles that thing gets what we like about the company.
Unlike many mobile businesses of this kind of scale are.
Our bookings are not concentrated in two or three titles, where we have more than 10 big titles and more coming.
So engagement is incredibly solid we are seeing some pressure on the in game spending.
We also.
Have a great story and advertising bookings because our advertising bookings were up mid double digits year over year.
And so there are plenty of bright spots in the business as well. The most important part is that people love mobile games. They love our mobile games will continue to play them and we're seeing no significant change in engagement across our titles.
Terms of wasn't what I expected and.
Look it's very hard to say I think that's it's anyone's guess, what the economy will do my own opinion, and it's really just one person's opinion as it were looking we should be looking at three to six more months of downward pressure and I expect by the end of 'twenty three we'll be in good shape.
Great. That's helpful. I Wonder just as a follow up it looks like just going between your company.
Dentation it looks like your pipeline.
Pipeline of games from fiscal 'twenty three to fiscal 'twenty five is unchanged as well.
Pretty fair assessment.
It is we have 87 titles coming across mobile PC and console and.
It's the most robust pipeline we've ever had certainly one would argue one of the most robust pipelines in the industry.
Thank you very much.
Our next question comes from Andrew you're quits with Jefferies. Please go ahead.
Yeah.
Yeah. Thanks for taking my question.
I guess, there's a lot of frustration.
You had the S. Four out earlier in the year.
Two cuts here.
And the move in the pipeline around is is.
As part of the blame what is there anything you guys can share.
That gives you confidence that there's going to be growth next year.
Especially in our core take two it looks like part of that kind of does this have to K. If I'm doing my math right. So just curious what what is giving you that confidence or anything you can share that gives us the confidence.
To go along with it here thanks.
It's driven by the pipeline of course, so we know what the release schedule is and we feel really good about it and if we didn't we wouldn't call for sequential growth and record results in the next three years.
But I understand the frustration.
Look we.
We call it as we see it and I think we're known for that.
How do we expected where we were right. Now then we wouldn't be guiding down we're guiding down because things have materialized in the way that's different than our expectations. Some.
Of that is related to pipeline, but frankly, not most of it most of it's related to mobile.
Significant amount of FX as well.
But there have been some modest pipeline shifts so the good news is those those titles are of course coming.
Got it and then if I could just throw one follow on there.
You guys are known for quality and I'm sure a lot of the delays or or shifts or are related to Polish but.
Is there is there something you guys are saying that's.
It's just.
Too much going on I'm, just kind of just walk us through kind of the thought process behind it just seems like with Covid a bigger impact this would be I think two or three years, now which was record pipeline and so far just you know.
We're all being patient here.
I understand the concern.
And I understand the question as well no we're not seeing any.
Productivity issues. For example, we definitely have very high quality expectations in the bands and that's reflected in the fact that we're performing across the board. So this company has it hit factory, we haven't had a disappointing release and as long as I can remember and that's honestly. The most important thing. So we would much rather if you have to choose I'd much rather have the situation.
Moran, which is we've had some delays and we've had to revise down guidance I'll choose at any day over taking some flops that's really the key in this business.
We've had issues I mean, we've been around for a long enough to remember them where in the past we had.
Delays in titles and it was ultimately always worth waiting for because you know when we got through the other side. The results were delivered and the small amount of the time delay didn't ultimately matter in the context of the results that we were able to deliver I'm hopeful that'll be the case here as well.
Got it. Thank you I appreciate the candor and so thank you.
Our next question comes from Eric Sheridan with Goldman Sachs. Please go ahead.
Thanks, So much for taking the question maybe I could just go back to the mobile business for a minute in terms of what you've learned about the mobile business over the last 12 15 months before the close and since the close Zynga. How do you think about what you need to build for the long term versus some of the elements of change and you can see on something.
The distribution platforms from Apple and Google and how that might impact what you need to build and scale on the acquisition front or the monetization front for the long term. Thanks, so much.
Yeah.
Hi, it's Karl so really what it means to us what we're working on building a dangerous thing is and this is what's happening obviously well before we merged.
Works with the company.
Working on building the mobile platform and one of the most exciting thing is obviously you think he's got some amazing forever franchises and some great IP and some good titles.
Great titles coming out, but a huge part of the valley is that platform and the ability to manage the customer lifecycle very effectively.
And you can see the company investing in that over time, and we continue to invest that and as we bring together. The database is across our entire company that power of data management and particularly in the context of IBSA and some of the challenges that privacy laws, making sure that the better your data in a variety of your data set and the basis of the bigger and broader your platform and the more capabilities you have in your platform.
Hum.
They will use to mitigate those effects and we're already seeing some of that.
And that's been a focus for zynga for quite some time and we're going to continue to invest in that I mean, you start with the acquisition charters as the acquisition of storm Nathan.
But also bringing all of this being a portfolio and a new take two portfolio onto the centralizing our platform is going to yield significant results for us.
Yeah.
Thank you. Our next question comes from Matthew Thornton with two Securities. Please go ahead.
Hey, good afternoon.
Maybe two if I could one for Strauss Charles you talked about sequential years of growth and record performance I guess the question. There is what are you alluding to is that EBITDA and earnings per share margins any any maybe you can kind of put on that would be would be helpful. And then just second one for laney linear I think you called out $50 million.
I interpreted that as incremental currency headwind impacting the full year guide, but you also alluded to.
Pipeline moving around could you quantify.
What that impact is and kind of what that is for for the year. Thanks, everyone.
Yeah, well, what I was referring to is top and bottom line, so net bookings and and income. However, you describe EBITA handy measure.
And for the full year I mentioned that about.
About 70% of the downward revision is the normal business and the release slate together and about $50 million for the FX currency headwinds.
And is there any color on what what slipped enough in the pipeline and I'm, sorry, if I missed that.
Sure for them.
The changes in release schedule out there and several changes that happened during the quarter. So there was one mobile title from Teekay that moved on and Gen. Eight and switch versions of tomorrow and the nights and moved into fiscal 'twenty four and also can't speak too has now shifted to early access this year. So those are the major changes.
The release schedule.
Perfect great. Thanks, everyone.
Our next question comes from Matthew cost with Morgan Stanley . Please go ahead.
Hi, everyone. Thanks for taking the questions just on the PC console business are you seeing a divergence between the performance of Grand theft Auto an M. B a two K, specifically, you know where M. B a two K Rcs is outperforming grand theft auto and if so can you give any more color on the player and consumption dynamics Youre seeing in G T.
And then on the mobile side you highlighted how the advertising business is hanging in there and then growing a fair bit better than that purchases do you expect the advertising to materially outperform in app purchases over the next couple of quarters.
The reason I ask is because presumably a lot of those AD dollars are coming from other game companies and then I wonder if eventually that feels the pain from in App purchases across the industry going down. Thank you.
Yes. Thanks for your questions look GTA online and NBA took care of very different animals GTA online has been around for nearly 10 years.
Beloved by a massive audience GTA five of the underlying title has sold in more than 170 million units NVA Teekay is an annualized release and so we get an annual snapshot of how virtual currency is doing engagement is very high indeed virtual cards. He is off to an M. B a two K 23.
On the mobile advertising business look these are two different businesses in there.
Majority of our net bookings of drinker comes from in App purchases still so yeah, we expect the growth rate in advertising probably to exceed the growth rate and in App purchases certainly for the next year or beyond that I think it's too early to say.
Great. Thank you.
Our next question comes from drew Crum with Stifel. Please go ahead.
Thanks, Hey, guys. Good afternoon, maybe just piggybacking off the last question asking more broadly.
Your guidance update and the impact for more cautious macro backdrop. If you isolate your console PC business can you discuss if in any way you change your view on Rcs for this part of the business. So excluding mobile and that and then separately can you talk about the decision to close play docs.
And it's this in any way factors in that $100 million plus of cost synergies that accompany the zynga transaction. Thanks.
Yeah.
Rcs.
So we did lower expectation.
Most of it lifestyle knowable and since our prior guidance assume that most of what it is very uncertain.
Improvement in the second half of the year, but we no longer expect that seems different data for the industry in a real time performance has shown that.
Thank you it was lower in the second half of the year, but we are also assuming some softer performance for several of our large non mobile titles that are meaningful contributors to Rcs. So that's why our expectations for rcs or to come down in the second half of the year.
And with regard to play that we.
We've relocated the operations of our successful game kudos to another studio and yes that was driven by the integration benefits that we felt we could achieve.
Yeah, Okay. Thanks, guys.
Our next question comes from Mario Lu with Barclays. Please go ahead.
Great. Thanks for taking my questions I wanted to ask about mobile with our full year guidance, 70% is it coming from mobile.
<unk> outperformed in the second quarter.
Is there some main factors you can point to that separates us from the rest of the multiple portfolio.
Is it being kind of immune to IBSA.
Competition.
And then lastly, just curious to hear your thoughts on that.
Levering leveraging the success of horlicks.
Perhaps cross promotion to the to other mobile games.
Yes.
Mario 70%.
And the movement in the release schedule. So it's a combination of both of those two items is not only mobile, but youre right. It did outperform in Q2, so that business is doing really well.
The reason for doing well, it's obviously, it's an advertising driven business. So we've had some success from an advertising perspective, both in terms of efficiency and inventory availability.
Also it's just given the nature of the hyper casual business.
It's not necessarily relying as much on targeted advertising, so it's a little bit easier to grow your UA in that context.
Where you have situations I'd say it doesn't necessarily affect the relative sort of hyper casual business in the same way that it was in the mobile business.
I'm, sorry, I missed the second.
Question, what was that about cross selection.
Yeah.
Hello.
Yeah. The question was.
Your thoughts on potentially leveraging the success of all at <unk>.
Costs are you got acquisition channel other mobile titles.
Yes.
And the opportunity to do that you can make an argument that its a different kind of his customer I think theres, obviously overlap there may be some differences, but the fact that you've got a large funnel.
Players coming into your database, that's always going to be something that's going to help your UA strategy across your entire enterprise and specifically on the mobile side of the business.
Great. Thank you.
Our next question comes from David Karnofsky with J P. Morgan. Please state your question.
Alright. Thanks for the question just regarding the 500 million of revenue synergies in Zynga, which you reiterated any early opportunities youre seeing across your portfolio to execute on this and then Lee you mentioned other potential cost opportunities that could come up is that something that's factored into your guide or would that be incremental to thanks.
Yeah on the first question, yes for a number of early opportunities we've identified.
Including our approach directly to the consumer on the mobile business.
Which is which is pretty exciting.
<unk> generated material benefit sooner, we're working on a number of properties as well.
Take longer to bring some titles to market, but that's super exciting.
And in terms of the.
The operating expense synergies, we do have some of the and the synergies with Zynga included in our guide, but in terms of the other areas of efficiencies. We don't have those in our guide yet we have some.
Some ideas that we're looking at so like on a multiyear basis, we're evaluating our real estate footprint as we adopt flexible work policies. We're also looking at identifying and some core functions that we can centralize across our label determinate ginger determining the necessity for some various open to higher positions and also negotiating some vendor contract.
It's more effective rate across the company. So those are additional opportunities that we're seeing.
In our cost structure, so we'll be looking at.
Achieving there within the next year.
Thank you.
Our next question comes from Doug <unk> with Cowen. Please state your question.
Hey, Thank you just to tie a couple of things that have already been set together.
You mentioned that you've been assuming your mobile would improve in the back half of the year and now you're not assuming that.
Is it simply to say that you thought would get better isn't or that it's actually continued to deteriorate since the last call.
It's the former.
Okay.
Thank you thank.
Thank you.
Our next question comes from Martin Yang with Oppenheimer. Please go ahead.
Good afternoon. Thanks for taking my question. My first question is on engage suitcase ASP trends.
Mentioned, there were some year over year improvement can be taken into details on what contributed to that.
ASP improvement.
It's basically we came out with a championship position. This year every year, we do different we do different marketing packages are different.
Yes, particularly affect successful wanted to share that features some very prominent basketball players.
And that carries a much higher average selling price and thats affecting the ISP. So really it's the CNS other title.
Got it.
And then a follow up question regarding your mobile strategy is there any.
Milestones you could share with us updating you know where the teams are at our new teams being formed to build mobile game space from your core IP.
Is there any games in aviation fees or any other milestones with each patient appreciate it. Thank you.
Yeah, we don't have anything specific to announce right now and I assume your question is really related as it really it really take to IP.
Alright.
Yes.
Obviously, there's a lot of other smaller things we can do in adult <unk> et cetera, and also just the efficiencies.
About bringing the companies together T mobile and Zynga required zynga component.
But yes, there are a lot of conversations going on and there are a lot of ideas flowing back and forth.
We don't have anything to announce right now, but those conversations are going very well.
They are exciting.
Materialise is it's difficult to it's difficult to assess the creative process is a very specific process and some of them take longer than others and the most important thing is that we have game concepts that makes sense from a commercial perspective, but also from a brand perspective.
So the teams are having those conversations now.
They taste.
Thanks Carl.
Our next question comes from Matti <unk> with Bernstein. Please go ahead with your question.
Hello, Good evening first question on the N B a unit so it sounds like if I heard correctly that the unit number so far it's very similar to what you said a year ago. So could you just confirm is it being broadly similar has there been any slight growth or decline on that.
And then on the life services revenue.
Could you give us any color in terms of how that revenue is currently splits between.
My career and my team and maybe how that's trending over time. Thank you.
Yes, it's roughly the same number of units year over year and virtual currency spending is up and we don't split out the spending on the different modes for the purpose of this call.
Got it thanks.
Our next question comes from Brian Fitzgerald with Wells Fargo. Please go ahead.
Thanks, Linda you talk to us a little bit but in terms of labor how do you think about.
Things improving as the market cools off a bit for.
Check employees and how are we thinking about head count growth in retention from here does a cooling labor market give you any leverage in terms of giving developers back to the office does that help things any color there would be great.
Well, we don't really look at our relations with our colleagues is one of leverage.
So it probably wouldn't.
Subscribe it through that lens.
I do think that it's probably going to become easier to hire people want a lot of tech businesses are laying people off.
We don't expect to Rip and we don't have a hiring freeze.
Always judicious about the people we bring on board, we pride ourselves on being how do we efficient.
And we believe we are highly efficient now so I do think that the.
May make it somewhat easier to hire really talented people.
But we wouldn't we wouldn't use these times to apply leverage we believe we have great relationships with our workforce and those are terribly important to us.
Thank you Josh.
Our next question comes from Omar Besuki with Bank of America. Please state your question.
Hi, Thanks for taking the question.
My question is about mobile advertising efficiency, how has mobile advertising efficiency and the September quarter.
Trended versus March and the June quarters, especially at Zynga.
And what are your go forward assumptions for the December and March quarter, and what I mean by advertising efficiency is the kind of in App purchase.
Our bookings divided by the advertising spend.
Okay just to be.
Be clear defined advertising efficiencies in that purchases the buyer to buy advertising spend or yeah or the the reciprocal of that so like the total advertising spend.
<unk> of bookings, sorry, I should've said it that way.
Alright, So I think look we don't necessarily.
Necessarily breaking that out specifically and im not sure that I would characterize that as an efficiency, but it certainly would be an interesting measure to look at.
And as we said before we've experienced pretty strong growth in our advertising business and we had some pressure on in App purchases. So it stands to reason that that ratio would probably be going more in favor of the advertising business versus in app purchases that isn't necessarily a longer term trend. That's just something that we're seeing in the short run.
We expect purchases to come back at one point in the future as Charles said before a little hard to gauge that when that may happen, but that is our expectation. So those ratios I don't believe are necessarily going to be fixed over time or unnecessarily moving in a specific direction.
Again, depending on what happens in the broader market.
Okay, and just a follow up on that would be have you changed which channels you're using for user acquisition for mobile specifically for Zynga.
Or have you or have you for example are concentrated your spend in specific channels.
Has that changed at all.
Yes, I don't think the mix in terms of where are we spending concentrating has changed dramatically based on anything that we've seen in the market you can certainly expect that day.
Day to day quarter to quarter month to month, Youre going to see variations, depending on where media opportunities exist.
So im sure Youre going to see some variation depending on what happens in specific media outlets.
I don't see a broader trend that's pushing us towards any particular outlet versus another.
Okay.
Okay. Thanks, a lot.
Our next question comes from Mike Hickey with benchmark. Please state your question.
Thanks Strauss Karl any hope you guys are good thanks for taking my questions.
The first one is on your guidance grew 23.
I mean, obviously a couple of revisions here do you feel like you're sort of being conservative enough. Obviously, a lot of uncertainty on the macro mobile, but you know is there still some downside risk.
And where would that be then on 24, you said growth sequentially, you've given us some data.
On the S four and I think on Europe .
Resin patients Zynga streets looking for $8 million.
Revenue 70, 59 Etfs.
Obviously, that's a pretty big step up guessing that's coming from premium mobile is slowing here. Obviously milestones is not great is it just want to three titles on premium or E sort of granularity I guess 24 growth would be great.
And then the second question is on the very unfortunate.
Fortunate GTA League just curious.
How you and your teams are sort of managing through that impact if you feel that zoom.
<unk>.
No residual bad or not and how you're sort of.
Move forward and think about timing.
Thanks, guys.
So in terms of the guidance for 'twenty, three I'm being conservative I still downside.
We always guide based on what we know at the time that we know it so I wouldn't say there as you can tell if you have a very risk either way I think I think we gave the best information we have at the time that we have it. So it's what we know right now and.
Hopefully it.
It gets better but that's what we feel the numbers are at this time and in terms of the CAGR in the physical the numbers that we are in the S. Four we generally do not provide long term growth targets in a normal course of business, we only get that previously because of the pending combination with zynga and as you know the facility.
In our business and because of the changes in the shift in the release slate can happen.
It really doesn't make sense for us to get in a longtime number on a regular basis. So we've never really done that in the past, but we're really continuing to be very excited about our pipeline of the song titles that we have and we have many large scale projects underway and the potential of the titles in the pipeline that have not changed at all we remain highly confident.
They're going to deliver a sequential years of growth and record performance in the next few years, so that hasn't changed so we really feel great about our numbers in the next few years as SaaS.
And with regards to the league.
It was terribly unfortunate.
We take those sorts of instruments very seriously indeed.
There is no evidence of any material assets were taken.
It's a good thing.
And certainly the league won't have any influence on development or alright.
But it is terribly disappointing.
And causes us to be ever more vigilant on matters relating to cyber securities.
Thanks, guys.
Our next question comes from Clay Griffin with Moffett Nathanson. Please state your question.
Hi, good evening, Thanks for taking the question I guess two it seems like the legacy take two mobile games are holding out a bit better than legacy, saying I guess.
What would you attribute that to is it just kind of a lifecycle, where those titles are relative to kind of win.
Hey, ATT draw.
Drops and then <unk>.
Secondly, just curious Strauss I think Phil sensor was talking about game pass and essentially.
Flying that they were nearing sectors saturation, I guess relative to kind of what are the the Xbox console.
Installed base I was just curious if your thoughts about subscription models relative to the traditional premium window have changed over time ethic his comments.
Generally I think could be characterized as mining up maybe with your view of the value proposition for a subscription product. Thanks.
Okay.
So in terms of the legacy Cheetah mobile business. The thing. It does is I wouldn't necessarily I mean again, we don't really disclose that so I don't think there's anything really.
Starting with a C that behavior, but I can tell you that we wouldn't look at it that way because there are certain their games within the take your legacy portfolio and the games and I think our portfolio some are doing better than others.
Doing great companies not doing as well so there's a lot of variation within the portfolio itself. So I wouldn't necessarily categorize it as the T. Two mobile businesses are doing better than zynga or vice versa. That's not really how we look at the business anymore.
It's all one that's all zynga.
<unk> by the Zynga team and we have a lot of great titles.
Yes.
Pacifically, hoping that with the T mobile titles and we're starting to see some of this collaboration happening that we're going to be they're going to be on the benefit from the power of the thing a mobile platform.
Which has some really interesting opportunities for us to be more efficient and opportunistic in the consumer lifecycle management.
And on the subscription side look we've been <unk>.
Very cooperative with both Sony and Microsoft on their subscription offerings.
When it makes sense for us.
My own views have not changed at all since I first started talking about subscription, which is now I want to say probably four years ago.
The interactive entertainment business is very different than the linear entertainment business.
People consume.
Far fewer hours of interactive entertainment and give a month than they do of linear entertainment and within that consumption. Therefore fewer titles consumed in interactive entertainment and there are with linear entertainment sorry at least pose the question as to whether subscription mix as much sense for interactive entertainment as it does for linear entertainment from registered some.
Skepticism.
I still hold I think the secondary of skepticism was whether it made sense.
It's a rhetorical question because I think the answer is no to offer frontline titles day and day with titles on the subscription service I don't think I've ever made sense I still don't think it makes sense and I believe that it's now becoming obvious that it doesn't.
Just a lost opportunity for the publisher so.
I wouldn't want to speak for my friend Phil.
But our views remain unchanged.
He is a subscription business.
Catalog business, it's probably best aimed at very avid consumers.
Because those are the consumers who are interested in.
Playing catalog titles, implying a whole bunch of different titles and they give a month, but I don't think it's.
A mass market service that supplants, the interactive entertainment business as we know it.
At all and I don't think there's any evidence to the contrary so far.
Okay. Thanks.
Thank you.
Just a reminder to ask a question press star one on your phone we have a follow up question from Matthew Thornton with Truest. Please go ahead.
Yeah.
Hey, Thanks, guys, maybe two quick follow ups first one on coming back to mobile again.
Maybe this is for Strauss.
You think about what's currently going on from a macro perspective as opposed to just a user acquisition perspective, given what's going on in the.
<unk> environment in particular, as a way to tease apart tease apart.
What percentage of the of the pressures from one versus the other.
And relatedly yet.
Your level of confidence that we come out of the macro will resolve itself, but from a UA perspective from ecosystem perspective, what's your level of confidence that you can kind of control.
Coming out of the doldrums that that's the first question. The second one is a really easy one given where the stock prices I'm kind of curious your appetite around buybacks. I know you guys have been fairly opportunistic in that in the past obviously, we've taken on some leverage with zynga, but I'm kind of curious how youre thinking about that given where the share prices. Thanks again.
Yeah in terms of mobile.
From a macro perspective.
I think that.
Youre right Theres, a difference between user acquisition and retention and conversion and on user acquisition I think we and everyone else is just can be a bit more selective to drive efficiency.
In terms of retention and conversion.
That's that's a reflection of people just not having to spend in mobile you can enjoy talking without spending in game 90, plus percent of consumers do not spend in game and so at times when consumers are feeling the pressure of higher prices for fuel and food for example, they may be less likely to spend money.
Entertainment, especially when you can have the experience anyhow. So in terms of our expectations. I think this is a it's a moment, where we will in fact tune up our UA spend to become more efficient that's good thing.
And yes, we will probably see some pressure on in game purchases for a period of time as I said earlier on the call Matt that I think you can underwrite to this because it's just one person's opinion I think there'll be pressure for three to six months at least that's driven by the economy and geopolitical factors and I'm, hoping that by the end of 'twenty, three and I believe that by the end of 'twenty three.
Things will normalize it won't be on an upward swing again and Randy I'll take the question about buybacks right. So we continue to believe in returning value to the shareholders and the share buyback Hello, my detail when the conditions are right and obviously, we believe that there is deep value in our market place currently but in order to do a share repurchase if we need to do it.
Open trading window and also have the optimal capital structure that supports the practices. So well see if it makes sense for us to do it.
And that's how we see it.
Thank you. Our next question comes from Martin Yang with Oppenheimer. Please go ahead.
This is a question referring to you earlier definition of take two's identity is the hidden factory I wanted to know if you hold a similar view over your mobile game portfolio do you feel there's a need for a.
Portfolio review on mobile games based on quality and future potentials. Thank you.
<unk>.
Yeah.
Yes, so at any given time at any given time, we're always reviewing our portfolio. Both in terms of the performance of the current titles and the potential for new titles that we're working on and Frank and his team are are very focused on making sure to optimize the current title lineup.
And two.
Make sure that our development for new titles is as effective and poised for success as it possibly can be.
Good news is we have a terrific lineup of great titles.
And our mobile titles all make money.
Thank you.
Yeah.
Thank you. Our next question comes from Omar <unk> with Bank of America. Please go ahead.
Hi, Thanks for I'm, just going to sneak a quick one in here and apologies if Carl you know had already answered this by saying that you don't have the details but you.
In terms of.
You know part of your synergies may come from applying PC console IP to the casual mobile market using Zynga development resources.
Thank them when I've spoken with you in the past you called out an example of like a Red dead Redemption Poker game for example.
Are these mobile games Youre envisioning a targeted towards fans of the existing PC console franchises like Red dead.
Or towards mobile first casual gamers that would play but that would otherwise play games like zynga poker or empires and puzzles.
I think it's a great question. Thank you and I think the bottom line is you're probably not going to convert a console player to become a mobile player you have to appeal to a mobile player.
And we believe that legacy when properly developed as a great titled can do just that.
But it's not a slam dunk by any means it's still going to be a great game, but youre not going to convince someone who never plays in mobile title to play mobile title just because it's based on console IP.
Thank you Sterling.
Thank you there are no further questions at this time I'll hand, the floor back to management for closing remarks.
We want to thank everyone for joining us today I want to say, thanks, particularly to our dedicated team of colleagues all around the world who continue to do a great job.
It would be nice always to have with the best possible news in an upward sloping curve. This is a business that occasionally does present us with challenges. This team is well suited to the challenges we have a great pipeline, we have a great team, we have the ability to deliver.
We wish you all a great holiday season, Thank you for joining us and thank you for your support.
Thank you. This concludes today's conference all parties may disconnect have a great evening.