Q3 2023 Take-Two Interactive Software Inc Earnings Call
Greetings and welcome to the take two third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Nicole <unk> Senior Vice President of IR and corporate communications. Thank you Nicole you may begin.
Yeah.
Good afternoon. Thank you for joining our conference call to discuss our results for the third quarter fiscal year 2023 ended December 31, 2022, today's call will be led by Strauss Zelnick take Qs Chairman and Chief Executive Officer, Carl laid off our president and many Goldstein, our Chief Financial Officer, we will be available to answer your questions during <unk>.
The Q&A session. Following our prepared remarks before we begin.
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.
Below 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.
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.
Press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. In addition, we posted to our website slide deck that visually presents our results and financial outlook, our press release and filings with the SEC.
Like Gamestop Com now ill turn the call over to Scott. Thanks, Nicole Good afternoon, and thank you for joining us today during the third quarter, we continued to execute on our ambition to create the highest quality most engaging interactive entertainment franchises in the industry to.
To deliver them across northern platforms captivate, our global audience.
All of our new game releases and post launch content received significant critical claim and we're pleased to have the highest catalog sales based on units sold in the Americas.
The strength of our portfolio reflects the passion vision artistic acumen and hard work of our world renowned development teams and studios.
We're immensely proud of our longstanding commitment to quality.
Now notwithstanding our creative achievements, our third quarter net bookings of $1 three $8 billion were slightly below our prior guidance, we believe that as a result of macroeconomic conditions.
<unk> shifted holiday spending toward establishing blockbuster franchises and titles that were offered with pricing promotions.
While our catalog benefited from this trend it affected the performance of certain of our new releases and recurrent consumer spending for some of our console and PC games.
Despite the current market, we believe that our long term success will be driven by our consistent ability to create the best entertainment experiences, including sequels of our beloved franchises and the introduction of engaging new intellectual property.
Sales of Grand theft auto five exceeded our expectations during the holiday season and to date. The title has sold in more than 175 million units.
During the quarter Rockstar games released an array of new content for both Halloween and holiday season, as well as a new story driven update Los Santos drug War.
I'll take launched in December and continues to deliver exciting new story and gameplay features to players across the winter season, including our new business taxi missions and much more to come.
Which is continuing to drive stronger engagement with our player base.
We were also pleased with the performance of Red Dead redemption, two which outpaced our expectations driven by successful holiday promotions in Nevada.
To date, the title has sold in more than $50 million.
During the quarter Rockstar games continue to release, new updates for Red dead online, including our new Halloween hardcore telegram mission and new call to arms locations for Halloween and holiday.
We remain incredibly pleased with the enduring quality of these entertainment experiences.
Grand Theft Auto five was ranked number three for units sold in the U S. During calendar year 2022 on all platforms and was number two overall for 2022, one steam. Additionally, 2022 with GTA 510th consecutive year and the NPD top five for unit sales.
<unk> also continues to resonate strongly with players.
Ranking as the number one selling game on steam for the quarter and number three for 2022.
N V H O K 23, which remains the number one selling sports title in North America continues to expand its audience since our beta is sold in over 8 million units.
Full game sales for Mdx UK 'twenty three are up 3% year over year and my team users grew more than 50% over last year.
Players enjoyed assembling their rosters of the Nba's all time greatest stars to dominate the competition. In addition to MDA to pay 23 arcade edition remains the number one game on Apple arcade since its launch in October .
Two K H B studio supported PGA towards U K 23, with a limited edition holiday bundle that included <unk> 23 in new content, featuring branded gear from Barstool Sports 100, Ts and Dude perfect.
Studios will release more content and features including the addition of Pebble Beach cost play functionality and rank Patrick here.
On December 2nd two K and for access games launched Marvel's midnight on Windows, Pcbs team and epic games store, Playstation five and Xbox series X M S.
Title losses to critical acclaim with BGC rating at a five out of five calling it a modern strategy classic PC Gamer said it was completely brilliant scoring at 88 out of 100 and rock paper shotgun called it one of the best superhero games.
The title is being supported with a series of post launch content that can be purchased individually or as part of the game season pass.
During the quarter Zynga as in App purchases performed in line with our expectations and we saw mobile trends improved from prior lows, particularly during the holiday season.
Our label continued to experience strong engagement our market back to players and we believe that we're maintaining our global market share.
Our advertising business outpaced the broader industry as we continue to introduce new AD supply and products optimize our networks to increase AD yield M rollout charterers throughout our inventory.
A few key highlights of our mobile offerings. During the quarter include empires and puzzles was the top performer due to strong seasonal contact from Black Friday offerings. This was one of our first titles to leverage our direct to consumer platform for in App purchases, which we believe can enhance significantly to margins for our mobile portfolio over the next few years.
Ralph Baldwin ropes reached the number one spot for most downloaded game in the U S. In December giving rolla for a total of 20 games that have reached the number one or number two spot in apples U S App store.
We acquired popcorn, which offers a unique balance of hyper casual experiences that also prioritize long term player retention rates.
This strengthens our leadership among hyper casual publishers with respect the downloads and revenue.
Following the acquisition of Popcorn game tap away reached the number one spot for most downloaded game multiple times throughout the quarter and apples U S App store.
Zynga casino titles remained resilient with game of Thrones slots posting its best quarter ever.
<unk> had a strong quarter driven by various in game updates of celebrating the World Cup.
<unk> racing to released race pass, which features innovative new rewards that are driving stronger retention and monetization.
Our combination with Zynga remains highly accretive to our business.
We remain committed to delivering our planned synergies and we're well on our way to exceed our target of $100 million in annual cost savings within the first two years post close.
During the quarter recurrent consumer spending rose, 117% and accounted for 78% of that bookings.
Turning to our outlook, we're operating in an environment that is in many ways more challenging than we anticipated.
And we're lowering our fiscal 2023 net bookings guidance of $5 to $5 $5 billion to take this backdrop into account.
To be clear.
Personal responsibility for our revised downward guidance.
We believe there's always more to achieve particularly when we fall short of our expectations. We've embarked on a company wide cost reduction program that will optimize our expense structure, while also positioning us to deliver on our anticipated growth trajectory.
We expect to achieve savings in excess of $50 million as a result of this initiative our balance sheet remains strong, allowing us to navigate these uncertain times with confidence.
We've always managed our business for the long term because we achieved a powerful synergies from our combination with Zynga released new titles from our robust multi year pipeline and execute on our cost savings initiatives, we expect to deliver sequential growth and a record performance over the next several years.
Our business and creative teams have done a phenomenal job during these challenging times and I'd like to thank all of our colleagues for their tireless work.
I'd also like to thank our shareholders for their continued support I look forward to sharing our progress with you on all of our key initiatives I'll now turn the call over to Carl.
Thanks Pat.
Let me focus on the remainder of the year and beyond we remain steadfast in our commitment to providing the most captivating and engaging entertainment experiences for our audiences across all platforms and geographies.
We believe that.
Strategy and path forward for achieving our goals driving our expected long term growth and bringing value to our shareholders.
Turning to our upcoming releases.
On February 24, private division and interest that gain or loss Kerbal space program. Two early access for PC on scheme epic game store and other storefronts.
<unk> will bring an array of content for players to explore and the title promises to be the most visually impressive game in the franchise.
Those that purchase cafe to an early access will help inform the future development of the game by providing feedback directly switch creators leading up to the full launch on the title.
In addition, private division has announced several new products.
After us a riveting exploration and adventure game studios.
To launch this spring during fiscal 2020 for our PC, Playstation and Xbox Series X.
I think it actually announced the polishing partnership with Bluebird and develop a new survival horror again expected to launch after calendar 2024.
We unveiled our new private division development funds to support smaller independent teams with project financing and Mentorship.
On March 17, GKN visual concepts WWE, <unk>, 23, a playstation and Xbox console and PC unseen.
Celebration of jockeying of 20th anniversary at the WWE superstar, the 16th time World champion record setting philanthropist and WWE to pay 23 executive soundtrack producer will be featured on the cover of each edition of the game.
In addition, global music and on Bad money 2022, it's the most streamed artist in the world, while making Ww can meet UK debut as a pretty hard a bonus.
Building upon the success of WWE took a 22 this year isn't installment features a unique take on the Teekay showcase the introduction of the fan favorite word games matches and expansion of several marquee game.
Fans can look forward to a deep roster of WWE superstars in London, including Roman reigns American Nightmare, Cardio roads, Ronda Ravi Brock Lesnar L O N.
And Mark.
You can't will support the game within a range of post launch content and maybe parts of individually or through a season pass.
Throughout the balance of the fiscal year Rockstar games will continue to support Grand theft auto online with additional content updates and to paying for access games will continue to release add on content Marvel's midnight.
And standby or stabilization later.
And mobile Zynga as well as studio, where we think the vascular anti dumping recently, while the labels. The other scenarios, we may not work on a variety of games, including several in soft launch that we expect to release in fiscal 2024.
We will have more to share on our pipeline when we report our fourth quarter results anyway.
And now I'll turn the call over to Randy.
Thanks, Carl and good afternoon, everyone today I'll discuss the key highlights from our third quarter before reviewing our guidance for fiscal year 2023 in our fourth quarter. Please note that our third quarter results include a combination with Zynga, let's get back to comparability of our results about it to last year.
There are still details regarding our actual results and outlets are contained in our press release.
South mentioned, you delivered naphtha things at $1.38 billion.
This was slightly below our prior guidance as consumers displayed when a cautionary purchasing behavior during the holiday season.
As in prior periods of economic headwind, so again knock out a lot of industry, leading intellectual properties are relatively big giant.
However, we felt pressure in some of our newer releases that are in earlier stages of doubling their player base alongside softness in recurrent consumer spending.
During the period, the current consumer spending mode, 117% and accounted for 78% of naphtha.
Zynga in African sales performed in line with our revised expectation. However, this was offset by weakness in the current consumer spending at several of our console and PC game.
Is there anything about the naphtha <unk> increased 72% and accounted for 95% of Dakota.
During the quarter, 69% of console games were delivered digitally up from 63% last year.
<unk> net revenue increased 56% to $1 $41 billion and cost of revenue increased 97% to $692 million.
Operating expenses increased by 123% to $889 million, primarily driven by the addition of Zynga as far as higher marketing and stock based compensation expenses.
GAAP net loss of $253 million.91 per share, which was impacted by $302 million with amortization of acquired intangible and $24 million of business acquisition costs.
Our management tax rate for the first like 18% as compared to 60% in the prior year as a result of our combination with Zynga.
Ended the part of it over $1.1 billion of cash and short term investments and pay down $200 million revolver borrowings, reducing our debt to $1 billion.
Turning to our guidance I'll begin with our full fiscal year expectation.
We now expect to deliver net bookings of five <unk> to $5 <unk> 5 billion.
Our forecast takes into account the current economic environment and consumer purchasing trends that we've been experiencing which we expect to continue into the fourth quarter, including lower expectations for some of our recent game releases.
After our current consumer spending is up this.
Yes, I've been unannounced novel title and a focus on enhanced profitability or hyper casual.
The largest contributors to net bookings are expected to be.
E M B, a T K Panther set of online and Brexit Indentified empires, and puzzles chain black pepper cash on the portfolio and Red dead redemption, Q and Red dead online.
The net bookings breakdown from our labor to 46%, saying that 36% U K, 17% Rockstar games and 1% private division.
We forecast our geographic net bookings, but to be about 65% United States, 35% International.
The current consumer spending to grow by approximately 85% and represent 77% of total naphtha okay.
I guess really deliver net bookings are expected to grow by approximately 60% and represent 95% of the tunnel.
Our forecast assumes that 74% of console games will be delivered digitally up from 68% last year.
We expect to generate more than $400 million and non-GAAP adjusted unrestricted operating cash flow and we expect to deploy approximately $170 million for capital expenditures.
Our GAAP net revenue to range from five to $4 billion to $529 billion and cost of Ami to range from $2 five $3.55 billion, which includes approximately $694 million and the amortization of acquired intangible.
Total operating expenses are expected to range from 3.4, I can be explained by $1 billion as compared to $1 $5 billion last year.
Increase reflects the inclusion of Zynga does this acquisition costs and higher personnel compensation and marketing expenses, which we anticipate will be slightly offset by our expected cost synergies and our integration with zynga.
As we've mentioned on prior calls in light of the current backdrop, you had been evaluating cost savings opportunities that can structurally enhance our margins and make our company more efficient and nimble for the long term.
Our comprehensive review and I believe that we can deliver over $50 million of annual savings, which we will begin to execute on this quarter.
Canadian <unk> now passed its it infrastructure and other areas, particularly in publishing and corporate function. This program is in addition to the over $100 million of annual cost synergies from our combination with Zynga and it's not expected to impact the delivery of our robust multiyear pipeline.
That's a GAAP net loss ranging from $704 million to $721 million or $4 40 to $4.50 per share, which is just the basic share count of $159 8 million shares.
We expect our Madison tax eight to be 18% about a year.
Now moving to our guidance for the fiscal fourth quarter.
We project net bookings to range from 1.3 lines of $136 billion compared to $846 million in the fourth quarter last year.
Largest contributors to net bookings are expected to be N D ATK Grand theft auto online and Grand theft satisfied empires, and puzzles team black box type of casual.
Oh, Yeah, and WWE UK 23, we'd be kept a cranky I need to grow approximately 105% and digitally delivered net bookings.
70%.
Forecast assumes that 80% of console games out will be delivered digitally up from 75% last year.
GAAP net revenue to range from one point before at 1.39 billion.
And cost of revenues to range from 688 $788 million, which is good to approximately $198 million and the amortization of acquired intangibles.
Operating expenses are expected to range from $871 million to $881 million at the midpoint. This represents a 120% increase over last year. This increase reflects the inclusion of Zynga is this acquisition cost and higher marketing and personnel expenses, which we believe will be slightly upset by the realization.
Some of our anticipated cost synergy.
And GAAP net loss is expected to range from 197 $214 million or $1 17 to $1.27 per share, which assumes a basic share count of 168 million shares.
In closing, while we are disappointed to have lowered our outlook for the year, we're highly confident in our long term growth potential. We believe that the actions. We're taking now will position us to deliver substantial growth and record performance over the next several years, which we anticipate will drive meaningful shareholder value.
Thank all of our stakeholders again for their support. Thank you I'll now turn the call back to Jeff.
Thanks for letting me and Carl.
Behalf of our entire management team I'd like to thank our colleagues for their firm commitment to creativity innovation and efficiency as we continue to navigate a challenging economic landscape.
I'd also like to express our appreciation to our shareholders for their continued support and we'll now take your questions operator.
Thank you we will now be conducting a question and answer session.
Like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue for participants using speaker equipment and they would be necessary to pick up your handset before pressing the star Q1.
One moment, please while we poll for questions.
Thank you. Our first question is from Eric Handler with <unk> Partners. Please proceed with your question.
Good afternoon, and thanks for the question stressed I Wonder if you could talk a little bit about mobile advertising specifically.
Have you been able to integrate advertising into Zynga games that previously had not included advertising and what about you know the two K games.
Prior to the.
The acquisition of Zynga and then secondly, if you could just talk a little bit more about the direct to consumer platform with with mobile virtual currency purchasing besides empires <unk> puzzles, how many other games have integrated the DTC.
Capabilities.
Yeah.
Yeah.
Thanks, Eric I appreciate it.
To answer your question, we have enhanced advertising within the Zynga portfolio certain titles within that portfolio did not have the advertising and that would do.
At two K with regards to their mobile titles, there's no change.
With regard to console titles, we have a limited amount of advertising, but there's no change there as well.
With regards to direct to consumer that's a new initiative for us and for the team at Zynga, that's being rolled out modestly we are seeing early signs of success and obviously that has a very significant effect on our contribution margins.
Thank you very much.
Thank you. Our next question is from Matthew Thornton with true Securities. Please proceed with your question.
Hey, good afternoon, everybody, Yeah, maybe maybe two if I could I'm coming back to mobile I don't know if this one's for Strauss, but.
Can you give us maybe your higher level thoughts or do you think about the mobile market and I know, it's hard to tease apart macro versus what's going on on the user acquisition side with Apple a T T, but I guess putting.
Putting macro side I think what the mobile market over the next couple of years.
Do you think about the growth rate of that.
That business and how are you thinking maybe different about the mix of in App purchase first AD revenue or the right Jon rose or.
New IP versus existing franchises.
Cost structure or if there's more opportunity there just how are you thinking about that as that market has obviously been very dynamic.
And then I've I've, a follow up but I'll stop there.
Well see how I do it then you can determine what your follow up is like so in terms of the mobile market look the reason we were interested in combining with Zynga as we believe that mobile will continue to be the fastest growing part of the interactive entertainment business and we still are of that belief.
Yes, there has been some year over year pressure, which is in our view related to the economy, primarily and to a lesser extent, probably sort of post pandemic changes in demand. We think those are near term and in fact, the trends recently are quite positive in terms of demand.
Zynga has the best portfolio of mobile games in the business most of our competitors. Good as they may be have 123 or four titles a matter we have a whole lot more than that we have these forever franchises and we also are blessed with phenomenal leadership in that in that division.
So we remain highly optimistic about the growth in the future I'm not sure I can give you an exact growth rate, but I do think it will continue to be a rapidly growing part of the business. It also diversifies US you know, we we we attach a different audience from the mobile side excuse more female excuse older and by having a diverse company that has a console M P.
We see in mobile titles, we address every part of the interactive entertainment business and we find ourselves as one of the top three pure plays in the business.
With regard to our expectations about in App purchases and AD revenue going forward.
Looking at purchases still on my own only relevant.
For about 10% of the market for 90% of the users that that's not something that we're interested in.
So if you're selective and careful about how you targeted advertising makes all the sense in the world because we ought to be able to find a way to monetize all of the viewing all of the engagement not just the engagement leads to spending, particularly because we're not in the toll booth business. We're in the entertainment business, we wanted to be able to deliver titles.
Consumers can enjoy without regard to spending spending should enhance the experience for sure and it does.
In order to be commercial we should have a robust advertising business.
Non intrusive that's positive for the consumer the consumer experience and that's exactly what Zynga is building.
With regard to new IP.
I'll just I'll finisher I wrote down your question. So let me describe you on new IP and then I'll stop talking.
On new IP that remains the biggest challenge in the mobile business.
And you know, making new hits in mobile is really really really hard we're working on a bunch of titles about which we're very excited but it's super hard to make.
Jeff ratios in the business are low.
Yeah, just one quick follow up Strauss and that's a really impressive that you got all those by the way I was keeping notes that's impressive.
On the any you talked about the next couple of years getting back to record bookings, which you've talked about for a while now I think you could talked about sequential growth does that apply to fiscal 'twenty. Four I guess just any early thoughts about how we can start thinking about fiscal 'twenty four and then I'll hop back in the queue. Thanks again.
You know what we said today is we expect sequential growth and record results over the next couple of years and that remains our expectations, we'll give you exact outlook, including guidance in the coming months.
Thank you. Our next question is from Matthew cost with Morgan Stanley . Please proceed with your question.
Hi, everybody. Thanks for taking the questions could you go into a little more detail about where you saw the strength in PC and console versus where some of the softness was was it more on recurrent consumer spending or our unit sales and how does that compare to past period different macro weakness that you've seen.
So in terms of the strength in PC and console really our strength has been in the catalog I mean, what we have said before is that.
Over this period of time is that folks like the big established franchises, particularly those who have been discounted quite well over the last quarter and that was our experience as well so that part of the business did very well for us.
Little bit tougher on some new releases that are still establishing that play a big player basis I'm going to also be making difficult choices between games. If they can afford to play they're obviously going to gravitate towards things that they know that they become more familiar with them. So a little bit tougher on this on the new releases for the younger the younger games.
In terms of Rcs, we already said on that on the mobile side, our in App purchases were in line with expectations and we continue to Buck the trend in advertising.
We did experience some softness on the PC and console side and Rcs and again that dynamic is what we expect that dynamic in this kind of thinking about economic environment.
So it really it maybe it was a little bit more.
So better than we than we originally expected, but we are continuing to see that.
Great. Thank you and then just on the cost saving side is is the cost reduction program is it particularly focused on the mobile business or have you know various areas or is it kind of just general corporate overhead.
It's a combination of our corporate department and also some of our publishing function.
Close to all of our labels and it's outside of the hundred million plus in synergies between them take tooling zynga that we've talked about already and that has to do with the acquisition of Zynga.
Great. Thank you.
Thank you. Our next question is from drew Crum with Stifel. Please proceed with your question.
Okay. Thanks, Hey, guys. Good afternoon, just sticking with Zynga I think you mentioned in your preamble that mobile trends. It did prove maybe a little bit more detail there and can you comment on whether zynga net bookings were up quarter on quarter and if you've seen this improving trend line continue into the current quarter and then I have a follow up.
I think the way to characterize it as we have seen some improving trends in a way to describe it is it's really been some improvement off of the lows that we've seen in the past.
Okay.
And then Strauss you know some of your competitors have suggested the market is shifting towards these mega franchises curious if you agree with that premise and does this in any way if you do impact how you invest across your development pipeline and are you inclined to hold back with the launch of titles until market conditions.
She has become more favorable.
Yeah, we emphatically agree the strategy of our company is to make hits across the board. We believe that we have the best collection of owned intellectual property across console PC and mobile in the marketplace.
And.
You know our our approach has always been to bring out new iterations of beloved franchises. We have 11 franchises that have each sold over 5 million units and an individual release well over 65 that have sold over 2 million units and an individual release I don't think anyone else can say that and look we have the highest grossing entertainment property.
Ever created a any sort of within our four walls. Thanks to the folks of Rockstar.
That is very much our our approach and the truth of the entertainment businesses, whether you like it or not the entertainment business is a top 20 business on a good day and top 10 business on a less good day, we need to be there and that has always been our strategy.
Thanks, guys.
Yeah.
Thank you. Our next question is from Omar.
Sookie with Bank of America. Please proceed with your question.
So I'm looking at your grid. The gate is a grid of games that you plan to release from fiscal 'twenty three to fiscal 'twenty five and next to mobile you have 38 games.
And it looks like 10 of them are.
We're not seeing a games.
Are you still confident that you can get all those games to scale and is 100 million in annual bookings still the level that you aspire to as it was for Zynga forever franchises prior to the acquisition and then I have a follow up please.
Sure.
That one so I would say the aspiration for any titles that were released in a mobile context would it be at a 190 <unk> bookings, but I can tell you for sure that that won't be the pain with every release.
Our expectation going in again, the bulk of it how we released mobile if you could.
Take it out and see how it does and you invest a little bit more.
You didn't you revamped it you can rebalance it invest a little bit more and then you grow from there.
But we know that they're gonna be titles that we've put out that will on the mobile side, but the idea that we need to put the titles that in order to find the ones that can reach that $100 million level or plus so that is certainly that is the strategy and that's going to be our path going forward. So that's still our expectation.
Okay, and and it's do you think versus when you acquired Zynga, it's going to be harder to get to that $100 million threshold and you know was that affect kind of the number of new games that you guys will be a potentially launching over the next year or two.
No I don't think the business has gotten easier or harder I think it's pretty much what we expected as I said hit ratios in mobile are low.
We feel good about.
What's being developed.
And just no I have one quick follow up here. So some experts have I have noticed that Google has begun sending rejection notices for ads exposures in formats that are not compliant with its new better ads experienced its policy. This policy L. A disallowance disrupt interrupted interstitial ads among other practices.
And it was announced back in July .
So are you starting to see the effects of this policy for Rollick hyper casual games on Android.
We're not we're largely compliant.
Okay. That's my question. Thank you.
Thank you. Our next question is from Mario Lu with Barclays. Please proceed with your question.
Great. Thanks for taking the question. The first one is on Rcs.
This quarter in terms of the growth came in a bit below expectation you.
You mentioned that Zynga was in line.
So strong console P C.
Any franchise to highlight that kind of came in below expectations that are many factors that led to this underperformance.
No. There's nothing that I did point out it was really across several of our console and PC games.
Okay got it and then just a follow up on M. B a T K.
That my team's players were up 50% year on year, which is a.
Fairly large amounts so are there any kind of main drivers to highlight there.
These gains.
Offset by declines potentially in my career mode or was it mostly additive.
Yeah, I wouldn't say that it would necessarily offset by a decline in my if I am out I think the golfer MBA is how we've been growing over the years.
The growth in the future if they get more players involved in more modes.
To drive them across all of them now we know that we're not going to get everybody everybody to play the game of 100%.
Of course every single month, but that is certainly the goal because the more engagement the better ultimately the Rcs performance days for those titles and also the more loyal the audience and it's a much better path for us to grow.
So our focus has really been on getting players to buy cross those modes and we've had some great success as you can see.
Not just for my pleasure everybody across the 19 area, but across the board.
Great. Thank you.
Thank you. Our next question is from Eric Sheridan with Goldman Sachs. Please proceed with your question.
Thank you for taking the questions maybe two if I could first on the mobile front, obviously, we've lapped the launch of idea Fay and I wanted to get your perspective on whether you feel like in terms of driving a mixture of user growth and in game monetization and engagement gauge meant whether you've successfully sort of realign your market.
<unk> strategy in mobile to address the post <unk> world or whether you're still thinking it's sort of a work in progress. So that once demand is back and the mobile landscape you can sort of capitalize on it that would be number one and number two a competitor of yours talked about withdrawing or pulling back from the mobile shooter market earlier in the earnings season.
Love to get your perspective on how you think about developing implementing and sort of launching AAA titles.
Either alongside traditional PC console titles in the mobile format or how we should be thinking about even mobile only formats of what historically had been AAA type quality titles. Thanks, so much.
So in terms of the effect of idea we've been living with for quite a while now and I would certainly say that that has stabilized and I don't think we're expecting no surprises down the road that we're expecting at this point.
And there's been some improvement in how we are able to target.
Theres been some adjusting going on I don't want to characterize that as more sort of back to where we were because that would be a mischaracterization, but.
But we certainly feel like we've got our hands around it and then we're going in the other direction.
That's positive in terms of our ability to target and I would also mention too that in the hyper casual space.
Wider funnel and targeting is not it's not it doesn't require as much targeting as it does in the normal level of business. Because that's also helped our ability to attract new audiences.
And on the second part of the question. We we've said all along and I started today the hit ratios in the mobile business are very low and when we announced the combination with zynga.
The most.
Current question was Oh.
Well, obviously, you can take take to IP to mobile is not great and my answer was that is potentially a very exciting opportunity, but it's really really hard to do one of our competitors has done it really well with the title and we're impressed by that and I admire it but we have a healthy respect for how difficult. It is.
The vast majority of hits and mobile our native mobile they are not based on existing IP. They do not come from a console.
I'm very optimistic that we're going to give it a try and I am really hopeful that we will do well with it but it's not a slam dunk.
Thanks, so much.
Thank you. Our next question is from Doug crude with Cowen and company. Please proceed with your question.
Hey, thanks.
Just in your commentary about some of the new release under performance.
You're essentially attributing it to macro or at least partially due to macro but theres been two other companies who have sort of had the same problem.
You have several other competitors that have had record launches in the quarter and it seems from the data. That's been released overall console spending was pretty stable versus a year ago. What makes you think the issue is macro related versus this is just the way. The video game industry is going to be from now on and if that's the case, how does that cause you to re.
Thank your pipeline going forward.
It's a really good question.
What causes us to believe that it's macro related is if we we don't just polar expectations out of the air we based our expectations on prior performance of similarly rated titles within that genre and so in the case of certain of these titles. We we've had great scores and terrific critical acclaim.
And yet the unit sales were lower than expected.
On an apples to apples basis by comparison to prior releases in prior periods.
Is that is that sort of leads us to believe okay. That's probably a macro resolved, but I don't mean to imply for a minute to all of you doesn't matter quality does matter and the biggest titles.
Obviously continue to perform without regard to market conditions. So what youre, saying is does that mean, you should only put out blockbusters and anything that's short of unexpected blockbuster you can't put out.
I think the answer is a semi yes, we can't put out something that we think is gonna be a b title. That's never been the case, we have to put out AAA titles.
However, not everything is ever going to be Grand theft auto with just isn't going to be that way.
We have shown that we have the ability to launch new franchises.
In the case of borderlands or more recently, China Chinese Chinas Wonderland.
You know going back farther bioshock.
From Rockstar Red Dead redemption.
These are these are new intellectual properties, and we were willing to take the risk and support our creative teams vision and passion and we've been able to create the kits that's not changing.
There's nothing in our recent performance that leads us to say, we shouldn't invest in this way to the contrary.
I believe we should continue to invest in this way.
But right now as the market more selective sure in tougher times, when food and fuels more expensive and people are a little worried they're going to be more selective and when they're more selective they're gonna go to promotional titles and they're gonna go to blockbusters.
Yes.
Thanks Ross.
Thank you. Our next question is from Clay Griffin with Moffett Nathanson. Please proceed with your question.
Thanks, Good evening it sounds like this is this has been mostly in monetization issue I apologize if I missed it but it.
It'd be helpful just to get a sense of.
Overall engagement in the quarter.
As a metric for the market right now it sounds like apart from the new releases that some of your some of your biggest titles actually had pretty solid engagements out there.
Engagement has definitely been strong across the board I would characterize it certainly is the monetization model.
It is an issue and we've seen that not just on the piece of the copper business, but also on the mobile business as well. So that is specifically engagement. It is not the issue for us.
Right and just to follow up on that is there anything that you guys are seem to suggest that the game pass maybe changing.
The way people engage with new titles or just.
Sense of is that it has had an impact in terms of engagement in the quarter or over the last several quarters.
I don't really think so I mean, we don't make our frontline titles available day and date, we're thrilled to be in business with subscription services.
For our catalog titles at the appropriate time, we think that's the right way to support subscription.
Subscription is still a relatively small business youre talking about businesses I think the last announcement of game pass was 25 million subs.
We're not talking about huge broad based business.
And in any case no I don't I don't believe the business is cannibalizing our business.
Okay. Thank you.
Thank you. Our next question is from Martin Yang with Oppenheimer. Please proceed with your question.
Alright. Thank you for taking my question I've. Two can you first gave us more details on the Zynga is direct to consumer effort.
Do you see a certain region or was user cohort responded more strongly to the channel.
No we're not seeing any regional differences, particularly I'm not sure we'd been looking for them, though because it's really early still.
Got it. Thank you my second question is on the impact of more discounting.
Remember.
And how would you characterize the environment in the March quarter is discounting still affecting negatively on the guidance for March.
I don't think that discounting in particular is driving our expectations for the quarter whats driving our expectations for the quarter is just our perception of market demand.
Yeah.
Thanks Ross.
Thank you. Our next question is from Matthew.
With Bernstein. Please proceed with your question.
Thank you I'm just wondering if you changed your typical marketing approach for these new titles that launched in the holiday season and.
If not do you plan to do that.
In the current quarter in response to what you're seeing in the market trends you had Scott. Thank you.
No we didn't change our approach to marketing.
Marketing approach varies title by title and reflects our view at any given time for what the opportunity is in the context of the cost of the marketing programs, but if your question is did we create a sort of self inflicted wound by somehow spending less for example on marketing and getting worse results. The answer is no but equally it's not like.
We've created a self inflicted wound by spending more on marketing and not getting results, we tailored the marketing to the opportunity. Unfortunately, the opportunities that was a little smaller than we thought.
Very clear thanks.
Thank you. Our next question is from Mike Hickey with benchmark. Please proceed with your question.
Hey, Strauss Karl Lanny, Thanks for taking my questions. Two for me just curious specifically I know you haven't called out titles, but for the quarter on the weakness in recurrent spend.
Grand Theft auto online and NBA.
T. K lives served as to did they meet your.
Your expectations for the quarter and have you changed your forward view of growth from those games, obviously, they're a big portion of your ex mobile life service business and the second question on your cost reduction plan 50 million do you feel like that's sort of the starting point or.
You sort of grow that as you think about it more over time or do you feel like that's enough. Thanks guys.
And so for the quarter, our NBA business back in line with our expectations. Our other titles and were lower than what we had expected as I mentioned.
P C in our console business is for Rcs.
Overall lower than what we had expected and for the 50 million and this is like an ongoing cost reduction initiatives. So I expect this number will grow over time and efficiency is one of our core tenants at the company. So we're always looking for efficiency throughout the organization and these are permanent and structural structural changes.
The organization's overall and.
Quite right.
Overhead structure.
These are expenses that we expect to reduce our overall structure over time.
Thanks Wendy.
Thank you. Our next question is from Jason Bazinet with Citi. Please proceed with your question.
I just had a slightly longer term question can you guys talk a little bit about whether or not you're a believer in sort of cloud gaming moving to the floor you know over the next five years and.
So.
What implications if any does it have on how you think about the business your business. Thanks.
Yes, I mean, we didn't believers.
Our gaming we were one of the first licensees of if not the first licensee license.
<unk> forward sorry to stadia.
To support that project.
But remember cloud gaming as a technology, it's not a business model, it's a distribution technology in our view as broader distribution is always a good thing in the entertainment business. If we can reach more consumers with our properties, we're happy to do it as long as the terms makes sense.
And I think.
Broader distribution over time, probably benefits us in any number of ways, including the cost of distribution, which I believe will go down overtime.
That said I've never felt like cloud gaming would be.
Size would represent a seismic change because I think if you are prepared to pay 60 or $70 for frontline title, you're also prepared to buy.
Console and I think you know stadium combat out so.
Bringing high quality titles to consumers, who don't have consoles.
We'll probably have an effect around the edges, but I don't think it'll be.
A revolution in the business I think it will be more in the evolution of the business and there are still technical challenges to be addressed.
Very helpful. Thank you.
Thank you. Our next question is from Matthew Thornton with true Security. Please proceed with your question.
Yeah, Thanks, Hey stripes.
So another big picture question.
As you look out over the next several years, maybe the next five to 10 years I'm curious kind of your thoughts on how AI can impact the business, good or bad or again, what you see on the horizon as potential.
Disruption opportunity I'm, just wondering any thoughts there would be would be helpful, particularly how you're thinking about AI. Thanks again.
You know I'm, the first person to be skeptical of other people's side, and I would like to note that AI stands for artificial intelligence and there is no such thing as artificial intelligence.
All of that said I'm really excited about what we're seeing right now with chat GPT in.
Other leaps forward.
<unk> and artificial intelligence and machine learning and I do think that will be and others will be creating tools that will enhance our development and probably reduce some of the costs.
For what we have to do today, but I don't think youre going to see it have an effect on the overall cost structure of the business because I think it'll just.
Raise the bar I think anytime you make things easier, we don't want to do more and our teams are wanting to do more.
The belief among college students the chat GPT is now going to allow them to just make a query and sending their homework the problem is.
<unk> as you know.
Describe what actually happened you know.
On the night of Paul Reveres, right if thats the question.
And everyone gets the same question what should do in class and everyone uses chat GBT oops everyone's going to submit the same assay last time I checked and so.
That GPT as today's hand calculator, you know when I was a kid there was no such thing I hate to admit but its true.
I had to do math long Hammer and then hand calculators came along and parents were up in arms and thought Oh kids won't have to learn math anymore and the answer is yes, you start to learn math turns out you absolutely have to learn math, but you have a tool that makes it easier to do and chat GPT is the same thing. We are we are ushering in a very exciting era of new tools and they're gonna allow.
Our teams and our competitors' teams to do really interesting things more efficiently. So we're going to want to do more we are going to want to be even more creative.
And no it's not going to allow someone to say please develop the competitor to Grand theft auto that's better than Grand theft Auto and then they will just send it out and ship it digitally and then that will be that.
People will try but that won't happen.
Hey, guys.
Speaking want a second one if I could as well just.
Really around productivity, obviously, you guys are pretty far along in the return to office when you step back and think about that big pipeline and all the projects that you've laid out how do you feel like things are progressing from a products David.
Our activity standpoint, now that again, you are pretty far along in the rent and the return to office. Thanks again.
We've been pretty flexible about return to office and our teams have been great.
One of the one of the many wonderful things about working at take two.
The amazing people that we work with where more than 11000 people strong around the world and.
Our attrition rate remains much much lower than the industry average.
And I think that's because this is an extraordinary place to work, where we we seek the best and the brightest on both a business on the creative side and we encourage people to pursue their passions and excellence at the same time.
So productivity is strong performance was strong.
We probably never had a period this along with all of our titles showing up are performing I believe in the last two years, we've had the best reviews and the best scores we've ever had.
And that's why the business challenges are a bit frustrating because our people are delivering.
And we will deliver over time as long as we keep doing that and that's the plan.
Yeah.
Thank you there are no further questions at this time I'd like to turn the floor back over to Strauss zelnick for any closing comments.
Thank you for joining US today, you know I wish we were giving you better news across the board. There is so much good news here and we're really proud of it as I said just a minute ago. The thing. We're most proud of is our.
Our phone from phenomenal colleagues all around the world.
All of US are so grateful.
And as for our results.
We plan to do better we thank you for your support.
Yeah.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.