Take-Two Interactive Software, Inc. Q1 2024 Earnings Conference Call Insights

Key highlights from Take-Two Interactive Software, Inc. (TTWO) Q1 2024 Earnings Concall

Management Update:

• [00:16:53] On a management basis, TTWO’s operating expenses are expected to grow by approx. 15% YoY, due primarily to a full year of Zynga, an increase in personnel and marketing expenses, and higher depreciation of office buildouts and capitalized IT expenses.

• [00:18:11] TTWO projects recurrent consumer spending to decline by approx. 7%, which assumes modest declines in its mobile business, NBA 2K, and Grand Theft Auto Online.

Q&A Highlights:

• [00:20:09] Andrew Uerkwitz of Jefferies asking for an update on the current state of the consumer market. Strauss Zelnick CEO answered that the interactive entertainment market was down in 2022, but things are looking better now. TTWO is seeing growth in the console market and some green shoots across the economy.

• [00:21:41] Andrew Uerkwitz with Jefferies also enquired if a recession in Hollywood would be positive, negative, or neutral for the video game industry. Strauss Zelnick CEO said that TTWO believes a strike preventing the delivery of new content could potentially have a small positive benefit for their business, but the company is not counting on or hoping for it.

• [00:24:20] Matthew Thornton with Truist asked if there have been any changes to this year’s release slate, in light of the $18 million impairment charge. Lainie Goldstein CFO replied that there have been some small changes to the back part of the year’s release slate, but the guidance remains the same and is unrelated to the impairment charge.

• [00:25:01] Eric Handler at Roth MKM queried how many of Strauss’s games, beyond the hyper-casual business, have integrated mobile advertising. Strauss Zelnick CEO replied that TTWO is moving towards the direction of monetizing 100% of its audience through in-app purchases and advertising. TTWO is still working on how to do this while still creating a high-quality experience.

• [00:25:20] Eric Handler from Roth MKM also asked how much of the mobile revenue is on the DTC platform and how it is progressing. Strauss Zelnick CEO said that TTWO does not disclose its percentage of revenue from advertising, but one of its competitors has said that it is about 25%. TTWO’s advertising net bookings were up 11% YoY, and the company is optimistic about the growth of its direct-to-consumer platform.

• [00:25:37] Matthew Cost from Morgan Stanley asked if TTWO sees an opportunity to acquire mobile game studios now that the market for mobile M&A seems to be thawing. Strauss Zelnick CEO said TTWO is not currently planning any major acquisitions, but they are open to opportunities that make sense for their business. TTWO is focused on growing organically.

• [00:26:00] Matthew Cost from Morgan Stanley also asked for more details about the changes to the promotional cadence for NBA 2K and the size of the financial impact. Lainie Goldstein CFO said TTWO expects NBA 2K24 to be up from NBA 2K23, but NBA 2K23 is expected to be down from NBA 2K22 due to less promotional timing in the quarter.

• [00:28:34] Eric Sheridan with Goldman Sachs enquired about TTWO’s plans for cross-promotion and crossplay between AAA titles on console and mobile. Strauss Zelnick CEO replied that TTWO is exploring cross-platform titles and new mobile titles based on core TTWO IP, prioritizing title quality over the business model.

• [00:30:05] Mario Lu with Barclays asked about the impact of crossplay on NBA 2K24 and its absence on PC in the last generation. Karl Slatoff President said TTWO is excited about crossplay as a natural fit for the game that will increase engagement and monetization.

• [00:31:11] Mario Lu with Barclays enquired that if TTWO is considering charging a higher price for early access to games in the future. Karl Slatoff President replied that TTWO has not yet offered early access to games at a higher price, but is open to experimenting with this model in the future. The company’s priority is to make sure that games come out in a timely fashion with the best experience possible.

• [00:32:35] David Karnovsky of J.P. Morgan asked about the strategy behind the hyper-casual focus on releasing games that retain better and have a higher mix of IP spend, including the traction and potential impact on ad revenue from Rollic and Popcore. Karl Slatoff President replied that TTWO is experimenting with hybrid-casual games that are stickier than typical hyper-casual games and can be monetized through in-app purchases.

• [00:35:44] Omar Dessouky at Bank of America asked about the potential revenue from the direct-to-consumer platform. Strauss Zelnick CEO said TTWO’s decision to release a game through DTC will vary depending on the game, with no specific target percentage, but believes it has the potential to be a major growth driver.

• [00:37:52] Mike Hickey with Benchmark Company enquired if TTWO’s creative teams are motivated to expand their IP into new entertainment mediums like film or streaming episodic content. Strauss Zelnick CEO replied that TTWO is taking a selective approach to licensing its IP for film and television projects. The company is not willing to invest its own money in these projects, but is open to licensing IP to partners who can create high-quality content.

• [00:42:40] Benjamin Soff with Deutsche Bank asked if the increase in the percentage of revenue from Rockstar and other studios is due to a share shift from mobile or if TTWO ‘s expectations for those segments have improved. Lainie Goldstein CFO answered that the update for Rockstar is based on the momentum in its current business, including GTA 5 unit sales, Red Dead updates, and virtual currency with the GT Online updating, leading to an overall reforecasting of the business.