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Take-Two Interactive reported results for the third fiscal quarter ended December 31 that fell short of its expectations as mobile ads and NBA 2K24 revenues were lower than expected.
As a result of the shortfall, Take-Two said that it is planning a cost-reduction program that is more extensive than the one it undertook last year in the wake of its $12.7 billion acquisition of Zynga. That language pretty much spells layoffs are coming, as they have for much of the game industry lately.
Fortunately for Take-Two, its Rockstar Games label is planning to launch Grand Theft Auto VI, most likely in the 2025 fiscal year, which ends March 31, 2025. Rockstar released a trailer for the game that hit 93 million views on YouTube in its first 24 hours. The previous GTAV launched more than 10 years ago.
In after-hours trading, Take-Two’s stock is down 5.9% to $159.50 a share. Take-Two is valued at $28.8 billion.
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As of December 31, Take-Two’s headcount was over 12,200, including over 9,500 in-house development studio staff. A year ago, Take-Two reduced some of its headcount as part of a $50 million cost-reduction program.
Net bookings for the quarter were $1.34 billion, down 3% from $1.38 billion for the same quarter a year ago. Take-Two had a new launch with Zynga’s Match Factory! in the quarter, but most of the revenue came in from existing titles.
Take-Two said Grand Theft Auto V (now at 195 million copies sold) and Grand Theft Auto Online, Red Dead Redemption series, and Toon Blast all came in above expectations.
“We achieved solid third quarter results, including Net Bookings of $1.3 billion. Grand Theft Auto V and Grand Theft Auto Online, the Red Dead Redemption series, and Zynga’s in-app purchases, led by Toon Blast, exceeded our expectations, as we launched engaging new content, partnerships, and activations,” said Strauss Zelnick, chairman and CEO of Take-Two. “This was partially offset by some softness in mobile advertising and sales for NBA 2K24. We are reducing our outlook for the year to reflect these factors, as well as a planned release moving out of the fourth quarter, and increased marketing for Zynga’s new hit mobile game, Match Factory!, which we believe will enable us to scale the title meaningfully. Our revised Net Bookings forecast is $5.25 to $5.3 billion.”
Today, Take-Two is shaving about $200 million in bookings off from its expected year-end net bookings.
Zelnick added, “Our strategy is anchored in creativity, innovation, and efficiency. We are currently working on a significant cost reduction program across our entire business to maximize our margins, while still investing for growth. These measures are incremental to, and more robust than, our prior cost reduction program, and we aim to achieve greater operating leverage as we roll out our outstanding release schedule.”
And Zelnick reminded us that Take-Two always has its eye on the long term.
Zelnick interview
GTA VI’s main characters.
In a short interview about the earnings, I asked Zelnick about the prospect of layoffs.
“We have a three-party strategy as you know. Which is to be the most creative, the most innovative and the most efficient company in the entertainment industry,” Zelnick said in an interview with GamesBeat. ”We pride ourselves on that strategy. And after many years of unbridled industry growth, we think it is a good time to take a look at our cost profile. Our biggest line item of expense actually is not labor costs. It’s actually marketing. So, there is plenty of room for optimization in areas outside of labor. That’s obviously where we will start at least to begin with.”
I asked if GenAI would help make the company more efficient.
“Unquestionably. I want to be clear. I don’t think advances in generative AI are going to take away the jobs that people want to do. I think that generative AI is much more likely to get rid of the work no one wants to do,” Zelnick said. “The lower value work. And the history of technology and productivity tools is that it frees people up to do much more interesting jobs. And that’s what I think will happen here.”
As for NBA 2K24, he said,”Basically, we’re looking at as a timing issue. NBA 2k24 is a hugely successful title. It’s the No. 1 sports title in North America. It’s sold in over 7 million units. And the bookings of NBA 2K24 are expected to be in line with those of NBA 2K23.”
He added, “However, in the period, we saw some softness in the Gen 8 SKU. [There is] lots of enthusiasm in the Gen 9 SKU. And that’s why we’ve reported the results here. That the guide down, by the way, is, in large part driven by great news, which is the success of Match Factory, which is turning into a really significant hit. And we want to feed the user acquisition expense in the quarter, which of course is not fully recovered the quarter. We also moved a title out of the year into fiscal 25. But that’s just the timing matter. So, you know, the three key elements here, which are NBA 2K24, sales, which will come back in the fullness of time, a title moving, which will be released in the new fiscal year, and Match Factory where we expect to earn a multiple of what we’re spending on user acquisition in the quarter. This is all somewhere between neutral and good news.”
He noted there was no update on Grand Theft Auto VI’s launch window, as that sort of announcement falls to Rockstar.
As for the layoffs and general funk in the game industry, Zelnick said, “Look, I think there’s some really good news in the industry. We have some big titles performing, we got a lot of great news around here, Grand Theft Auto V has sold in over 195 million units, Red Dead Redemption sold over 61 million units.”
He added, “And the success of multiple titles in Zynga, which is a really the first time in years that we end our competitors are beginning to see new IP success in mobile. So there’s lots of good news.”
And he said, “But the market is not what it was during the pandemic. It’s still under some pressure. Consumers today are still under some pressure. And all of us are taking steps to become more efficient, which is as it should be. This is an industry in growth, but it’s not linear, upward sloping curves every month, and so perfectly reasonable for an industry that’s been on a bit of a binge to stop and regroup.”
I asked when the game industry funk might end. He said, “As I said, in many ways, things are looking up. We are excited about Match Factory! We couldn’t be more excited than we are about our pipeline. I think the consumer is returning steadily. And I think the consumer will be in a much better place, broadly, by the end of this year.”
In an analyst call, Zelnick said one of the hardest things to do in the mobile game industry is to launch a new hit. That’s why he said he is so excited about Zynga’s Match Factory!.
Third quarter highlights
Sugartown is Zynga’s first Web3 game.
Total Net Bookings decreased 3% to $1.34 billion, as compared to $1.38 billion during last year’s fiscal third quarter.
Net Bookings from recurrent consumer spending decreased 7% and accounted for 75% of total Net bookings. The largest contributors to net bookings were NBA 2K24, Grand Theft Auto Online and Grand Theft Auto V, Toon Blast, Empires & Puzzles, the hyper-casual mobile portfolio, Red Dead Redemption 2 and Red Dead Online, Words With Friends, Grand Theft Auto: The Trilogy – The Definitive Edition, and Merge Dragons!.
GAAP net revenue decreased 3% to $1.37 billion, as compared to $1.41 billion in last year’s fiscal third quarter. Recurrent consumer spending decreased 7% and accounted for 76% of total GAAP net revenue. The GAAP net loss was $91.6 million, or 54 cents per share, as compared to $153.4 million, or 91 cents per share, for the comparable period last year. The GAAP results include an impairment charge of $53.4 million related to intangible
