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Take-Two Interactive said its bookings grew 60% to $1.38 billion in the third fiscal quarter ended December 31.
The company also said in its quarterly release that it is implementing a cost reduction program to reduce expenses by $50 million annually, which it will begin to realize in the fourth fiscal quarter ending March 31.
The cutbacks will involve personnel, processes, infrastructure and other areas. They will focus on corporate and publishing functions. This does not include $100 million in cost synergies that the company expects to realize from its combination with Zynga. In after-hours trading, Take-Two’s stock is declining. The price is down 1.76% to $103.70 a share.
Take-Two said the lower bookings may have been a result of macroeconomic conditions, as consumers shifted holiday spending toward established blockbuster franchises and titles that were offered with pricing promotions.
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“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,” Take-Two said in a press release. “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 properties.”
Take-Two said the cutbacks are not expected to impact the delivery of its multi-year pipeline of games.
“During the third quarter, we continued to execute on our ambition to create the highest-quality, most engaging interactive entertainment franchises in the industry,” said Strauss Zelnick, Chairman and CEO of Take-Two. “Our new game releases and post-launch content received significant critical acclaim; however, our net bookings of $1.38 billion were slightly below our prior guidance … .”
Zelnick added, “We are operating in an environment that is in many ways more challenging than we anticipated and we are lowering our fiscal 2023 net bookings guidance to $5.2 to $5.25 billion to take this backdrop into account. Accordingly, we have embarked on a cost reduction program that we believe will deliver over $50 million of annual savings, which is in addition to the $100 million of annual cost synergies that we plan to realize from our combination with Zynga. These initiatives are expected to optimize our company’s expense structure, while also positioning us to deliver on our anticipated growth trajectory. Our balance sheet remains strong, allowing us to navigate these uncertain times with confidence.”
And he said, “We have always managed our business for the long-term. As we achieve the powerful synergies from our combination with Zynga, release new titles from our robust multi-year pipeline and execute our cost savings initiatives, we expect to deliver sequential growth and record performance over the next several years, which we anticipate will drive meaningful shareholder value.”
Digitally-delivered net bookings hit $3.685 billion and accounted for 95% of the total.
On a GAAP basis, Take-Two reported a net loss of $153.4 million, or a loss of 91 cents a share, on revenues of $1.41 billion (up 56%) for the quarter, compared with a profit of $144.6 million, or $1.24 a share, on revenues of $903.3 million a year earlier.
Take-Two also revised downward its outlook for the fiscal year ending March 31, 2023. It now expects net bookings to hit $5.2 billion to $5.25 billion, compared with $5.4 billion to $5.5 billion for the previous estimate issued in November.
Take-Two itself expected FYQ3 GAAP net revenue to range from $1.43 to $1.48 billion. The GAAP net loss was expected to range from $160 to $142 million. GAAP net loss per share was expected to range from 95 cents to 85 cents. Net bookings (operational metric) were expected to range from $1.41 to $1.46 billion, and non-GAAP EBITDA was expected to range from $164 to $185 million.
Zynga released a variety of updates for CSA Racing 2, Top 11, Harry Potter: Puzzles & Spells and Empires & Puzzles. Rollic also had a number of hypercasual game launches. Take-Two has about $3.1 billion in debt, ($2.1 billion in net debt), and it’s related to its $12.7 billion acquisition of Zynga.
During the quarter, Take-Two said Zynga’s in-app purchases were in line with expectations, and mobile trends improved from prior lows, especially during the holiday season. Zynga saw continued strong engagement among its active players, and Zynga believes it is maintaining global market share.
The ad business outpaced the broader industry, and Zynga continued to roll out Chartboost throughout its inventory. Empires & Puzzles was a top performer, thanks to strong seasonal content. Rollic’s Balls ‘n Ropes hit the No. 1 spot for the most downloaded game in the U.S. in December. About 20 Rollic games have now hit No. 1 or No. 2 in Apple’s U.S. app store.
During the quarter, Zynga acquired Popcore, which offers a balance of hypercasual experiences that also prioritize long-term player retention rates. The company said it is on its way to exceeding its target of $100 million in annual cost savings within the first two years after the deal.
Zelnick said that the company knows that hit ratios in mobile games are very low, but he said he feels good about the mobile games in development.
NBA 2K23 and more
NBA 2K23 launched its Arcade Edition on October 18 for Apple Arcade. And it released PGA Tour 2K23 on October 14 with Tiger Woods as the cover athlete. On January 23, Take-Two’s 2K label said that WWE 2K23 will release on March 17. Marvel’s Midnight Suns debuted on December 2 on a variety of platforms. Private Division also said that After Us is coming for a variety of platforms in the spring of 2023. Take-Two said NBA 2K23 has sold more than eight million units to date.
Karl Slatoff, president of Take-Two, said in an analyst call is that the goal for NBA has been to get players to play more modes over time.
Grand Theft Auto V / Grand Theft Auto Online
During the quarter, the company released Grand Theft Auto: The Trilogy — the Definitive Edition on Steam on January 19 to February 2 as part of a sale. And on December 13, Rockstar Games introduced a GTA Online update dubbed Los Santos Drug Wars. Take-Two said Grand Theft Auto V has sold 175 million units to date.
In an analyst call, Zelnick said that Grand Theft Auto is the highest-grossing intellectual property of any kind. He also said that 11 of the company’s franchises have sold more than five million copies.
Red Dead Redemption 2 and more
Take-Two said Red Dead Redemption 2 has sold more than 50 million units to date. Meanwhile, Ken Levine’s Ghost Story Games is making a title called Judas, a single-player narrative shooter coming for multiple platforms.
Outlook for FY23
Take-Two expects its GAAP net revenue of $5.24 billion to $5.29 billion in the fiscal year ending March 31, 2023. The GAAP net loss is expected to be $721 million to $704 million, with net loss per share ranging from $4.50 to $4.40. Net bookings are expected to range from $5.2 billion to $5.25 billion.
For the fourth fiscal quarter ending March 31, Take-Two expects GAAP net revenue is expected to range from $1.34 billion to $1.39 billion. The GAAP net loss is expected to range from $214 million to $197 million. GAAP net loss per share is expected to range from $1.27 to $1.17. Net bookings (operational metric) are expected to range from $1.31 billion to $1.36 billion, and non-GAAP EBITDA is expected to range from $102 million to $122 million.
In an interview with GamesBeat, Zelnick elaborated that, “In terms of the softness that we’re seeing in our results, we believe that it’s driven by market conditions. And those market conditions I think are an inflationary environment where consumers have to spend more on food and fuel than they did a year ago. And I think they’re being more selective with their entertainment expenditures.”
He added, “As you know, we’re putting out hit after hit. Our titles are getting great reviews, they’re achieving great scores. Our teams are doing phenomenal work. So it’s deeply disappointing when our revenues fall slightly short of our prior guidance that they did in the quarter. And even more disappointing, we have to lower our guidance for the year.”
Zelnick continued, “And to be clear, I take personal responsibility for that. But it’s not the teams. The teams are delivering. They’re over-delivering. And so when you have hit titles, and the market tells you that your titles — they’re not selling what you expected them — so I have to attribute that to market conditions. The good news is that we’ve remained a very solid company. We’re levered at less than two times, even though we’re making a lot of money. We’re more than a $5 billion revenue business, our mobile business is looking very sound. Our advertising is up year over year. And as I said, the titles continue to perform and grow. And our expectations are that in the next several years, we’ll have sequential growth and record financial results. So that’s very exciting as well.”
Regarding cost reductions, Zelnick said it is a challenging moment.
“We’ve embarked on a further cost reduction program. We aim to reduce by $50 million a year in costs across the board. And that’s in addition to the more than $100 million dollar cost reduction program that we’re going to receive with our integration [with Zynga]. The Zynga deal itself remains highly accretive to our business.”
I asked him if there would be layoffs. Take-Two has 12,000 employees, and 9,000 of them are in development.
“You can never be totally immune to layoffs. But we don’t expect some kind of broad-based reduction in force. We’re going division by division on the operating side, to just make sure we’re as efficient as we possibly can be. Because we have a three-part strategy of being the most creative, the most efficient, and the most innovative company in the entertainment business. We’re continuing to grow and invest. We continue to invest in our development teams.”
I asked when Grand Theft Auto 6 is coming, and Zelnick said such decisions will be left to the labels — in this case, Rockstar Games. I also asked if consumer demand might be weaker with small intellectual properties and mobile games. In an analyst call, said he believes certain titles had great scores from reviewers and players, but they aren’t selling as well. As a result, Zelnick thinks that it’s a macroeconomic effect that is stopping players from buying more of those games. He thinks players are being selective and going for blockbusters and promotional deals.
“I think that’s possible,” Zelnick said. “I think the really big appealing releases are attracting consumer attention. But even in those circumstances, there’s more discounting than we typically see. And that kind of early-stage discounting right after a big release is a reflection of tough economic times.”
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