Quarter 1
Q1 2027 Earnings Call — August 7, 2026
Analyst Doug Krutz (TD Cohen): One of your peers that reported previously suggested that there had been some slowdown in the mobile market in Q2, which they attributed to macro uncertainty. Just wondered if you saw the same thing, if you saw different things. Any commentary you could offer would be helpful.
Executive Name (Title): No, it's really not what we're seeing. Our results have been affected by how Colorblock Jam is doing versus last year in terms of copying because it was a new title last year. But apart from that, we've delivered some really good news in mobile. There's no doubt there's a bit of pressure on user acquisition at the moment. And I think that that comes and goes in the marketplace. But no, we don't feel like the consumer is pulling back at all.
Analyst Andrew Marock (Raymond James): Hi, thanks for taking my questions. Maybe one on the GTA 6 extended look. I guess if you could give us a little bit more color on the thinking that went into the decision to go with Netflix for the timed exclusivity rather than just the traditional route of releasing it on a free platform like YouTube or through Rockstar Socials.
Executive Name (Title): You know, this is the first of its kind partnership with Netflix. They're a great marketing partner for us and distribution partner, as you know. We also work with virtually every social media outlet on earth. This is part of Rockstar Games marketing strategy. We're excited for everyone to see an extended look of Grand Theft Auto 6. I'm not prepared to tell you how it's going to go, but I feel really good about it. And of course, six hours after the initial launch on Netflix, it will be available on Rockstar Games channel on YouTube and I think ultimately many other outlets.
Analyst Andrew Marock (Raymond James): Great, thank you. Maybe one more if I could. Not that you needed any other tailwinds into GTA 6 launch excitement, but can you talk a little bit about the Court Center update for GTA Online and maybe how that's been in terms of bringing in some lapsed players ahead of the GTA 6 launch. Thank you.
Executive Name (Title): We're actually very pleased how things are going right now. We typically don't give specific details about how releases are doing, but I can tell you that right now we're very pleased with how things are going. Like all the Rockstar releases, they're exciting, they're well received by players, and they always bring in, they always reactivate folks. So far, so good.
Analyst Brian Pitts (BMO Capital Markets): Thanks for the question. You recently announced the $80 base game for GTA 6, but ultimately decided to leave NBA 2K27 base pricing at $70. As you think about going forward, base pricing, help us understand how you're thinking about being able to price games at a more premium price with more traditional AAA games.
Executive Name (Title): Look, you know, we've said this many, many, many times. Our goal is to deliver way more value to consumers than what we charge them. And you know the truth is that the real cost of a AAA video game is a whole lot lower today than it was 20 years ago. Pricing has not kept pace with inflation and our goal is to continue to over deliver for our consumers because how you feel about any experience is the intersection of the experience itself and what you paid for it. So you know to say that we expect that Grand Theft Auto VI will be an incredible bargain as experiences go is a gross understatement because Rockstar Games is known for over delivering. And when people engage with our titles, and Karl just answered a question about GTA Online, remember we're 13 years after GTA Online was launched and people are still highly engaged. We have record setting engagement at times. So that's our goal. Our goal is not to maximize price. So in this case, I think what we've decided to do makes a whole lot of sense in the context of what we're delivering. And that's the lens through which we'll look going forward as well.
Analyst Eric Handler (Roth Capital): Good morning. Strauss, I wonder if you could give a little bit of background on the decision to go with Netflix for the extended trailer launch. Did they approach you? Did you approach them? I assume for exclusivity, they probably paid a little bit of a premium to get that.
Executive Name (Title): You know, Netflix is a close partner of the company and, you know, we have tight relationships up and down the line. So we're always in conversation about things that we can do together. And this is a groundbreaking partnership that Rockstar arranged with our friends at Netflix and really excited about how it's going to come about. I wouldn't normally give detail on sort of the nature of the back and forth or the terms of the arrangements.
Analyst Eric Handler (Roth Capital): Okay, thanks. And then as a follow-up, with chip costs rising so much and the input costs for hardware rising significantly, there's talks about the next-gen consoles maybe getting delayed. I know you're a software company and you produce for whatever is out there, but I'm curious about your big-picture thoughts on the industry, just given the rising cost of hardware.
Executive Name (Title): Look, the rising cost of hardware is not a good thing, and we wouldn't argue that it is. I don't think it will slow us down any because we believe we're delivering experiences that people want. However, a lower price point for hardware would be a good thing because there'd be more hardware in people's hands. So I cannot argue this is a positive, but equally, we don't see it as a headwind either. And going forward, look, Two things that I think are relevant. Probably the most relevant thing is the world continues to move to open systems, and that will continue. 20 years ago, when we showed up here at Take-Two, for a console release that was available on PC at launch, PC would represent 1% to 2% of the overall sales. Today, that can be 40% or 50% in a similar situation. And I believe that's going to grow because people have PCs that have outboard controllers. they work great as game machines, and I think that will continue.
Number two, with the advent of streaming, which we really do believe is around the corner in terms of having something that's low latency and really works well for consumers, machines that weren't game machines before will become game machines. So without regard to what happens in the console business, which is a consequence to us, of course, We see the overall installed base as a practical matter growing materially. And if you believe in streaming, to be clear, we really do. And I'm happy to put a timeline on it. I think we'll be in commercial streaming mode within three years. And by commercial, I mean low latency. I mean, that can 10x the effect of installed base. Now, it doesn't mean we're going to 10x our revenue, and we wouldn't project that we would, but because obviously your avid consumers already had access to video game machines. But I do think it creates great opportunity for titles that are broadly desirable, even outside of core markets. And we do have titles like that, obviously.
The third thing is that interactive entertainment, and the most important thing, remains America's pastime and the world's pastime. It is the fastest growing part of the entertainment business. That's going to continue as the cohort ages and grows. All we need to do is the hardest thing you can do, which is continue to make hits.
Analyst Colin Sebastian (Baird): Thanks. Good morning. I appreciate the questions. I guess on NBA, the next game coming up here shortly, I mean following another strong year for the franchise, what do you think is going to be part of this game that might differentiate or provide the opportunity to grow the franchise another year? And then secondly, on an unrelated topic, just curious on any update to how your studios are deploying AI tools internally.
Executive Name (Title): So in terms of NBA, obviously NBA 2K26 performance was outstanding. It was a record for us, both on units and engagement. And I think that's the key. And we get the question, the same question almost every quarter, certainly every year about how high can high be and how the growth is. And every time we get the question, we answer it the same way. And it's really is, I don't want to say it's unlimited, but there's still a huge amount of growth potential in the NBA franchise. And that would be coming both from increased units, geographic expansion, et cetera, and bringing more customers back year over year. There's still a lot of wood to chop there and also more and more engagement. So we continue to refine that. And what really drives that is the folks at Visual Concepts and 2K and their efforts to year upon year to innovate. And it's really hard to do that on an annual release. And yet somehow through the brilliance and hard work of the team, they're able to do it. So I would just answer it the same way we had before, which is the growth is going to be coming from the same place it always does. And that's through the innovation, the creativity of the teams. We did announce some fun things in terms of cover athletes for NBA 2K27. I'm going to leave all the exciting news about what's next for that title with 2K, which was August 18th, I think, is when there's going to be more of a reveal.
Executive Name (Title): And with regard to your question about AI, you know, we are first and foremost an entertainment company and always have been. However, we're an entertainment company that creates its entertainment in computers and always has. So this company, you know, its products and its approach was built on AI and machine learning well before it became, you know, Buzz Ward-Dujour. So, you know, we're dyed in the wool adopters of new technology to the extent that it enhances our ability to do what we do. And we have a three-part strategy, two parts of which are innovation and efficiency. So we have projects that sort of fall into both the basic research and the applied research buckets here to see the basic research side, the art of the possible, and the applied research side, how we can and many more. The Spoke Entertainment Products, and we aim to make the best ones in the world. And technology should make it easier for our incredibly creative people to innovate. But for better or for worse, and I happen to think it's very much for the better, those tools are not going to replace anyone.
So unlike some of our competitors who are announcing opportunities to save hundreds of millions of dollars with AI, I've said since the beginning, the history of new technology in the interactive entertainment business is efficiencies are creative, are indeed creative, but then we find ways to do bigger and bigger things. We actually don't reduce the cost of doing those things, but we can meaningfully increase the quality. What does meaningfully increase the quality mean for us? It means making bigger and bigger. Our job is not to lead in technology. Our job is to lead in entertainment. And as it happens, we use technology to try to do that.
Analyst Chris Scholl (UBS): In the slides and prepared remarks, you mentioned international expansion and evaluating accretive M&A. Can you just walk us through the opportunities you see overseas for your franchises that are maybe untapped today? And for M&A, remind us of the criteria you use when evaluating deals, the types of assets you would be most interested in, and any particular regions where you feel like you would like to scale your operations.
Executive Name (Title): Yeah, we've been very focused here on increasing our international footprint. As you know, companies like Take-Two, and there aren't many of us, but there are some, basically derive about 80% of their revenue from the US, Western Europe, and one or two countries in Asia. The rest of the world's really underrepresented, even though they love video games, of course, and even though they have devices, typically low-res, low-capable mobile devices, but devices nonetheless. So for example, despite the number of people in India, our revenue out of India is really, really tiny, and people in India love mobile video games. Same is true for Africa, a massive market, but our revenue footprint is very low. And we're also underrepresented in places like Latin America, obviously Russia, much of the Middle East, and much of Asia, although we do have a significant amount of business in China and a select of other countries. South Korea, Taiwan, for example, growing business in Indonesia, a little business in Vietnam.
So it's been an enormous strategic priority for us to begin to build up in these underrepresented territories in a way that appeals to local consumers. We have a geopricing tool for that purpose because different markets have a different ability to pay. That's a tool that we created in-house that allows us to experiment in a way that doesn't infect other parts of our business and other parts of the world. And in certain instances, we're working on properties that may only appeal to some of those markets very selectively. So my goal is that in the next 10 years, we flip the percentage of our revenue that comes from the US and international markets in the other direction because we've grown the overall business. And if we don't invest here now, we run the risk of being behind in 10 years. So it's an area of enormous focus. Turning to your second question about M&A, we've always looked at inorganic growth through the same sort of three categories.
First, are we buying owned intellectual property? Secondly, are we buying tools and teams that are valuable? And third, is the transaction immediately accretive to EBITDA and to gap earnings? And generally speaking, our acquisitions have ticked all those boxes. Then we have the broader rubric, is there a cultural fit? We've done many small tuck-in acquisitions, and then we've obviously done one very, very large acquisition. And I'm proud to say that unlike the history for most corporations, public corporations, our track record is excellent. I think virtually all of our deals have worked out, if you define worked out as being accretive and long-lasting. And certainly the Zynga deal has been terrifically successful, as has the Gearbox deal, you know, our most recent larger transactions. So we'll continue to look at the world that way, and in terms of areas in which we're not represented, thankfully we don't really have that anymore. We're a big mobile company, we're a big console and PC company, so we don't have any must-haves, but there are certainly some nice-to-haves, and we think some opportunities will come our way.
We also, to finish the thought, have this allergy to being overleveraged. And, you know, we have very, very light net leverage now. We expect to be in the net cash position in about 30 seconds. Sorry, not exactly 30 seconds, but you get what I mean. And once we're back in the net cash position, I think, you know, that would be the time when we'd be more likely to think about an inorganic opportunity.
Analyst Mike Hickey (Stonex): Hey, Strauss, Karl, Lainie, Nicole, great core guys. Thanks for taking our questions. First one, Strauss, you mentioned in your prepared remarks that you think 27 will be an inflection point in your company's history. Obviously, that's a strong statement. I'm sure there's an obvious answer as well. I am curious sort of what that means to you exactly when you say that and maybe details and why you believe that.
Executive Name (Title): Well, it's a great, it's obviously a great question. And I think the point is that if you look historically at big, really, really big releases for this company, I'm thinking obviously of Grand Theft Auto and Red Dead. You know, they didn't just affect us positively for a quarter. you know, they had ongoing effects on our company. And we also have this massive pipeline that's we think quite extraordinary and we have live services and we have a catalog. So if you believe, as I said, I do, before that there are opportunities in terms of organic growth because the market is growing and because we're trying to extend it to other markets and we have a pipeline and we have a huge, what we believe is a huge release coming up, There's a lot of fuel for the fire.
Analyst Mike Hickey (Stonex): As a follow-up to the streaming comment, I think you said that you think we could have a commercial streaming solution within three years that would solve the latency problem. Strauss, it feels like we've been down this road at least twice. But I'm curious to hear that. Obviously, the TAM's exciting at 10 times. I've heard that before, but it's never really materialized. So is there something that you're seeing different today in terms of the tech solution or some change that's sort of giving you better visibility that could actually have a real streaming solution in the future? Because obviously that would be a sea change to the industry.
Executive Name (Title): It is a very fair and accurate comment. And even when we supported Stadia some years ago, we talked at the same time we were supporting Stadia about concerns about latency. And you're right, certain things remain perpetually in the future, like nuclear fusion, which is perpetually 30 years away, although people think it's not now. I hope it's not. I don't think that's the case here because of enormous advances in hyperscaler networks and advances in edge network technology. And I think, for example, there's one player in the market that's looking at rolling out a significant edge network that would address latency, at least in the US. And I picked three years kind of because we know it's not tomorrow, but I don't think it's five years, but of course I could be wrong. And we're not betting any of our company on this. We just see it as another one of the many embedded call options in our security.
Analyst Alec Brandolo (Wells Fargo): Yeah, hey, thanks so much. Appreciate the question. Maybe two from me. Can you help us, maybe walk us through the thinking behind the GTA 6 premium SKU mix? I think Red Dead Redemption 2 launched with three SKUs. GTA 6 only had two. And you didn't offer early access in the premium SKU, which I think has been a big part of the hook or the upsell driver on some of the other titles over the last several years.
Executive Name (Title): Yeah, we don't tend to give a lot of color around pricing or additions. We leave that to our labels, but I think Rockstar feels that offering a phenomenal value at $80 makes sense for some consumers, and then offering incremental value at a modestly increased price makes sense for consumers. And given the hype around this title, I think we could have made any number of other pricing choices. But as I said earlier, our focus is on delivering way, way, way more value than what we charge for something.
Analyst Alec Brandolo (Wells Fargo): And then maybe secondly, encouraging to hear pre-order data for GTA 6 is strong. I guess I'd love to get your perspective as someone that's been in the industry a long time. How do you think about the incrementality of pre-order units as they flow in? Is it possible that kind of hype around the game is pulling forward sales that you otherwise would have earned post-release into pre-release and the strong data won't prove to be that incremental?
Executive Name (Title): Our pre-orders are exceptional. No one's ever seen anything like this before at Take-Two or in the industry. That said, you could absolutely be right. We just don't know. So could demand be pulled forward and you know one of the reasons that we're not changing our guidance is to be clear you know we haven't sold one unit yet you can cancel a pre-order so you know we around here like we're sort of allergic to victory laps but one thing we certainly don't do is take a victory lap before we run the event so you know the news is great so far we're incredibly excited we couldn't be more excited than we are and yet we are realistic and at best cautiously optimistic and we're going to leave it at that until the thing occurs.
Analyst Matthew Cost (Morgan Stanley): Good morning. Thanks for taking the question. I was wondering if you could comment on Sony's decision to get rid of physical disc sales for new games in the beginning of 2028. Will that have a material impact on your gross margins, or will you continue to sell boxed download codes at a similar gross margin, presumably at a similar scale going forward?
Executive Name (Title): Look, our business is well over 90% digitally distributed as is. It's already a digital business. So in certain instances, especially if it's a big game, you know, disks, and note I said disks, don't really make sense for the consumer. Also, most instances, you have to register online to play anyhow. So if you're already connected, who cares? If you download digitally, it's all the same and it's much more convenient. So that's where the world is going in our opinion. And I think Sony understands that. We certainly understand that. It doesn't mean that we won't have physical editions now and then. I'm sure we will in the same way that there's still vinyl in the recorded music business. But in other instances, it just won't make sense.
Analyst Matthew Cost (Morgan Stanley): And then secondly, if you could just comment on your progress shifting towards direct payments inside of the Zynga business and if that's still something that is currently increasing and has a significant runway ahead. Thank you.
Executive Name (Title): Yes, that remains growth business for us. We are not direct to consumer across our entire mobile portfolio yet, but we're getting closer and we are seeing growth there. We have not. We don't talk about the actual percentage and we don't talk about our goals in terms of the percentage of our business. What we want to do is be where the consumer is. So we will support and continue to support all third party distributors who treat us appropriately and with which we can make sound economic arrangements. At the same time, we'll offer direct-to-consumer opportunities for consumers who want to avail themselves with those. There is no doubt that our direct-to-consumer business has had a material effect positive on our margins in the mobile business.
Analyst Jason Bazinet (Citi): As you can imagine, the buy side is doing everything they can to sort of monitor these pre-orders to gauge sort of demand for GTA. I don't know if there's anything you could share from a historical perspective as experts on, you know, sort of ranges or how people should sort of think about pre-orders in terms of, you know, what bookings ultimately are for a title.
Executive Name (Title): The level of pre-orders is unprecedented and astonishing, and we're very grateful for that. But they are so unprecedented that we just don't know how it'll translate into sales. And which was the question I answered earlier, we genuinely don't know. And we just don't believe in claiming victory before it occurs.
Analyst Eric Sheridan (Goldman Sachs): Thanks so much for taking the question. Strauss, I wanted to know if you could opine about any evolution in your thinking about mobile gaming and being more tied into AAA quality of content when you think about the advances in mobile silicon and processing.
Executive Name (Title): You're 100% right that if you believe in Moore's Law, what we'll be able to do with mobile games will grow materially, if not exponentially. And what I said earlier about streaming basically means that all games will become mobile games, if you wish. But I think and I haven't used the word mobile all the time as a result. When we talk about mobile versus console, we're really not talking about where you consume the title or on what device. We're talking about two different types of interactive entertainment. What we call a console or PC title is big and you spend hours on it and often you consume it on a big screen. We call mobile is light experience. Typically an avid consumer of a mobile game will play that game five to seven times a day for around nine minutes per session. It's a very different consumption experience. A console experience is akin to sitting down and watching a movie or binge watching a series for an evening. A mobile experience is something you do when you have a few moments free and you want to relax and enjoy and be entertained.
And so the change in technology that will allow a console experience effectively to become a mobile experience probably broadens the market. But I don't think means that casual or hyper-casual or semi-casual or AA games necessarily go away. I think there's gonna be a need and a desire for all different kinds of interactive entertainment. And as technology enhances the art of the possible, there'll be new formats that are delivered. An example of that that's not interactive, but an example of a new format that digital technology has enabled is micro dramas. And that's huge business in China and a growing business in the US. It didn't exist five years ago. So there's some moral equivalent thereof in interactive entertainment. And one of the things that we think about here is the unknown unknown. What's the next thing that's coming in interactive entertainment?
Analyst Ron Song (Wolf Research): Can you guys share any updates on your thoughts about advertising's place in Take-Two, especially with a continued shift to open platforms and streaming? You've been clear that it makes less sense for the consumers who are paying $70 plus for a AAA game, but how can you strategically employ advertising beyond mobile games in a way that's not overly intrusive?
Executive Name (Title): Advertising is a growing part of our mobile business. We've rolled out ad units in many of our titles that previously did not have them. And our view really is, look, if you're going to engage with one of our mobile titles, we ought to be able to monetize that engagement in some way. So if you only engage with in-app payments, you're monetizing, pardon me, less than 20% of the audience typically, often quite a bit less than 20%. But if you have advertising as an option, you could monetize 100% of the audience in one form or another. So that has been a big part of our strategy in mobile, and we have rolled out advertising units in most but not all of our titles so far. On the console side, look, you're correct in quoting me as saying if you're paying you know premium price you probably shouldn't be subject to advertising unless the advertising is sort of endemic to the title so when you go to a basketball game or watch a basketball game on television you know you're accustomed to seeing advertising in and around that game you know advertising in the arena for example and in our video game you'll see that too and and that's appropriate and we are able to monetize that it is a relatively small part of the console business would be the case.
Analyst Martin Yang (Oppenheimer): Hi. Thank you for taking my question. Two questions. One on the Netflix partnership. Do you think this is a one-off deal or this more creative use of Rockstar IP signals a broader framework for licensing Rockstar content in the longer term, especially when you consider there will be numerous ways to share derivative content of gameplay after the game launches?
Executive Name (Title): While this particular partnership is groundbreaking and unique, Rockstar has licensed content to Netflix before, as has the rest of Take-Two. We have a close partnership with Netflix, and they are in the video game business, and we're very happy to be their partner. And I'm sure there'll be plenty of things that we can do with Netflix and many other outlets in the future. So we want to be ubiquitous. We want to be where our customers are. We believe the best and biggest collection of owned intellectual property in the interactive entertainment business. And wherever you are, when you wake up, if you want to engage with our content, we want you to be able to do so.
Analyst Martin Yang (Oppenheimer): The question on GTA Online, more recently we see a higher frequency of content updates. Does that require you putting additional resources into the game, or is it more about the existing teams being able to manage that increased cadence?
Executive Name (Title): It does require additional resources, and we are investing in that. We believe that the community deserves to have a steady stream of content, and we want to keep them engaged. So we are committed to that.
Quarter 2
Q4 2026 Earnings Call — May 21, 2026
Analyst Eric Handler (Roth Capital Partners): Good afternoon. Thanks for the question. Laney, just a couple things within the guidance. Looks like, at least on a non-GAAP basis, your operating expenses are looking, let's call it for round number purposes, about $3.8 billion. That's a $300 million incremental increase on a year-over-year basis. How much of that is due to marketing? And when you look at sort of like the trend for the next couple of years for G&A and R&D, what do those trajectories look like? I assume they'll be much smaller than revenue growth.
Executive Laney (Title): Yes, that's correct. So we expect to have a lot of leverage over the next couple of years as we continue to scale the business. And for the $300 million higher for this coming year, about half of that is for selling and marketing expenses for the entire company as we have significant marketing for our entire pipeline of titles that are coming out this year.
Analyst: Okay, that's helpful. And then as a follow-up, how should we think about RCS, you know, and once GTA 6 comes out, how are you sort of thinking about the trajectory of GTA Online when that game is launched?
Executive Laney (Title): Rockstar will provide more details on the GTA series when they're ready to talk about that. Yeah, I think you're asking, though, what do we expect will happen with recurrent consumer spending regarding GTA Online? And look, I think to say that everyone has been pleased by the ongoing trajectory of GTA Online, Red Dead Online, the sales of GTA 5, the sales of Red Dead, would be a great understatement. These titles have proven to be vastly more resilient than anyone expected. And I think it's a reflection of the quality of the work that Rockstar has done. Despite the fact that Grand Theft Auto V is now, has been in market for three console generations, it continues to sell. It's now up to 230 million units. Red Dead is up to 85 million units. So, you know, we're so extraordinarily pleased with how Rockstar's titles have performed. It's difficult to know exactly how Grand Theft Auto Online will do after the release of Grand Theft Auto 6, but certainly it will stay in market, and certainly there are many, many consumers who love the title.
Analyst Colin Sebastian (Baird): Thanks. Congratulations on the year. I have a couple of questions as well. I guess first off, as cash flow influx for the guidance for the coming fiscal year, how are you guys thinking about cap allocation between returning to shareholders versus other uses? And I have a follow-up.
Executive Laney (Title): So, you know, this will sound boringly consistent with our answer to this question. It's the same as it has been for as long as we've been in the position of having a positive cash flow and positive cash balances, there are three uses of our capital here. First, to support organic growth. This company's story has largely been an organic growth story. And we certainly have expectations for organic growth in fiscal 27. And we believe that fiscal 27 is setting a new benchmark, a new standard for this company going forward. That's all organic. But as you can see from our numbers, we have to invest to be in a position where we can grow in that way. And our balance sheet and our P&L allows us to do just that. Well, that will continue. The second use of our capital is very selectively when it makes strategic sense. And let me emphasize this, when it's accretive, we are willing to engage in inorganic opportunities. The most recent meaningful one was, of course, the acquisition of Zynga in 2022 for $9.7 billion in cash and stock. And then more recently, the acquisition of Gearbox.
And so I'm proud to say that all of our acquisitions have turned out to be accretive and successful over nearly a two-decade period. That's pretty breathtaking for corporations, not generally the case. And I think that's because we're immensely disciplined. You're not going to see us doing deals hand over fist, but assuming our balance sheet continues to improve, I think you could imagine more inorganic growth in the future as well. And we've already said in this release today that we expect to be in a net cash position by the end of the fiscal year. And finally, we return capital to the shareholders when it makes sense. So far, we've done that through share buybacks and they are opportunistic. We believe that share buybacks make sense for our shareholders when they are executed at deep value. Our last buyback was done at $158 a share. We'll see how the stock opens tomorrow. But I think no matter what, that was a pretty good plan on our side. So like all stocks, they move around different price points. Our stock traded down as low as I think 195 in the last six weeks. And there is an opportunity to return capital to the shareholders when it makes sense.
Analyst Colin Sebastian (Baird): Thanks for the reminder on those, Strauss. I guess maybe as a follow-up and maybe some of the structural issues in the industry, including sales of current-gen consoles, I'm just curious how that impacts your thinking or your assumptions in terms of establishing pricing and pre-order expectations for titles like GTA 6 in the coming year.
Executive Laney (Title): The number of the install base of hardware may not be as high in this current console generation as it might otherwise have been. Certainly value price points for certain titles have done well versus premium pricing. So those considerations. Look, when we look at pricing, I would not say we look at it in the context of the install base. We absolutely look at pricing in the context of the property itself. And so what we want to do in every situation, whether that's console, mobile, PC, frontline, or catalog, is deliver to the consumer vastly more entertainment value than what we charge. We want the consumer to have a great experience. We think a consumer experience is the intersection of what you get and what you pay for it. And probably a great example of that is Mafia, the old country, which is a terrific title. But it's not a 100-hour experience, not a 50-hour experience. And so we priced the title at $50, and consumers were thrilled, and we had a massive hit on our hands. I suspect we could have priced it at a higher level. We wanted to make sure that consumers loved it, and part of loving something is feeling good about what you paid for it.
Analyst Doug Kreutz (TD Cohen): Hey, thank you. I wanted to ask in the context of your guidance at Mobile, you're assuming it's down this year based on some attenuation in the performance of older games. Is that based on anything you're seeing in the year to date, or is that more of a, hey, these are older titles, let's be prudent in our outlook? You know, similar to, I think, for many years, you guys sort of said we expect GTA Online to be down because it's a many-year-old live service game, and then it would typically do better. Can you just give some context around that? And then also what you might be assuming for your two new mobile watches within that guide.
Executive Laney (Title): So it's a very fair question. We had a great year at Zynga. And I think it's more the way you characterized it, which is we're not prepared to guide to continually beating expectations materially at any business unit. So we do guide as we see it, you know, and this is how we see it. However, as you said, it is a reflection of the fact that some titles that were newer last year are older this year. Now, all that said, you know, Tomb Blast was up 25% and it's a very old title. So we do have opportunities to exceed our expectations now and then. But this is our best estimate sitting here today. As far as our expectations around new launches, in the mobile side particularly, we never anticipate huge numbers because it's just impossible to do so. Hit ratios are just too low. So our guidance would typically reflect our expectations around the marketing spend in the year because we would never guide around doing something silly, you know, in the mobile business, if you're getting bad immediate results from a marketing spend, you stop doing it. And our dev costs are pretty manageable in the mobile world.
So I would say, um, unlike say console where, you know, you have a big release. I'm not going to give you the example you want. So we have basketball coming up like, you know, we know how many units sold so far, 10 million units sold. And today we know the prior year, the year before that, we have a sense of the market like we can estimate that pretty well within a band. But with mobile, we just don't have the ability to do that. So I think it is you're correctly intuitive that our mobile numbers would not include an expectation for some massive new release yet.
Analyst Corey Carpenter (JP Morgan): Good afternoon. I had two questions on NBA 2K. Clearly, you know, I think record year for the franchise this year. But hoping you could expand a bit on the trends you saw in the quarter. I think they moderated, you said, in the prepared remarks a little more than you expected. So what did you see there? And Carl, maybe could you talk a bit about the engagement that you saw with the initial college basketball rollout.
Executive Laney (Title): So for MBA, this is one of our strongest quarters for Q4 in the franchise history. In terms of looking at our expectations, this reflects the extreme growth of Q2 and Q3, where we saw a high concentration of spending from our most engaged players early in the year, which left less upside opportunity heading into Q4. So that's really what we saw in Q4 this year. And on the college piece, yeah, we are very excited about our college release for season five. I would describe it at this point as it's a taste of what's to come. We did a deal that featured 16 universities. It's basically validated our expectations and the opportunity that we think would be very meaningful for us going forward. So the short answer is stay tuned. It's very exciting for us, and we're very happy how things have turned out so far.
Analyst Corey Carpenter (JP Morgan): And maybe as a follow-up, Strauss, on the last earnings call, Google Genie had just launched in beta. There's been some conversations more recently around the ability for AI to perhaps create GTA 6 in a couple of months. I know this is a bit of a generic high-level question you've touched on before, but just given this remains a pretty big debate among investors, I thought it'd be helpful to hear your latest views just around what you're seeing in AI and how you expect it to change the gaming industry and Take-Two in particular.
Executive Laney (Title): Um, we remain enormously optimistic, you know, technology helped build this company. Video games are created largely inside computers and always have them. When I started the video game business in 1993, we were making 32 bit games. Um, and they certainly didn't look anything like they do today. And that's all driven by tech. I think the, the, um, sort of confusion surrounds a belief that somehow more efficient asset creation puts us at some disadvantage or creates a competitive advantage for someone else. And I just don't believe that's the case. To the extent that technology allows anyone to do a better job in asset creation, naturally we'll avail ourselves of the same technology. If you take a look at the tech in market that is currently licensed for the creation of video games, it's licensed broadly. No one exclusively licenses technology for video games. So if a competitor has access to AI and that allows someone to do something better, quicker, cheaper, then we would have access to the same thing. The second point that I've made that I would stand behind is that the asset creation is not the same as hit creation.
So, you know, the entire story around the Gemini release was, wow, you can create assets that look like video games more easily than you could before. I hope that's true because that'll benefit us naturally. You know, we have a three-part strategy, be the most creative, be the most innovative, be the most efficient. Seems to me that even if it doesn't help with creativity, it certainly should help with efficiency and innovation. So that could be thrilling, but we do have to remind ourselves, asset creation is not the same as hit creation. And the best example of that is, you know, there are thousands of new mobile releases a year, but there's a handful of new mobile hits a year and we make some of them. Despite the fact that everyone has access to the same tech because everyone licenses exactly the same underlying technology for the creation of mobile titles as we do. So I remain highly optimistic. Now I'll give you a real world example. I was visiting one of our studios and they showed me some advertisements that they were putting together to advertise their games.
And these were live action ads, and they were funny and cute, 15 to 30 second ad units that you've seen a zillion times. And they were all created with AI, licensed AI, legal AI. And the script was done in-house for free, well, by people, colleagues who work at the company already. And the software was used, AI software was used, the entire cost of making the spot was zero. And previously we hired third-party companies to actually create those with human beings. And those spots could cost $25,000, $50,000, $100,000. Now, please note, not only were we not interested in reducing our headcount to make this happen, we didn't have the opportunity to reduce our headcount to make this happen. The entire marketing team at this particular studio is two people. They're doing a great job. But what AI has allowed them to do is be more efficient, make great stuff, and do it cheaper. And this is all a benefit to our company.
Analyst Chris Schull (UBS): Great. Thank you. Strauss, I believe it was a few quarters ago you mentioned your expectations for GTA 6 continue to increase. Any updates you can provide on your general expectations and levels of confidence for the franchise based on the indicators you have at this point? And how do you expect that this title will perform relative to GTA 5? And that, Laney, maybe I know there's a lot of noise to margins this year with the marketing and the software. I believe I heard you said there's a lot of leverage over the next few years. But can you just remind us how you're thinking about the ability to return to the historic margin levels that Take-Two used to see?
Executive Laney (Title): You know, I don't recall the comment you alluded to. I'm pretty much I think I've always said the same thing, which is, you know, we're all, how could we not be? We're all extraordinarily excited about what Rockstar Games is working on. We're all incredibly enthusiastic about the upcoming release. And equally, you know, this is a management team that never claims success before it occurs. And I'm pretty sure that every time we've had the luxury of having a conversation about an upcoming release that looked good, I've said, you know, we absolutely never opine on how high is up. We certainly work toward the best result and hope for the best result. But you know, that is out of our hands. What's in the hands of Rockstar from a development point of view and a marketing point of view is trying to make the best entertainment property they possibly can and then bringing it effectively to consumers all over the world. That's what we aim to do. And we do feel really, really good about it. Margin improvement remains a key priority in our financial strategy, but we recognize that margins will fluctuate over time based on a variety of factors.
In fiscal 2027, we're reaching a new level of operating performance, which we expect to sustain well into the future, driven by a robust pipeline and expansion opportunities across our core franchises. So as we operate at this new level and generate operational efficiencies through reduction efforts and leveraging new technologies, including AI, we aim to enhance our margin profile over time. So if you think about our operating expense leverage, it represents our largest opportunity, which we believe we can achieve as we grow our scale, both organically and inorganically. We've mentioned previously that gross margins of many of our titles are affected by the increasing cost of development. So we've been making many structural improvements, including the driving efficiencies and reducing expenses. So you've seen some of that coming through the P&L in the last couple of years and the leverage we've seen in the last year in terms of our operating expenses. Also the D2C efforts in mobile, that's also working towards improving our margins. So this was a year where we scaled the business meaningfully and we achieved strong leverage on our expense structure.
So we'll continue to do that as we look into the future.
Analyst Andrew Marock (Raymond James): Hi, thanks for taking my questions. Maybe one on the Rockstar mission creator. I know Strauss called that out in the prepared remarks as an interesting factor. I guess, are there any learnings from the early days of that and some of the recent missions that were created as you look to scale UGC and some of your Rockstar properties? And then I have a follow-up.
Executive Laney (Title): Look, we're trying to meet players where they are. And to the extent that people want to have a hand in creation, there are numerous opportunities for them to do so. So, you know, I just think it's incredibly exciting and our company embraces these advances. So, you know, we're not precious about what we do here. We're open-minded. Another example of that is the 5M business, you know, where this started as sort of a business that was outside of our four walls. And now it's a business that's inside our four walls. And we're thrilled that it is.
Analyst Andrew Marock (Raymond James): Okay, thank you. And then maybe one more on mobile, if I could. I know that there has been some kind of correlation between the mobile business and macroeconomic factors in the past. I guess, what level of conservatism might you be baking into the guide around general economic conditions as it relates to the mobile business?
Executive Laney (Title): Well, look, we, you know, we're not economists, although we certainly have a point of view about where the economy is going. And that is one of the factors we consider when we build guidance.
Analyst Matthew Cost (Morgan Stanley): Hi, everybody. Thanks for taking the question. Strauss, there's a comment you made in the prepared remarks about your expectation to sustain higher levels of scale going forward. Just given the potential for Grand Theft Auto's performance this year, that's a high bar to clear going forward. So as investors think about the opportunity to sustain your scale off of that space, how should they think about the mix between just an ongoing significant revenue contribution from Grand Theft Auto versus the pipeline that you went into some good detail in the prepared remarks discussing. And then I have one follow-up.
Executive Laney (Title): So it reminds me of my SATs. It's box D, all of the above.
Analyst James Heaney (Jefferies): Yeah, great. Maybe just diving in again on mobile. I mean, it's just been impressive to see continued growth of Toon Blast and Match Factory as kind of the biggest drivers for the segment. I was just hoping you could go in some detail about the unique drivers across those franchises that you think have sort of enabled them to continue growing this far after the initial launch.
Executive Laney (Title): Well, actually, very different. So Toon Blast has been around for a really long time. Match Factory is relatively new. So Match Factory last year was still in growth mode. And we projected that it would moderate. We'll see what actually happens. Toon Blast is a legacy title. And with regard to Toon Blast, what you're seeing is a title where the consumers who are involved are getting more and more involved. And that's a reflection of the content that Peak is putting into the game and offers that are made to consumers. So basically, with regard to a legacy title, where you may not have a sharp growth curve on DAUs, you will have an effort to actually serve the consumers we have much more effectively. And I think that's what you're seeing in Toon Blast. Match Factory is still in pretty steep early. It's not that old a title. So they're very different. We need to be muscular in both areas. We need to be able to, you know, to run our live services businesses really well for a long, long time. And Zynga does a phenomenal job at that. But by the way, you know, so does Rockstar, right? GTA Online is a live services business. It's 13 years old.
That online is a, you know, legacy live services business. So NBA2K Online is a live services business. And we have to do everything well here. It's what makes this place an exciting place to work. We've got a pipeline of frontline titles. We've got to turn them into hits. We don't always succeed, but we have to try. We have a live services business that I just mentioned. We have to optimize those across both mobile console and PC. And then, of course, we have a catalog. And when you add it all up and we do a good job across the board, you get the kind of year that we got last year. And we now expect to make a meaningful step up, obviously driven by largely by the launch of GTA 6, but also driven by performance of the rest of the business. And then we expect to set that as a new base from which to grow. And that's a reflection of firing on all cylinders. Undoubtedly, we'll have some lapses along the way. We don't know where the lapses will be. But now, if history is any guide, we'll also have some titles that will meaningfully beat expectations going forward.
And part of our three-part strategy of being the most creative, the most innovative, and the most efficient is indeed to be the most innovative. And if you look at the history of the company, we've been a leader in innovations, whether that's cross-development or marketing. And I have no doubt in the coming years we'll be able to innovate further. I don't know exactly what form that will take, but I would just note that this company doesn't look anything like it did 19 years ago, despite still being in the interactive entertainment business. Lots of what we do here didn't even exist back then. And this industry, never mind the company, is still on a sharp growth curve in terms of its cohort of engaged consumers and the opportunities to do new things and bring those new things to people in new ways.
Analyst Jason Bazinet (Citi): I just had a quick historical question. In the past when you've been confronted with, you know, these big titles like, I don't know, whether it was GTA 4 or 5 or the last two Red Deads, how accurate would you say your firm, your management team was in terms of predicting, you know, how well these titles would do? Were there some that sort of disappointed or others that really beat or were they sort of all within a pretty tight confidence interval in terms of your own internal expectations?
Executive Laney (Title): So with regards to the titles you mentioned, as it happened, they all performed better than we expected. We've had plenty of other titles that disappointed, candidly. Thankfully, not of late. And they tend to be few and far between. But it would not be accurate to say that our expectations are always exceeded, not accurate in the least. And that's why you know, we are, I think, appropriately humble around here. This is the entertainment business. It is unforgiving. We try our hardest. We do not always succeed.
Analyst Alec Brundelow (Wells Fargo): Yeah, hey, thanks so much for the question. I appreciate it. I think I want to maybe try to ask Colin Sebastian's question in a little bit of a different way. I think that there's been a lot of conversations in the industry over the last several months about the growth of Roblox, the growth of lower-priced games on Steam and the $10 to $20 price point. It seems like it's mostly driven by younger gamers. I mean, obviously, Take-Two doesn't participate meaningfully in those categories. You have a couple of lower-priced games in the $50 range, like Mafia. I think the question is, like, what is the level of confidence that the newer cohort of gamers will graduate into more premium AAA experiences over time? Like, I think the question is, like, is the young person that's playing Roblox, are they going to want to play $80 Grand Theft Auto VI when they grow up? Or might they be habituated onto lower fidelity titles? Any thoughts there would be helpful.
Executive Laney (Title): So actually, it's the contrary. When entertainment properties are aimed at children, you know, I don't know if you have children, but right around the age of like 10 or 11, they do not want to be children anymore. They want to be teenagers. And so one of the issues, and this is not by way of being critical of anyone else in the industry, but one of the issues with children's programming, whether that's linear entertainment or interactive entertainment, is that, you know, children reach a certain point. They don't want to be engaged with kids programming anymore, even if it's appealing to them. So it's not that a certain kind of kids-oriented interactive entertainment is necessarily a feeder to what we do in certain parts of this company. Remember, we also do make plenty of entertainment that's available for all audiences. But with regard to our M-rated titles, it's not necessarily the case that something else is a feeder to it. It's a different business. But it is a business that is only available if you're 17 or above. And I think if you engage with interactive entertainment and you're 17 or above, it's very difficult for me to imagine that you wouldn't be incredibly interested in our M-rated titles, specifically one that is coming up.
Analyst Eric Sheridan (Goldman Sachs): Thanks so much for taking the question. Building on two of the topics we've talked about on the call so far, with respect to mobile advertising and building additional optimization around user acquisition, how do you think about the signals as more mobile advertising becomes driven by AI and machine learning with respect to either being able to deploy more dollars at a higher return on ad spend or possibly becoming more efficient with respect to advertising? And if possible, I have a quick follow-up.
Executive Laney (Title): Well, we certainly try to do that. We work with AppLub and we are trying to optimize, of course, our return on ad spend. And sometimes things are going really well in the market. Other times we're frustrated in the market, depending on what's going on. There have been moments, for example, when we really couldn't get out there and spend because we could not find inventory at a price that made sense. There are other times when we can do that. That changes. It's our job to make sure that we understand the payback period on what we're spending. And we have very tight guidelines about that. But you have to be on top of it all the time because when you spend money immobile, as you know, you're spending it based on an expectation and you'll earn it back over a period of time. That expectation is based on prior history, but prior history isn't always dispositive with regard to what happens in the future. So we are constantly on a daily basis tuning up our models that will inform how we spend money on user acquisition. As I said, sometimes it's greater, sometimes it's lower.
We also have this weird anomaly, which I'm sure you're aware of, which is if we're out of the UA business for a period of time because we don't like it, of course we make more money because there's no UA that's spent that comes back the same day in its entirety. Sometimes you get a really quick payback period. We have had experiences where the payback period has been as quick as 90 days. And I don't think we talk publicly about our expectations around the payback period in general. But let's just say I think we're more conservative than most. To answer your question, are there new opportunities to be more efficient in this area? Yes, I believe so. And of course, it's not lost on anyone that after Apple changed their attribution characteristics, the entire industry was challenged. But you can see from our own results with Zynga last year that we have surmounted those challenges and we feel pretty good about how the business operates now.
Analyst Eric Sheridan (Goldman Sachs): Great. And if I could just ask one more, with respect to your approach to go to market with DTC, any new learnings about what the opportunity set might look like or the ceiling of that opportunity might be to grow the percentage of mix from DTC over time? Thanks so much.
Executive Laney (Title): Look, I've been saying for a long time that I thought sort of the competitive landscape and the regulatory landscape would be favorable with regard to our overall distribution costing and taking as part of our overall distribution cost, our DTC cost, which is materially lower than third party costs, but multiplied by the share of market related to DTC. And we have said that, you know, that share has been growing. We have not talked about what percent it is or where it's going. What we want to make sure, though, is two things. Number one, we want to be where the consumer is. The goal of this company is not to control distribution.