Take-Two Interactive Software, Inc. (TTWO) Q2 2027 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to the Take-Two Interactive Software Second Quarter Fiscal Year 2027 Results Conference Call. [Operator Instructions] I will now hand the conference over to Nicole Shevins, SVP, Investor Relations and Corporate Communications. Nicole, please go ahead.

Good afternoon. Thank you for joining our conference call to discuss our results for the second quarter of fiscal year 2027 ended September 30, 2026. Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer; Karl Slatoff, our President; and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q&A session following our prepared remarks. Before we begin, I'd like to remind 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. Actual 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, including 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. Our press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. In addition, we have posted to our website a slide deck that visually presents our results and financial outlook. Our press release and filings with the SEC may be obtained from our website at take2games.com. And now I'll turn the call over to Strauss.

Thanks, Nicole. Good afternoon, and thank you for joining us today. We delivered second quarter net bookings of $1.6 billion, which was slightly below our guidance range of $1.62 billion to $1.67 billion, while NBA 2K27 launched successfully and achieved the second highest net bookings performance in the history of the series, it was below our forecast for the period. Our mobile business performed in line with our plans and the Grand Theft Auto series exceeded our forecast ahead of next week's eagerly anticipated launch of Grand Theft Auto VI. We're reiterating our fiscal 2027 outlook for net bookings of $8 billion to $8.2 billion. Preorders for Grand Theft Auto VI are tracking far in excess of our initial expectations, and we know that the numbers will speak for themselves soon enough. Our outlook also includes the launches of new mobile and previously announced sports titles and growth in recurrent consumer spending for NBA 2K27 during the second half of our fiscal year, driven by the largest slate of post-launch content in franchise history. Turning to highlights from the period. Grand Theft Auto V continued to expand its audience, and to date, the title has sold nearly 235 million units worldwide. The series grew a double-digit percentage for both recurrent consumer spending and average monthly members for GTA+ as players enjoyed the latest major update, the Kortz Center Heist, along with monthly events, new races and more. In September, Rockstar Games unveiled nopixel V, the next evolution of Grand Theft Auto V's role play community with an entirely overhauled experience, new locations and graphic enhancements focused on player immersion. To celebrate the launch throughout the month, players were able to earn exclusive items within Grand Theft Auto Online by watching select role play streamers on Twitch. Rockstar Games will continue to support Grand Theft Auto Online with new content and ongoing events for its vast community. Grand Theft Auto VI coming to the world on November 19 promises to be not only highly engaging but in fact, the biggest and most detailed groundbreaking experience of Rockstar Games has ever created. As you've undoubtedly seen, marketing for the title is well underway across the globe and has included an extended look at the game, which premiered on Netflix and became the platform's most viewed title for the week, drawing in 31 million consumers in just its first 4 days, an array of in-depth features and magazine covers; the reveal of the official soundtrack, which included 3 tracks that debuted in the top 10 of their respective Billboard charts. The announcement of a special night in Vice City in partnership with the NBA, where the Miami Heat will play as Vice City versus the Milwaukee Bucks and a series of unique in-person activations, celebrating Vice City in Miami. We're immensely proud of the team at Rockstar Games for their unparalleled commitment to and passion for elevating our art form and all entertainment. 2K and Visual Concepts once again delivered the most realistic and authentic NBA experience in interactive entertainment with NBA 2K27, which has sold over 4 million units so far. The launch window was unusually busy with numerous entertainment experiences competing for players' attention. We expect an acceleration of net bookings and engagement during the second half of the year as 2K and Visual Concepts plan to introduce a robust slate of in-game content, including exciting, themed seasons, all new college basketball experiences and innovation within my team. During the quarter, Borderlands 4 offered new downloadable content and introduced several promotions, which are driving improved engagement and player retention. The Borderlands franchise has now surpassed 100 million units sold, marking an incredible milestone for Gearbox and 2K. We look forward to even more content for Borderlands 4 and what lies ahead for the series. During the period, 2K released add-on content and updates for Mafia: The Old Country, Sid Meier's Civilization VII, PGA TOUR 2K and WWE 2K, which enhanced gameplay and player engagement further for these titles. Mobile performed in line with our expectations, underscoring the importance and impact of our diversified business. As we had anticipated, net bookings for Color Block Jam decreased double digits compared to its peak performance during last year's second quarter. Net bookings for Toon Blast grew 4% over last year's record second quarter results, driven by a new in-game feature called B.E.A.M., which assists players while solving puzzles and has been increasing engagement and level progression. Words With Friends benefited from a multi-platform collaboration with the hit TV show, Wheel of Fortune, including a dedicated on-air theme week and in-game puzzles and online events for players, which drove net bookings growth of 6%. Our advertising business improved sequentially as we successfully attract new partners and increased ad yields. 2K's mobile offerings also continue to perform well with solid downloads and engagement across key titles. NBA 2K All-Star, our mobile title in partnership with Tencent in China, surpassed 11 million registered users since launching last year and is yielding strong profit margins. We continue to see strength in our mobile and direct-to-consumer channel, which remains a significant driver of revenue and margins as we include new titles, foster direct relationships with players and reduce payment friction to enhance the user experience and drive repeat purchases. These efforts position our direct-to-consumer platform as a durable and expanding engine for net bookings growth and long-term profitability. Looking ahead, Zynga continues to develop and test many new titles, and several are promising based on their initial performance in soft launch, including Top Goal. We believe that fiscal 2027 will be an historic year for Take-Two, driven by our unwavering commitment to delivering the highest quality entertainment experiences. Guided by our core pillars, creativity, innovation and efficiency, we're confident in our ability to build on this incredible year and to set new benchmarks as we deliver on our plan for long-term success. I'd like to express my gratitude to our 13,000 colleagues around the world for their dedication to our common mission and for making our company what it is today and what we will be tomorrow. I'll now turn the call over to Karl.

Thanks, Strauss. I'd like to thank our teams who do their best work every day in the pursuit of our creative, financial and operational goals. I'll now discuss our recent and upcoming releases. On October 8, 2K and Gearbox released Risk of Rain 2: Hallowed Concepts, which introduced 2 new playable survivors, new regions to explore and expanded gameplay mechanics to deepen the player experience. 2K continued to innovate its mobile offerings for the NBA 2K franchise. On October 20, NBA 2K Mobile Season 9 launched with new modes that connects in-game action to real-world NBA schedules, a Rewind feature that allows players to enjoy historic and iconic NBA moments, and real-time PvP matches. Additionally, NBA 2K27 Arcade Edition made its debut last week, offering WNBA play now, new expansion teams, deeper career journeys and progressions, a new 5v5 experience, and exclusive GOAT skills and rewards. On October 28, 2K and Visual Concepts continued their post-launch content for WWE 2K26, with the release of Ringside Pass Season 6 and the stand-alone Street Fighter Elite Pack, which marks our first-ever collaboration with Capcom and includes signature character moves and themed cosmetic creation parts. 2K also released Season 13 for WWE SuperCard last week, which has now been downloaded nearly 40 million times since its initial launch. Firaxis announced new content for Sid Meier's Civilization VII for 2027, including Arc of tomorrow, a comprehensive free update, extending gameplay into the Atomic Age; and Earthrise, the title's first major premium expansion featuring extended core mechanics and space era progression. These additions will provide players with more ways to take one more turn in this iconic strategy series. In the coming months, 2K will provide updates on PGA TOUR 2K27 and WWE 2K27, both of which are slated to launch later this fiscal year. Zynga will continue to focus on enhancing its existing mobile portfolio with bold beats and updates as well as releasing new titles, including Top Goal, which is currently in soft launch. It's incredibly exciting to be just days away from Rockstar Games' launch of Grand Theft Auto VI, and preloads are rolling out across the world. This is a defining moment for our company and the entertainment industry, and our teams are proudly supporting this global phenomenon. With our robust and diverse long-term product development pipeline, we are well positioned to capitalize on our many opportunities on the horizon to engage audiences throughout the world. I'll now turn the call over to Lainie.

Thanks, Karl, and good afternoon, everyone. Our second quarter net bookings were $1.6 billion, which was modestly below our guidance range of $1.62 billion to $1.67 billion. Recurrent consumer spending was down 9% for the period compared to our guidance of a 5% decline, driven by NBA 2K and accounted for 81% of net bookings. Compared to last year, NBA 2K and Mobile each decreased, while the Grand Theft Auto series was up. GAAP net revenue decreased 16% to $1.5 billion. Cost of revenue decreased 20% to $637 million, and operating expenses decreased 9% to $978 million. On a management basis, operating expenses declined 9% year-over-year. This was favorable to our forecast due to lower personnel and user acquisition costs. Turning to our outlook. We are exceedingly optimistic about the rest of the year and are reiterating our fiscal 2027 net bookings outlook range of $8 billion to $8.2 billion. The launch of Grand Theft Auto VI is only 10 days away, and the level of preorders generated is extraordinary. Additionally, 2K and Visual Concepts plan to deliver the most innovative array of in-game content ever released for NBA 2K, which gives us confidence that recurrent consumer spending for the franchise will accelerate during the second half of the year. The largest contributors to net bookings are expected to be the Grand Theft Auto series, NBA 2K, Toon Blast, Match Factory! Empires & Puzzles, Words With Friends, Red Dead Redemption series, Color Block Jam, WWE2K and Zynga Poker. We continue to expect recurrent consumer spending to be in line with fiscal 2026, representing 65% of net bookings. This assumes strong growth for the Grand Theft Auto series largely due to our outlook of robust sales of Grand Theft Auto VI: Ultimate Edition, which includes add-on content and high single-digit growth for NBA 2K. We continue to expect a decline in mobile due to last year's success of Color Block Jam and our assumption that trends will moderate for several of Zynga's mature mobile titles. We project the net bookings breakdown from our labels through roughly 37% Rockstar Games, 34% Zynga and 29% 2K. We remain on track to deliver operating cash flow in excess of $1 billion and to be in a net cash position by the end of the fiscal year. Our expectation to deploy approximately $290 million of capital expenditures is unchanged. We expect GAAP net revenue to range from $7.98 billion to $8.18 billion, cost of revenue to range from $3.68 billion to $3.8 billion and operating expenses to range from $4.08 billion to $4.1 billion. On a management basis, we now expect operating expense growth of approximately 5% year-over-year, which is favorable to our prior forecast due to lower user acquisition costs, part of which is related to timing. The expense growth compared to last year is primarily driven by marketing for Grand Theft Auto VI and higher R&D costs. Now moving on to our guidance for the fiscal third quarter. We project net bookings to range from $3.35 billion to $3.5 billion compared to $1.76 billion in the prior year. The largest contributor to net bookings are expected to be the Grand Theft Auto series, NBA 2K, Toon Blast, Match Factory!, Empires & Puzzles, Words With Friends, Red Dead Redemption series, Color Block Jam, Zynga Poker and Toy Blast. We project recurrent consumer spending to increase by approximately 12%, which assumes significant growth for the Grand Theft Auto series, driven by sales of Grand Theft Auto VI: Ultimate Edition, growth for NBA 2K and a decline in Mobile. We expect GAAP net revenue to range from $3.27 billion to $3.42 billion, cost of revenue to range from $1.65 billion to $1.73 billion and operating expenses to range from $1.16 billion to $1.18 billion. On a management basis, operating expenses are expected to grow by approximately 21% year-over-year, which is primarily driven by marketing costs to support the launch of Grand Theft Auto VI. In closing, we are extremely optimistic about our path ahead, and next week's launch of Grand Theft Auto VI is just the beginning. We believe that we can take our core franchises to the next level of success by releasing engaging new content and enhancing our live service offerings, all while launching new hit titles, expanding our geographic footprint and pursuing accretive M&A. As we execute this extensive multifaceted strategy to drive growth, we feel confident in our ability to unlock greater earnings power and deliver long-term shareholder value. I'd like to thank our talented and passionate colleagues around the world for their hard work and for getting us to this pivotal moment in our multiyear growth story. I'll now turn the call back to Strauss.

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to once again thank our colleagues for their contributions to our success. And to our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Andrew Marok with Raymond James.

You mentioned the GTA VI marketing mega campaign. Obviously, a lot of innovative ideas going on there. Just in general, how is that trending versus your expectations in terms of building awareness around the launch date and hype for the game?

We do track awareness and anticipation, and everything is trending very positively.

Great. And then maybe a kind of related question perhaps. But without commenting on the time lines of any specific titles, was wondering if you could speak to this concept of AI-assisted reverse engineering and decompilation of games. How does that affect your approach to things like development, security measures and things like that?

Highly focused on that obviously. Look, this business has been largely immune to piracy concerns forever because of file sizes, complexity of piracy, being connected to servers and the like. And undoubtedly, it will be very difficult to replicate the experience of consuming our game as intended because of technical limitations. That said, it's going to become more of a challenge, as you said, and we're aware of that. So we are utterly focused on enhancing our technical defenses and enhancing our legal activities appropriately. And at the same time, without in any way being cavalier, every entertainment business that exists is subject to some element of piracy. So this is likely to invade our business to a greater or lesser extent. I think it will be manageable, and we are focused on it.

Your next question comes from the line of Doug Creutz with TD Cowen.

There have been earnings calls in the past, and I forgot how long ago they were. But at one point, you had said that you expected to be able to grow revenue and earnings for the company in the year after you launched GTA VI. I was just wondering, is that a comment you still stand by? Or have things evolved such that you don't want to stand on that comment anymore?

Tempting as it is, Doug, I'm not going to give you guidance for fiscal '28 today. We have said that we expect to set a new baseline for performance going forward. And we do think that there's a great opportunity for growth. There are so many wonderful things ahead for us. We have the most diverse and powerful portfolio of intellectual property in the industry. And there are more -- there's more than one sort of defining item of what's next for us. So many elements of our business plan offer opportunity for higher net bookings and earnings power. So despite the fact that many of our franchises -- and to be clear, we have 15 that have sold at least 5 million units in an individual release in our PC and console business. Despite that, so many have achieved this massive commercial scale. We think there's enormous opportunity ahead for many of them, including GTA. We think the world is going to look dramatically different over the next decade because, with the backdrop of our commitment to releasing the highest quality entertainment experiences, we think we'll be able to reach gamers in new ways, for example, including streaming in new geographies. And also, we'll be able to continue to engage with consumers post launch, which is a stated part of our strategy since the beginning of what we call recurrent consumer spending. We're also one of the few interactive entertainment companies who's willing and able to take the risk of investing in new intellectual property. It is the riskiest thing that we do. It's also paid off for us mightily over the past 19 years, even though we certainly haven't always been successful. In addition, we've taken a disciplined approach to M&A. Our deals have been accretive and successful across the board. We think there are selective opportunities going forward, especially because our balance sheet is aimed at being very conservative and very strong. By year-end, we expect to be in a net cash position. Again, right now, we're geared at less than 1x LTM EBITDA. And finally, we have numerous strategic initiatives we're working on that range from big to very big to huge that are under consideration and in development. So we think the future is really bright across the board.

Your next question comes from the line of Eric Handler with ROTH Capital Partners.

I think, again, we'll start with an accounting question for Lainie. Given the strong growth in console RCS expected in the third quarter, which you attribute to the GTA VI: Ultimate Edition, should we assume that if the standard edition is $80, the ultimate edition is $100, that $20 goes to count as RCS?

Yes, so the add-on content can be also purchased separately, so it's allocated to RCS.

Okay. That's helpful. I guess I'll throw you an NBA 2 question. I'm just curious, the decline that you saw in 2Q, would you attribute that to maybe just not having the prior gen SKUs? Or was there something else in there that maybe didn't resonate with fans?

This is Karl. So there -- first of all, it is the second highest launch we've ever had. We're very excited about the launch, and we do expect NBA to accelerate going to the second half of the year. We've kind of seen this before on a number of different occasions, and it's really hard to know exactly what has caused a little bit of softness versus our expectations in the launch. And there's other things going on in the market, both inside and outside the gaming media. But given the slate of content that's coming up and the hard work that VC is doing right now on the game over the next half of the year, we're pretty confident that we're going to see a rebound, which we've seen before in the past as well. So we're very excited about it. NBA is off to a great start, and we think it's going to get even better as the year goes on.

Your next question comes from the line of Chris Schoell with UBS.

You cited unprecedented and extraordinary preorders. With several more months of preorder data now behind you, can you just help us understand maybe what keeps you from incorporating some of that strength into guidance? And as console prices continue to rise, how are you thinking about maximizing the accessibility and reach of a franchise like GTA beyond the traditional console audience? Does the higher cost of hardware increase the importance or potentially accelerate the timing of expanding availability through other platforms like PC or streaming?

Thanks, Chris. On the first point, we're days away from the launch of GTA VI, and we tend to avoid claiming success before it occurs. So as soon as we have some experience post launch, we're going to be very happy to describe what's going on and how we see it. There is really no need to update numbers right now. On the second point, any information about new SKUs and the like will always come from our labels.

Okay. Great. And maybe if I can just fit in one more. Lainie, it appears the gross margins are down slightly in the full year guidance. Can you just help us understand the drivers there?

So it's due to the mix of the business, and it's being offset by some changes in the operating expenses.

Your next question comes from the line of Bryan Smilek with JPMorgan.

Strauss, I believe you mentioned that Rockstar will continue to support GTA Online with new content and ongoing events for its community. Can you just elaborate a bit on the role of nopixel and user-generated content not only across GTA but across the broader video gaming industry going forward in your view?

We're really excited about the launch of nopixel V which is really a professional version of the RPG business that we purchased with FiveM. And look, we're thrilled that there are hundreds of thousands of consumers who like to engage with Grand Theft Auto Online in this way, and we think there's plenty more opportunity to be seen here. So it's early days, and it remains to be seen how this develops. Any time our community wants to engage with our intellectual property, we want to be supportive if we can be. And I think this is a great example of that.

Great. And Lainie, curious, I think you called out more favorable user acquisition trend versus initial guidance a few times. So could you just elaborate a little bit more on your comments there?

Sure. We talked about the operating expenses being a little bit lower, and that was due to lower user acquisition costs. And some of that was due to timing, and that is mostly due to some of the movement in some of the new releases for our mobile titles.

Your next question comes from the line of Mike Hickey with StoneX.

Strauss, Karl, Lainie and Nicole, congrats, guys, on the upcoming release. I can only imagine how excited all of you are. Just on the preorder demand. Curious, Strauss, what you think is driving such strong preorders here that have now exceeded your expectations.

Look, the title is so widely anticipated and consumers appear very, very excited. And all the press so far has been universally positive. So I'm -- makes me nervous even saying those words, Mike, but they are true, and we still aren't ready to declare victory. Hopefully, we'll be able to do that in the fullness of time. I don't -- we don't have to wait too long, I don't think.

Pretty exciting. I guess maybe just last topic question, Strauss, maybe if you could just speak to Rockstar's competitive advantage as you see it moving forward, especially in an AI-influenced world that seems to be evolving right in front of us.

Look, technology benefits us. It's always been true. We've always created our entertainment inside computers with technology. All advances have benefited us, and but I don't expect that, that will change. In fact, I hope it will accelerate. I think at the same time, what we're known for here is the desire to make the best entertainment on earth and the fact that more often than not, we succeed. And the creativity that drives that success is human creativity, harnessing technology. And I think that's what you'll see in the future. Undoubtedly, some of the most recent technological advances that you've seen have made it easier to create assets. Well, that is consistent with the story of our business. When I started in interactive entertainment longer ago than I would like to say, it was really difficult to create an asset in computer. Today, it's a whole lot easier. But what's not easier, making a big hit. Making a big hit was hard then. It's hard now, and it's going to be hard in the future. And hit creation remains the purview of human beings.

Your next question comes from the line of James Heaney with Jefferies.

In the press release, you mentioned you're looking to explore new business opportunities. Is there anything in particular you can say about this comment? And what are areas that maybe you haven't explored in the past that potentially could look interesting to you?

I have some specifics to share about sort of the picture I painted of the future, but not so many for what I hope are obvious reasons. So making more and better hits for our current platforms, obviously, is the first order of business. And you can see how that's been reflected in our results in the past years. Second, there are new opportunities to reach consumers, distribution technologies, streaming among them. If streaming, for example, comes to fruition, that could vastly expand the size of our market. Other distribution opportunities include reaching new geographies economically that we have not been able to reach economically in the past. So there's a massive population of people who play video games in India and Africa and Asia outside of the countries we currently monetize, which include China, South Korea, Taiwan and Vietnam, but not so many others. We don't sell much in Russia right now for obvious reasons, not much in Latin America. So our business still remains largely U.S., U.K. and Western Europe business with a couple of pockets in Asia. And yet interactive entertainment is the world's past time and is only becoming more so in the future. So if we can find out how to reach people who don't necessarily have the latest and most expensive technology and if we can reach people outside of the most developed geographies, we could see our business grow materially. Equally, we think that we haven't yet scratched the surface on what's potentially available creatively. The current expression of interactive entertainment through PC, console and mobile is super exciting, but we haven't reached the creative asymptote that other entertainment industries have. And I don't think we will for years. But that's what we call around here the unknown, unknown and Lord knows we're trying to find it. And then there's a whole bunch of other stuff we're working on that I'm not going to share with you.

And maybe if we could just get an update on the progress you've made on transitioning to D2C within the mobile portfolio, just how you'd characterize the benefits you're seeing both to revenue growth and margins.

It's not a transition. It's an evolution. And we still have third-party partners. We value them greatly. We don't expect to transition away from them. We have not described the percentage of our business that comes direct to consumer mobile. It is significant, and it is growing. And it obviously has a very meaningful margin and bottom line impact. It also allows us to interact directly with our consumers to market to them directly, and that's positive as well.

Your next question comes from the line of Omar Dessouky with Bank of America.

So your rationale for the Grand Theft Auto series RCS guidance being up year-on-year has changed slightly from your description last quarter. You've now additionally disclosed that robust sales of ultimate edition add-on content the driver of growth. So when you gave the GTA series RCS growth guidance for the full year in August, was it also based largely on ultimate edition add-on content? Or are there other contributors to growth that may now have been pushed out into fiscal '28? And I have a follow-up question, please.

There was a change to what we said last quarter to what we're saying now. We even talked about the ultimate edition last year because -- last quarter, we had a SKU plan, and we said that it had additional add-on content. And since -- I mentioned before, that can be purchased separately. So that was allocated to the RCS, and that was the only component that was in the RCS included as well as GTM line, and that hasn't changed.

Okay. And just my follow-up question is what is your strategy to retain the first wave of gamers that play Grand Theft Auto VI after they finish the content. For example, do you expect players to continue playing Grand Theft Auto Online on the San Andreas map once they finish the Vice City single-player missions? Or, for example, do they just continue to replay Grand Theft Auto VI single-player missions?

You just described an array of high-class problems. So look, there's so much to be done in all things Grand Theft Auto. I've literally never had to answer the question about what do we do when we finished because you can always keep going. There's so much fun to be had. I think that will be the case in this situation as well.

Your next question comes from the line of Jason Bazinet with Citi.

About 3 weeks ago, there was an interview on Bloomberg with Rockstar's Head of Publishing that the development costs for GTA VI were not more than $1.5 billion, and it sparked a bit of a debate on the buy side about whether that figure was for the stand-alone version or also encompassed the online version. Any comment you have on that?

We haven't spoken about budgets at all. Obviously, we've invested heavily in Grand Theft Auto VI, and I hope in the fullness of time, that will prove to be a sound investment. I would like to point out that someone saying something is not more than something does not mean it's close to something, half of something, 1/4 of something or 1/10 of something. So I wouldn't arrive at a conclusion based on what that -- what -- the correct answer to that question that was offered before.

Your next question comes from the line of Drew Crum with B. Riley. [Operator Instructions] Your next question comes from the line of Clark Lampen with U.S. Bank BTIG.

I guess following up on Jason's last question. That same interview, there was a reference to sort of GTA VI being a foundation upon which you can build content at a faster pace. It seems -- that comment seems like it's sort of been keeping with your answer around sort of building more high-quality content as a part of the sort of new business opportunities. Just curious if you could help us understand whether the comment is in sort of relation to live services updates being more frequent than we've had in the past with precedent GTA titles, whether this opens the door to a shorter cycle, I guess, between releases for major franchises or perhaps both. Just would be curious if you could help us understand sort of what the specific opportunities are.

Look, we've said since the launch of recurrent consumer spending that our goal is to stay engaged with our consumers in between huge releases. And now of course, our business has been transformed. The vast majority of our net bookings comes from recurrent consumer spending, comes from ongoing live engagement with our hit titles, and big, huge releases are additional tentpoles to support that. And I think what I was saying earlier is that I think that this model will continue to evolve and that our teams more and more have the ability to, because of the quality of our franchises, to engage with consumers in a way that consumers love and want more of. If you're making something that's no good, no one wants any more of. If you're making something that's great, people want more of it. And if you're making something that's the best in the world, then there's nearly an unlimited appetite as long as everything else you make remains the best in the world. Is technology our partner in accelerating this engagement and accelerating this development and accelerating the marketing related there, too? Yes, it is. But at the end of the day, what's going to drive this success is our human creativity, harnessing the technology at hand, focused on making the best entertainment on Earth.

And if I maybe could follow up, I guess, on the mobile business. A lot of the growth that we're seeing across the industry right now has been driven by in-app advertising. I wanted to see maybe similar to the update that you gave us around DTC. This might be sort of part of the evolution of that business, but the prevalence of advertising and I guess, your sort of growth outlook for that component of the business, I guess, would be appreciated.

Yes. I think we're really only talking about our mobile business here or largely about our mobile business here. And I do think there's a great opportunity for advertising. Historically, advertising in mobile has been endemic. It's been advertising in mobile games for mobile games. And I think more and more, brands are seeing an opportunity to engage with consumers through the lens of their love for interactive entertainment. If we're able to expand our business meaningfully into brand advertising, and we already have started, then that should be a terrific opportunity for us. Also our view is that we ought to be monetizing all of our engagement. Historically, mobile video games monetized under 20% of the audience, typically 10% of the audience through in-app purchases. We have the ability technically to serve people what they want. And if they want a free experience, they can be served ads. And if they want an ad-free experience, they can make purchases. But what doesn't make a whole lot of sense is serving consumers for free at a cost to us. So I think there's a huge opportunity for us in the ad business. Our numbers reflect that. And I also think the nature of the business will change in a way that's positive for us.

Your next question comes from the line of Drew Crum with B. Riley.

So as part of your outlook commentary for fiscal 3Q, you noted continued growth in the installed base for PlayStation and Xbox, as we think about attach rates or tie ratios for GTA VI, is there a figure you can share that's embedded in your guidance with price increases on console hardware? Has that changed? And how does it compare to that number around the launch of GTA V?

Well, I understand that clarity on the question would benefit your models. It really doesn't do anything for us, so we don't spend a lot of time on it. Our job is to make the best entertainment and then bring it to consumers around the world. And obviously, the better we do at that job, the more units we're going to sell. As we provide guidance, naturally, we have to look at the installed base to make sure that what we're projecting is sensible, and we have done that. But we tend not to be slavishly devoted to estimating tie ratios because it doesn't change anything that we're going to do around here. So right now, Rockstar has completed the development of GTA VI. That may not come as a surprise to you since we're 10 days away from the release. They have done their very best work, and it's going to come to consumers soon. And they're in the middle of their marketing campaign, which also unsurprisingly is fully baked. So at this point, it's the job of the organization to make sure that we do an A+ job technically in delivering this product to consumers. And then of course, Rockstar will focus on what comes next, and we'll announce that in the fullness of time.

Your next question comes from the line of Ron Song with Wolfe Research.

I think this is a question for Lainie, but taking a different angle on the OpEx question. When we look out on a management basis, it does look like the 4Q OpEx is going to be implied up in like the 10% range. So is there anything you can share on like the drivers here as we exit the GTA VI launch next week, whether it's on the potential R&D side, marketing for both the title and just the broader organization?

It's mostly being driven by increases in R&D as well as some modest growth in selling and marketing and also investment in IT expenses.

Your next question comes from the line of Martin Yang with Oppenheimer.

Your PC player seems to engage with GTA a bit differently than console. There are role-play options. Over time, do you think you want to close the player experience gap between console and PC? Or do you view 2 platforms as more independent because of their respective technical capabilities?

I'm not sure I agree with the way you phrase that. I do think certain titles, for example, Civilization is a title that existed on PC and then spread out to console. There are other titles like NBA 2K, which are available on basically all platforms simultaneously. And of course, GTA VI is available on 2 consoles when it launches on November 19. So it really varies title by title, but generally speaking, the experiences on console and PC tend to be roughly the same. This can vary, but generally speaking, the capabilities of the PC platform today aren't different materially from console capabilities.

I have a quick follow-up on marketing. How do you think about the marketing for GTA after launch? Should we view marketing expense more weighted towards later in FY '27? I see you have the music experience for the launch weekend. Should we expect more marketing going -- still maintaining strong pace after GTA VI launch date?

The majority of the marketing will be around the launch in Q3, but we will still have some ongoing marketing into Q4, but most of it will be in Q3 quarter.

Your next question comes from the line of Jim Callahan with Piper Sandler.

I had a follow-up on some of sort of like the console jail-breaking that's going on. I guess if we keep the actual piracy part aside, I think there's clearly a lot of consumer interest in sort of modifying their own versions of games. Understand the investments behind role playing. But I'm curious, does this change how you think about GTA Online at all? Or does this open up new potential monetization opportunities?

It's a really great question. And again, our purchase of FiveM reflected our support of consumers, certain consumers' desires to engage as a creator with our intellectual property. And we've allowed modding in many of our other games. We're just not religious on the topic. The FiveM business is a profitable business for us. It does create an economic opportunity. But the way we run the business around here, and I think that's the last question, so I'll finish on this thought is -- at the risk of being very repetitive, the mission of this company is to create the best entertainment on earth and bring it to consumers around the world. If we do that right, the monetization takes care of itself. And I think that you're going to see that from us in this fiscal year and in future fiscal years. I think we're likely to be off to a really great start for the rest of this year very shortly.

There are no further questions at this time. I will now turn the call back to Strauss Zelnick for closing remarks.

First, thanks for joining us today, and thank you so much for your patience during our technical lapse. Again, I apologize for that. I want to just take a minute to express my gratitude to our 13,000 incredibly hard-working, dedicated and committed colleagues around the world. It's a great quarter. We feel terrific about the rest of the year and the years forward. And the only reason I can say those words with confidence is because of the A+ team that shows up every day, our creative groups, our executive groups in numerous offices all around the world. I also want to say thank you to our shareholders for their support, and thank you today for attending the call. I want to wish you a happy and healthy upcoming holiday season, and I know you all are going to have a great time playing GTA VI while you're at home for the holidays. Thanks, everyone.

This concludes today's call. Thank you for attending. You may now disconnect.