Take-Two (TTWO.US) Q2 conference call: CEO says GTA VI pre-sale is “unprecedented” but refuses to raise guidelines and is expected to welcome a “historic year”

The Zhitong Finance App learned that US game publisher Take-Two Interactive Software (TTWO.US) held a results conference call after announcing the results for the second quarter of the 2027 fiscal year (as of September 30) after the market on November 9 EST. With only 10 days left until “GTA VI” (GTA VI) goes on sale on November 19, management repeatedly emphasized that the pre-sale demand for the game was “unprecedented” and “far exceeded initial expectations,” but Chairman and CEO Strauss Zelnick made it clear that “we tend not to raise the guidelines for the time being,” saying “we tend not to claim success until it is successful”. Chief Financial Officer Lainie Goldstein called the GTA VI sale “just the beginning”, and the company is expected to use this to begin a “multi-year growth story.”

Net bookings (Net Bookings) for the quarter were US$1,600 million, down 18% year on year, slightly below the company's previous guidance range of US$1,620 billion to US$1,670 billion; GAAP net revenue was US$150 billion, a decrease of about 15.4% year over year, and also below the market's agreed expectations of US$1.66 billion. GAAP net loss of $54 million and diluted loss of $0.29 per share was significantly narrower than the loss of $0.73 per share in the same period last year. The management reiterated the annual net reservation amount guideline of US$8 billion to US$8.2 billion, and for the first time gave a net booking guideline of US$3.350 billion to US$3.50 billion for the third fiscal quarter, implying that GAAP net revenue will “more than double” this quarter; however, this range falls short of LSEG's consistent forecast of US$3,510 billion. TTWO rose more than 4% after the results were announced, after closing down 3.48% to $207.40 in regular trading.

Focus and Response: Pre-sales are “unprecedented” but why not raise the guidelines

The disagreement that received the most attention at this meeting was that while repeatedly emphasizing that GTA VI pre-sales “reached an unprecedented level” and “far exceeded initial expectations”, the management refused to include this part of the demand that exceeded expectations in the performance guidelines. In response to questions from UBS (UBS) analysts, Zelnick explained that “there are only a few days left until launch, and we tend not to claim success until success occurs; once we have actual experience after going live, we will be happy to describe the progress”. He stressed that “there is really no need to update the figures right now”. Under this statement, the company's net reservation guidance for the third fiscal quarter ranged from US$3.50 billion to US$3.50 billion, which was lower than the market's agreed expectation of US$3,510 billion. It was interpreted by some markets as “conservative hedging” rather than “promising volume” for the sale window by management. Foreign media such as GamesBeat and PC Gamer all noticed the gap in the guidelines and believed that this reflected the expectations of management to be steady and avoid overdraft.

Qualitative Q2 performance: Net bookings were slightly lower than the guideline, attributed to NBA 2K27

Zelnick acknowledged at the start that the quarter's net bookings of $1.6 billion were “slightly below the $1,620-$1.67 billion guideline range”. He explained that although “NBA 2K27” was “successfully launched and recorded the second-highest net pre-order performance in the series history,” it “fell short of our predictions for this period”; the mobile business met the plan, while the “Grand Theft Auto” series “exceeded our expectations.” Goldstein added that recurrent consumer spending (RCS) fell 9% year over year, worse than the previous “5% decline” guideline, mainly due to NBA 2K.

NBA 2K27: Over 4 million copies sold but fell short of expectations

Zelnick revealed that “NBA 2K27” has sold over 4 million copies so far, but the sales window is “extremely crowded”, and many entertainment products compete for players' attention. President Karl Slatoff called it “the second-highest launch in our history,” and expects NBA 2K net bookings and participation to accelerate with the launch of the largest post-launch content in the second half of the year, and the company is confident to see “the rebound we've seen in the past.”

GTA series: cumulative sales of GTA V are approaching 235 million copies

Zelnick said that by the end of the period, “Grand Theft Auto V” had accumulated sales of nearly 235 million copies worldwide, and the GTA series recorded double-digit growth in both recurring consumer spending and the average number of GTA+ monthly members. In September, Rockstar Games launched NoPixel V, a role-playing community upgrade. At the same time, he announced that the GTA VI marketing campaign was fully rolled out, and its long video clip attracted 31 million viewers within 4 days of the Netflix premiere.

Mobile business: Toon Blast, Words With Friends grow, D2C driven

Zelnick said the mobile business was “in line with expectations.” Net bookings for Color Block Jam fell by double digits from their peak in the same period last year; net bookings for Toon Blast increased 4% year over year; and Words With Friends saw a 6% increase in net bookings linked to the TV show “Wheel of Fortune” (Wheel of Fortune). He emphasized that direct-to-consumer (D2C) channels “remain an important driver of revenue and profit margins”. The company did not disclose the share of mobile D2C; it only stated that “the scale is considerable and growing”.

Full year and Q3 guidelines: Reiterating $8 billion to $8.2 billion, Q3 net bookings of $3.35 billion to $3.50 billion

The company reaffirms net bookings of US$8 billion to US$8.2 billion for fiscal year 2027, with expected GAAP net revenue of US$7.98 billion to US$8.180 billion, GAAP net profit of US$109 million to US$142 million, diluted earnings per share of US$0.57 to 0.75, non-GAAP EBITDA of US$1,024 million to US$1,082 million, operating cash flow exceeding US$1 billion, and capital expenditure of approximately US$290 million. The first guidance for the third fiscal quarter was: net bookings of US$3.350 billion to US$3.50 billion (US$1.76 billion in the same period last year), GAAP net revenue of US$3.270 billion to US$3.42 billion, and recurrent consumption expenditure increased by about 12% year-on-year. Management expects Rockstar Games to account for approximately 37%, Zynga 34%, and 2K 29% of net label bookings.

Capital allocation and mergers and acquisitions: return to net cash at the end of the year to seek value-added mergers and acquisitions

Zelnick said the company's current leverage ratio is less than 1x LTM EBITDA and is expected to return to net cash by the end of the fiscal year. He said that the company has adopted a “disciplined” approach to mergers and acquisitions, that “the whole deal is value-added and successful”, and that there are “selective opportunities” in the future; at the same time, he said that it is advancing multiple strategic initiatives “from big to huge”, but did not disclose details.

Full Meeting Minutes

Meeting time: November 9, 2026 at 4:30 p.m. EST

Company spokesperson:

Nicole Shevins — Senior Vice President of Investor Relations and Corporate Communications

Strauss Zelnick — Chairman and CEO

Karl Slatoff — President

Lainie Goldstein — Chief Financial Officer

Participating analysts: Andrew Marok (Raymond James Research), Doug Creutz (TD Cowen Research), Eric Handler (ROTH Capital Partners Research), Christopher Schoell (UBS Research), Bryan Smilek (J.P. Morgan Research), Michael Hickey (StoneX Research), James Heaney (Jefferies) Jefferies Research Division), Omar Dessouky (Bank of America BofA Research Division), Jason Bazinet (Citi Research Division), William Lampen (BTIG Research Division), Andrew Crum (B. Riley Research Group), Taebin Song (Wolfe Research), Martin Yang (Oppenheimer Research Group), James Callahan ( Piper Sandler Research Division).

Operator

Welcome to the Take-Two Interactive Software FY2027 2nd Quarter Results Conference Call. We now invite Nicole Shevins, Senior Vice President of Investor Relations and Corporate Communications, to speak.

Nicole Shevins (Senior Vice President, Investor Relations and Corporate Communications)

Good afternoon. Thank you all for attending our conference call to discuss our results for the second quarter of the 2027 fiscal year ending September 30, 2026. Today's conference was hosted by Chairman and CEO Strauss Zelnick, President Karl Slatoff, and CFO Lainie Goldstein. After the prepared presentations, we will move on to the question and answer session.

Before we begin, I would like to remind everyone that the non-historical factual statements in this conference call are forward-looking statements as defined by the federal securities law. These statements are based on management's beliefs and current information and assumptions, and we are under no obligation to update them. Actual operating results may differ materially from forward-looking statements due to various factors. These important factors are set out in our documents to the US Securities Regulatory Commission, including the “risk factors” section of the latest 10-K Annual Report and 10-Q Quarterly Report.

Please also be aware that, unless otherwise stated, all numbers we are discussing today are GAAP caliber, and all comparisons are YoY. More details on actual results and prospects are provided in our press release, including projects used by management to adjust GAAP financial results to evaluate operating results. The press release also includes adjustments between non-GAAP measures and the most comparable GAAP measures. Additionally, we have posted slides showing our results and financial outlook on our website. Press releases and SEC documents are available at taketwogames.com.

Now leave the meeting to Strauss.

Strauss Zelnick (Chairman and CEO)

Thanks Nicole. Good afternoon, and thank you all for attending. We achieved net bookings of $1.6 billion in the second quarter, slightly below the $1,620-$1.67 billion guideline range. Although “NBA 2K27” was successfully released and had the second-highest net pre-order performance in the series' history, it fell short of our predictions for the period. The mobile business was in line with our plans, and the Grand Theft Auto series surpassed our predictions ahead of the upcoming Grand Theft Auto VI launch. We reaffirm our forecast for net bookings of $8 billion to $8.2 billion for the 2027 fiscal year. Grand Theft Auto VI's pre-sale far surpassed our initial expectations, and we know the numbers will speak for themselves soon.

Our outlook also includes the launch of new mobile games and announced sports games, as well as an increase in recurring consumer spending for “NBA 2K27” in the second half of this fiscal year, thanks to the largest post-launch content in the franchise's history.

Moving on to the highlights of this issue. “Grand Theft Auto V” continues to expand its audience, and has sold nearly 235 million copies worldwide so far. As players experienced the latest major updates to Kortz Center Heist, monthly events, new races, etc., the series recorded double-digit growth in both recurring spending and the average number of GTA+ monthly members. In September, Rockstar Games released NoPixel V, the next evolution of the Grand Theft Auto V role-playing community, bringing a completely revolutionary experience, new locations, and graphic enhancements centered around player immersion.

To celebrate this month's release, players can get exclusive items in “Grand Theft Auto Online” by watching selected role-playing anchors on Twitch. Rockstar Games will continue to support the large GTA Online community with new content and ongoing activities.

“Grand Theft Auto VI,” which will go on sale globally on November 19, is not only extremely engaging, but will in fact be the largest and most detailed pioneering experience Rockstar Games has ever experienced. As you've probably seen, the film's global marketing has been fully rolled out, including a long video clip that premiered on Netflix, which became the platform's most viewed content of the week, attracting 31 million consumers just 4 days ago.

Also included are a series of in-depth features and magazine covers, the release of the official soundtrack (with three tracks entering the top 10 of their respective Billboard) charts in the first week, a “A Night in Vice City” (A Night in Vice City) special event launched in partnership with the NBA — the Miami Heat will play against the Milwaukee Bucks under the name “Vice City”, and a series of Miami offline pop-up events celebrating Sin City. We're incredibly proud of the Rockstar Games team's outstanding commitment and passion to elevate our art form and the entertainment industry as a whole.

2K and Visual Concepts once again presented the most authentic and authentic NBA experience in interactive entertainment with “NBA 2K27,” which has sold over 4 million copies. The sale window is extremely crowded, and many entertainment experiences are vying for players' attention.

We expect net bookings and engagement to accelerate in the second half of this fiscal year as 2K and Visual Concepts plan to launch a strong lineup of in-game content, including exciting themed seasons, a new college basketball experience, and MyTeam innovations.

This quarter, Borderlands 4 (Borderlands 4) introduced new downloadable content and several promotions to improve engagement and player retention. The “Borderlands” series has sold over 100 million copies, another milestone for Gearbox and 2K.

This quarter, 2K also released additional content and updates for “Mafia: The Old Country” (Mafia: The Old Country), “Sid Meier's Civilization VII” (Sid Meier's Civilization VII), “PGA TOUR 2K,” and “WWE 2K,” further enhancing the gameplay and player engagement of these games. The mobile business met our expectations, highlighting the importance and influence of diversified businesses.

As we expected, Color Block Jam's net bookings recorded a double-digit decline compared to its peak performance in the same period last year. Toon Blast net bookings increased 4% from last year's record second quarter, thanks to a new gameplay feature called Beam — which assists players in solving puzzles, increasing participation and level progress. Words With Friends benefited from multi-platform partnerships with the hit TV show “Wheel of Fortune”, including dedicated themed weeks and in-game puzzles and online activities, driving a 6% increase in net bookings. Our advertising business improved month-on-month as we successfully attracted new partners and increased ad returns. 2K mobile games also continued to perform well, and downloads and engagement for key games remained steady.

“NBA 2K All-Star” is a mobile game we have collaborated with Tencent in China. Since its launch last year, it has surpassed 11 million registered users and generated strong profit margins. Our mobile and direct-connected consumer (D2C) channels continue to perform well and are still important drivers of revenue and profit margins as we incorporate new games, cultivate direct relationships with players, and reduce payment friction to enhance user experience and repeat purchases. These efforts have made our D2C platform an enduring and expanding engine of net booking growth and long-term profitability.

Looking ahead, Zynga continues to develop and test a number of new games, several of which have shown promise based on initial performance and soft launch, including Top Goal. We believe fiscal year 2027 will be a historic year for Take-Two, thanks to our strong commitment to delivering the highest quality entertainment experience.

Guided by the three core pillars of creativity, innovation, and efficiency, we are confident to build on this remarkable year and set a new benchmark in implementing long-term success plans. I would like to thank our 13,000 colleagues around the world for their dedication to our common mission and our company today and tomorrow.

Karl Slatoff (President)

Thanks Strauss. I want to thank our team for their best efforts every day to achieve creative, financial, and operational goals. Below, I'll introduce our recent and upcoming works.

On October 8, 2K and Gearbox released “Risk of Rain 2: Hallowed Concepts” (Risk of Rain 2: Hallowed Concepts), introducing two new playable survivors, new regions to explore, and expanded gameplay mechanics to deepen the player experience.

2K continues to advance mobile innovation in the NBA 2K series. On October 20, the 9th season of “NBA 2K Mobile” was launched, bringing a new mode that links in-game actions to the actual NBA schedule, a “rewind” function that allows players to relive classic NBA moments in history, and real-time PvP battles. Additionally, “NBA 2K27 Arcade Edition” debuted last week, providing WNBA Play Now, a new expanded team, a deeper career journey and growth system, a new 5v5 experience, and exclusive GOAT skills and rewards.

On October 28, 2K and Visual Concepts continued to release post-release content for “WWE 2K26,” launching the 6th season of the Ringside Pass and the independent “Street Fighter” Elite Pack — this is our first collaboration with Capcom (Capcom), and includes iconic character moves and themed design creations. 2K also released the 13th season of “WWE SuperCard” last week, which has accumulated nearly 40 million downloads since its launch.

Firaxis has announced new content for “Sid Meier's Civilization VII” for 2027, including “Arc of Tomorrow” (Arc of Tomorrow), a full free update that extends gameplay to the atomic age, and “Earthrise” (Earthrise), the first major paid feature film in the series, which provides expanded core mechanics and space age progression. These additions will give players more reasons to “go the extra mile” in this classic strategy series.

Over the next few months, 2K will update the progress of “PGA TOUR 2K27” and “WWE 2K27,” both of which are scheduled to be released later this fiscal year. Zynga will continue to focus on strengthening the existing mobile product portfolio through bold versions and updates, and launching new games, including “Top Goal,” which is currently in the soft launch phase. There are only a few days left until Rockstar Games releases “Grand Theft Auto VI,” and global preloads are rolling out one after another, which is incredibly exciting. This is a defining moment for our company and the entire entertainment industry, and our team is proud to support this global phenomenon. With a robust and diversified long-term product development pipeline, we are able to seize the many opportunities ahead and reach players around the world.

Lainie Goldstein (Chief Financial Officer)

Our net bookings for the second quarter were $1.6 billion, slightly below the $1,620-$1.67 billion guideline range. Recurring consumer spending fell 9% year over year, falling short of the “5% decline” guideline, mainly due to NBA 2K, which accounted for 81% of net bookings. Compared to the same period last year, both NBA 2K and mobile businesses have declined, while the “Grand Theft Auto” series has risen. GAAP net revenue decreased 16% year over year to $1.5 billion. Revenue costs decreased 20% year over year to US$637 million, and operating expenses decreased 9% year over year to US$978 million. In terms of management, operating expenses fell 9% year over year, better than our forecast, thanks to lower personnel costs and user acquisition costs.

Regarding the outlook, we are extremely optimistic about the rest of the year and reaffirm the outlook range for net bookings of $8 billion to $8.2 billion for the 2027 fiscal year. “Grand Theft Auto VI” has only 10 days left on sale, and the level of pre-sale has been extraordinary. Additionally, 2K and Visual Concepts plan to deliver the most innovative lineup of in-game content ever for NBA 2K, which gives us confidence that the series' recurring consumer spending will accelerate in 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” series, Color Block Jam, “WWE 2K” and Zynga Poker. We still expect recurring spending to be at the same level as in FY2026, accounting for 65% of net bookings.

This assumption includes strong growth in the Grand Theft Auto series — mainly due to our outlook for strong sales of Grand Theft Auto VI Ultimate Edition (with add-ons) — and high single-digit growth in NBA 2K. We still anticipate a decline in the mobile business due to the success of Color Block Jam last year and our assumptions about a slowing trend in many of Zynga's established mobile games. We expect each label to account for approximately 37% of Rockstar Games, 34% of Zynga, and 29% of 2K net bookings. We are still expected to achieve operating cash flow of over $1 billion and reach a net cash position at the end of the fiscal year. Our projected capital expenditure of approximately $290 million remains unchanged.

We expect GAAP net revenue to be between US$7.980 billion and US$8.180 billion, revenue costs between US$3.68 billion and US$3.80 billion and operating expenses between US$4.80 billion and US$4.10 billion. According to management standards, we now expect operating expenses to grow at a year-on-year rate of about 5%, which is better than previously predicted, thanks to lower user acquisition costs (partly related to timing). Compared with last year, the increase in spending was mainly driven by “Grand Theft Auto VI” marketing and higher R&D costs.

Guidance for the third fiscal quarter. We expect net bookings to be between $3.50 billion and $3.50 billion, compared to $1,760 billion in the same period last year. The biggest 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” series, Color Block Jam, Zynga Poker, and Toy Blast. We expect recurring consumer spending to increase by about 12% year over year. This assumption includes a significant increase in the Grand Theft Auto series — driven by sales of Grand Theft Auto VI Ultimate Edition — as well as the growth of NBA 2K and a decline in mobile business. We expect GAAP net revenue to be between US$3.270 billion and US$3.42 billion, revenue costs between US$1,650 billion and US$1,730 million, and operating expenses between US$1,160 billion and US$1,180 billion. According to management standards, operating expenses are expected to increase by about 21% year over year, mainly driven by marketing costs to support the release of “Grand Theft Auto VI”.

Finally, we're extremely optimistic about the future; next week's Grand Theft Auto VI sale is just the beginning. We believe we can take the core series to new heights of success by releasing engaging new content, enhancing our long-term operating services, launching new popular games, expanding geographic coverage, and seeking value-added mergers and acquisitions. In implementing this broad and diversified strategy to drive growth, we are confident of unlocking greater profitability and delivering long-term shareholder value. I would like to thank our talented and passionate colleagues around the world for their hard work to bring us to this pivotal moment in our multi-year growth story.

Q & A session

Andrew Marok (Raymond James Research Division)

Q: You mentioned Grand Theft Auto VI's big marketing campaign, and apparently there were a lot of innovative ideas. Overall, how does it compare to your expectations in terms of building awareness and popularity around the release date? Also, without commenting on any specific game schedule, can you talk about the concept of AI-assisted reverse engineering and game decompilation, and how does it affect your practices in development, security measures, etc.?

Zelnick (Chairman and CEO): We're really tracking awareness and expectations, and everything is very positive. As for the latter, we are clearly very concerned. The industry has long been largely immune to piracy due to factors such as the size of files, the complexity of cracking, and networking. There's no doubt that replicating the native experience of our game will be very difficult due to technical limitations. That being said, as you said, this is going to get more challenging, and we know that very well. Therefore, we are fully focused on strengthening technical defenses and strengthening legal action as appropriate. At the same time, not recklessly, there is some degree of piracy in every entertainment industry. So this may be more or less intrusive to our business. I think it's manageable and we're focusing on that.

Doug Creutz (TD Cowen Research Division)

Q: In some past performance meetings, you have indicated that you expect the company's revenue and profit to grow in the year following the release of “Grand Theft Auto VI”. I want to ask, are you still holding on to this statement, or has the situation changed and you are no longer holding on to it?

Zelnick: It's tempting, Doug, but I'm not giving guidance for fiscal year 2028 today. As we said, we expect to set a new baseline for future performance, and we do think there is a huge opportunity for growth. We have so many wonderful things ahead of us. We have the most diverse and strongest intellectual property portfolio in the industry, with more than one defining “next step”. Many elements of our business plan provide opportunities for higher net bookings and profitability.

Although many of our series — let's be clear, 15 of our series in the PC and console business sold at least 5 million copies in a single sale — although many have reached such a huge commercial scale, we think many series, including “Grand Theft Auto,” still have huge opportunities. We believe the world will change dramatically in the next decade, because in the context of our commitment to delivering the highest quality entertainment experiences, we think we can reach players in new ways, including streaming, and new geographic regions. At the same time, we will be able to continue engaging with consumers after launch, which has always been part of our self-proclaimed “recurring spending” strategy.

We are also one of the few interactive entertainment companies willing and able to take the risk of investing in new intellectual property. It's the riskiest thing we do. It has also paid off handsomely for the past 19 years, although we haven't always been successful. Furthermore, we take a disciplined approach to mergers and acquisitions. Our deals were overall value-added and successful. We think there are selective opportunities ahead, especially since our balance sheet is designed to be very conservative and strong.

By the end of the year, we expect to return to net cash again. Currently our leverage ratio is less than 1x LTM EBITDA. Finally, we are advancing a number of strategic initiatives, from big to huge, all under consideration and development. So we think the future is really bright.

Eric Handler (ROTH Capital Partners Research Division)

Q: You attribute this to Grand Theft Auto VI Ultimate, given the strong increase in console recurring consumer spending expected in the third quarter. Can we understand that if the Standard Edition costs $80 and the Ultimate Edition costs $100, then that extra $20 is included in recurring consumption expenses? Also, could the NBA 2K decline you saw in the second quarter be due to the lack of a previous console version, or were there other factors that didn't resonate with players?

Goldstein (CFO): Yes. Add-ons can also be purchased separately, so they are included in recurring consumption expenses.

Slatoff (President): First, this is our second-highest debut ever. We're very excited about this launch and do expect NBA 2K to accelerate in the second half of the year. We've seen similar situations many times before, and it's hard to know exactly what caused the slight weakness compared to our expectations. There are other things happening inside and outside of the market. Given the upcoming content lineup and VC (Visual Concepts)'s hard work on this game over the next six months, we're very confident we'll see a rebound, as has happened in the past. So we're really excited. The NBA is off to a good start, and we think it will get better and better as the years progress.

Christopher Schoell (UBS Research Division)

Q: You mentioned the pre-sale was “unprecedented” and “extraordinary”. Now that we've accumulated several months of pre-sale data, can you help us understand why you don't include some strong pre-sales in your guidelines? Also, as console prices continue to rise, how do you consider maximizing the reach of series like GTA outside of traditional console audiences? Has rising hardware costs increased or accelerated the importance of the timing of expanding availability through PCs or other platforms such as streaming media?

Zelnick: Regarding the first point, there are only a few days left until Grand Theft Auto VI goes on sale, and we tend not to claim success until it happens. Once we have actual experience going live, we'll be happy to describe the progress and our views. There's really no need to update the numbers right now. Regarding the second point, any information about new SKUs etc. will always come from our various brands.

Scholloell: Also, Lainie, gross margin seems to have declined slightly in the full-year guidance. Can you help us understand the drivers?

Goldstein: This was due to a combination of business structures and was offset by some changes in operating expenses.

Bryan Smilek (J.P. Morgan Research Division)

Q: Strauss, I remember you mentioned that Rockstar will continue to support the GTA Online community with new content and ongoing activities. Can you talk about the role of NoPixel and User Generated Content (UGC) in GTA and the wider gaming industry? Also, Lainie, I remember a few times you mentioned that user acquisition trends are more beneficial than the initial guidelines. Can you explain more?

Zelnick: We're very excited about the launch of NoPixel V, which is actually a professional version of the RPG business we bought with Fivem. We're thrilled that hundreds of thousands of consumers love participating in Grand Theft Auto Online in this way. We think there are more opportunities here. It's still early, and it remains to be seen how it develops. As long as our community wants to participate in our intellectual property, we'll do our best to support it, and I think this is a great example.

Goldstein: We're talking about slightly lower operating expenses, thanks to lower user acquisition costs. Part of this has to do with scheduling, mainly due to adjustments to the pace at which some of our new mobile games are released.

Michael Hickey (StoneX Research Division)

Q: Regarding pre-sale demand, Strauss, what do you think is driving such a strong pre-sale that has exceeded your expectations? Also, can you talk about Rockstar's competitive advantage in a world influenced by AI?

Zelnick: The game was highly anticipated, and consumers were very, very excited. So far, all reports have been completely positive. Mike, saying these things even made me nervous, but it's true, and we're still not ready to declare victory. Hope we can finally announce it, and I don't think I'll have to wait too long.

Technology benefits us, and this has always been the case. We're always using technology to create entertainment on computers. All of the progress has benefited us, and I don't think that's going to change. In fact, I'm hoping it will speed up. At the same time, we're famous here for our quest to “create the best entertainment on Earth”, and we're more often successful. What drives this success is human creativity, harnessing technology. I think this is exactly what you'll see in the future.

Undoubtedly, some of the latest technological advancements you've seen have made it easier to create assets. This is in line with the story of our industry. When I got into the interactive entertainment industry a long time ago, it was really hard to create an asset on a computer. Today is much easier. But do you know what's not so easy? Make a big hit. Being popular was difficult back then; it's hard now; it will be very difficult in the future. The creation of popular works is still a human thing.

James Heaney (Jefferies Research Division)

(Note: There was a technical interruption in the phone call, and the question was asked to be asked again.)

Q: Regarding the “new business opportunity” in the press release, what specific explanation did you have on this? What areas were unexplored in the past and now seem appealing? Also, can you update the progress of the mobile product portfolio's transformation to D2C and the benefits you've seen for revenue growth and profit margins?

Zelnick: Thanks for the question. First, let me apologize for the technical glitch just now. I'm sure I was answering a question at the time, and if anything wasn't clear, we'd be happy to follow up with everyone individually through Alan Lewis and Nicole Shevins' offices. I do have something specific to share about the picture I'm drawing of the future, but for obvious reasons I won't have much.

Making more and better hits for existing platforms is clearly the number one priority, and you can see that this has been reflected in our performance over the past few years. Second, there are new opportunities to reach consumers, including distribution technology, including streaming media. If streaming, for example, becomes a reality, it could greatly expand the size of our market. Other distribution opportunities include economically reaching new geographic regions that we were unable to reach economically in the past. India, Africa, and Asia other than China, South Korea, Taiwan, and Vietnam (which we are currently limited to) have a large population that plays video games. For obvious reasons, we currently don't sell much in Russia, nor in Latin America. Our business is still mainly concentrated in the US, the UK and Western Europe, plus a few markets in Asia. However, interactive entertainment is a pastime for people all over the world, and it will only become more so in the future. If we can find ways to reach people who don't necessarily have the latest and most expensive technology, and reach people outside of the most developed regions, our business can grow substantially.

Also, we think creatively we haven't touched the surface. The current performance of interactive entertainment through PC, console, and mobile is already very exciting, but we haven't reached the level of creativity that other entertainment industries have reached, and I don't think we'll reach it in years. This is what we call the “unknown unknown”, and we're working hard to find it. Plus, there are a bunch of other things we're doing that I can't share.

When it comes to D2C, it's not a transformation, it's an evolution. We're still retaining our third party partners, and we don't expect to get rid of them. We haven't disclosed the proportion of directly connected consumers in the mobile business. It is sizeable and growing, and clearly has a very substantial impact on profit margins and profits. It also allows us to directly interact with consumers and market directly to them, which is also positive.

Omar Dessouky (Bank of America BofA Research Division)

Q: Your reasons for the “Grand Theft Auto” series's year-on-year increase in recurring consumer spending are slightly different from the previous quarter. You've now additionally disclosed that strong sales of Ultimate Edition add-ons are driving growth. When you gave the full year GTA series RCS growth guide in August, were they also mainly based on the Ultimate Edition additions, or are there other growth contributors that may now be postponed to FY2028?

Goldstein: There's no change from what we said last quarter. We talked about the Ultimate Edition last year because we had a SKU plan and said it included additional content. As I said before, this content can be purchased separately, so it's included in recurring consumption expenses, which is the only part included in RCS, in addition to GTA Online. This has not changed.

Q: What is your strategy for retaining the first players after completing the “Grand Theft Auto VI” content? For example, do you expect players to continue playing Grand Theft Auto Online on the San Andreas (San Andreas) map after completing solo missions in Vice City (Vice City)? Or will they just keep replaying Grand Theft Auto VI single-player missions?

Zelnick: What you're describing is a series of “advanced annoyances.” There's so much to do in everything in GTA. I've never had to answer the question “what to do after clearing” because you can always keep playing. There's so much fun to talk about. I think that will be the case this time too.

Jason Bazinet (Citi Research Division)

Q: About three weeks ago, Bloomberg said in an interview with Rockstar's distribution director that the development cost of “Grand Theft Auto VI” was no more than 1.5 billion US dollars, which sparked some controversy among buyers: does this figure only refer to the stand-alone version, or does it also include the online version? What are your comments on this?

Zelnick: We never talked about budgets. Obviously, we have invested heavily in Grand Theft Auto VI, and I hope over time this will prove to be a wise investment. I would like to point out that when someone says “no more than a certain number”, it does not mean that it is “close” to that number, half, quarter, or tenth of that number. So I'm not going to draw a conclusion based on the correct answer to that question.

William Lampen (BTIG Research Division)

(Note: B. Riley's Andrew Crum was called before William Lampen but didn't seem to be able to connect, then asked again in a follow-up Q&A.)

Q: In the same interview, it was mentioned that Grand Theft Auto VI is the foundation on which you can build content faster. This seems consistent with your answer about creating more high-quality content as part of a new business opportunity. Can you help us understand: does this mean more frequent long-term service updates than previous GTA games, or does it open the door to shorter release cycles for major series, or both?

Zelnick: Since the launch of “Recurring Consumption Expenses,” we've said that our goal is to keep consumers engaged between big launches. Now our business has been transformed. The vast majority of our net bookings come from recurring spending and ongoing online interactions with our popular games. The big launch is an extra pillar to support this. What I wanted to say before was that this model will continue to evolve, and thanks to the high quality of our series, our team is increasingly able to interact with consumers in ways they love and want more. If you make something bad, nobody wants more; if you make something great, people want more; if you make something the best in the world, the demand is almost limitless as long as your other work remains the best in the world. Is technology our partner to accelerate this interaction, accelerate development, and related marketing? Yes. But ultimately, success is driven by our human creativity, harnessing the technology at hand to focus on creating the best entertainment on Earth.

Q: We're seeing a lot of growth in the industry driven by in-app ads. Similar to your update on D2C, I'd like to know the popularity of advertising and your growth prospects for this business.

Zelnick: I think we're mainly talking about the mobile business here. I really think there's a huge opportunity for advertising. Historically, mobile advertising was endogenous and was a mutual delivery between mobile games. I think more and more brands are seeing an opportunity to reach out to consumers through their love for interactive entertainment. If we can significantly expand our business to brand advertising — we've already started — that would be a great opportunity. Furthermore, our view is that all of our engagements should be monetized. Historically, mobile video games have monetized less than 20% of the audience through in-app purchases, usually around 10%. We're technically able to give people what they want: if they want a free experience, they can watch ads; if they want an ad-free experience, they can pay to buy it. But it doesn't make sense to serve consumers for free at our cost. I think the advertising business has huge opportunities for us, and our numbers reflect this, and the nature of this business will change in our favor.

Andrew Crum (B. Riley Research Division)

Q: As part of the fiscal third quarter outlook review, you mentioned that PlayStation and Xbox installs continue to grow. Considering the increase in console hardware prices, can we share the numbers implicit in the guidelines when considering the installation rate (tie ratio) of GTA VI? How does it compare to when GTA V went on sale?

Zelnick: I understand clarifying this question helps your model, but it didn't help us, so we didn't spend much time on it. Our job is to create the best entertainment and bring it to consumers around the world. Obviously, the better we do this job, the more we sell. When giving guidance, we naturally need to review our installed capacity to make sure our predictions are reasonable, and we did. But we tend not to be overly obsessed with estimating the installed rate because it doesn't change anything we do. Currently, Rockstar has completed the development of Grand Theft Auto VI — it should come as no surprise that there are only 10 days left until launch. They have created the best work that will soon be delivered to consumers. They're in the middle of a marketing battle, and unsurprisingly, it's fully ready. At the moment, the organization's task is to deliver products to consumers at an A+ level on a technical level. Rockstar will then focus on the next steps and will announce them in due course.

Taebin Song (Wolfe Research)

Q: From a management perspective, operating expenses in the fourth quarter seem to have implied a growth rate of about 10%. As Grand Theft Auto VI's sale ends next week can you share the drivers? Is it R&D, marketing, or other aspects of the entire organization?

Goldstein: This is mainly driven by growth in R&D. In addition, there is moderate growth in sales and marketing, as well as investment in IT expenses.

Martin Yang (Oppenheimer Research Division)

Q: Your PC players and console players seem to participate in GTA in a slightly different way, and there are role-playing options. In the long run, do you want to close the experience gap between console and PC, or view them as more independent platforms due to their respective technical capabilities?

Zelnick: I'm not sure I agree with your statement. I think some games, such as Civilization, first existed on PC and then expanded to consoles. Other games, such as NBA 2K, are basically launched simultaneously on all platforms. Of course, “Grand Theft Auto VI” was launched on both consoles when it went on sale on November 19. So it varies from game to game. But overall, the experience on console and PC is about the same. This may be different, but in general, there is no substantial difference between the capabilities of today's PC platforms and console capabilities.

Q: What do you think of GTA's post-launch marketing? Should we view marketing spending more as biased towards late FY2027? I saw that you had a music experience during the launch weekend. Should we expect marketing to remain strong even after Grand Theft Auto VI goes on sale?

Goldstein: Most of the marketing will focus on before and after the third quarter launch, but there will be some ongoing marketing in the fourth quarter, but most of it will be in the third quarter.

James Callahan (Piper Sandler Research Division)

Q: If you put aside the real piracy issue, I think it's clear that many consumers are interested in modding (modding) their own versions of games. I understand your investment in role-playing, but I'm curious if this changes the way you think about Grand Theft Auto Online or opens up new monetization opportunities?

Zelnick: That's a great question. Once again, our acquisition of FiveM reflects our support for certain consumers to participate in our intellectual property rights as creators. We also allow mods in a variety of other games. We're not dogmatic on this topic. The FiveM business is a profitable business for us, and it really creates economic opportunities.

But the way we run this company — I think that's the last question, so I'll end with that — runs the risk of being too repetitive. The company's mission is to create the best entertainment on the planet and bring it to consumers around the world. If we do it right, the monetization will come naturally. I think you'll see that in this fiscal year and in the coming fiscal year. I think we're likely to have a great start to the rest of the year soon.

Concluding Remarks (Strauss Zelnick)

First of all, thank you all for attending the conference today, thank you all for being patient with our technical interruptions, and apologize once again for this. I'd like to take a minute to thank our 13,000 extremely hard working, dedicated, and dedicated colleagues around the world. It's been a great quarter. We're feeling great about the rest of the year and the years ahead. The reason I can say this with confidence is because of the A+ team that arrives every day, our creative team and executive team, spread across many offices around the world.

I would also like to thank the shareholders for their support and thank everyone for attending the conference today. I wish everyone a happy and healthy holiday season. I know everyone will enjoy playing Grand Theft Auto VI when they are at home during the holidays. Thank you all.