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Take-Two and Zynga to Combine, Bringing Together Best-in-Class Intellectual Properties and a Market-Leading, Diversified Mobile Publishing Platform, to Enhance Positioning as a Global Leader in Interactive Entertainment

• Take-Two to acquire all the outstanding shares of Zynga for a total value of $9.86 1 per share – $3.50 in cash and $6.36 1 in shares of Take-Two common stock, implying an enterprise value of $12.7 billion
• Transaction represents a 64% premium to Zynga’s closing share price on January 7, 2022
• Establishes Take-Two as one of the largest publishers of mobile games, the fastest-growing segment of the interactive entertainment industry
• Unifies highly complementary businesses, including Take-Two’s best-in-class portfolio of console and PC games and Zynga’s industry-leading mobile franchises
• Creates one of the largest publicly traded interactive entertainment companies in the world, with $6.1 billion in trailing twelve-month pro-forma Net Bookings for the period ended September 30, 2021
• Transaction expected to deliver approximately $100 million of annual cost synergies within the first two years after closing, and more than $500 million of annual Net Bookings opportunities over time
• Conference call to discuss the transaction is scheduled for this morning at 8AM ET

New York, NY and San Francisco, CA – January 10, 2022 – Take-Two Interactive (NASDAQ: TTWO) (the “Company”) and Zynga (NASDAQ: ZNGA), two leaders in interactive and mobile entertainment, today announced that they have entered into a definitive agreement, under which Take-Two will acquire all of the outstanding shares of Zynga in a cash and stock transaction valued at $9.86 1 per Zynga share, based on the market close as of January 7, 2022, with a total enterprise value of approximately $12.7 billion. Under the terms and subject to the conditions of the agreement, Zynga stockholders will receive $3.50 in cash and $6.36 1 in shares of Take-Two common stock for each share of Zynga common stock outstanding at the closing of the transaction. The purchase price represents a premium of 64% to Zynga’s closing share price on January 7, 2022.

This transformative combination unifies two global leaders in the interactive entertainment business and establishes Take-Two as one of the largest and most diversified mobile game publishers in the industry, with $6.1 billion in pro-forma Net Bookings for the trailing twelve-month period ended September 30, 2021.

Both companies have created and expanded iconic franchises, which will combine to form one of the largest and most diverse portfolios of intellectual properties in the sector. Take-Two’s labels are home to some of the most beloved series in the world, including Grand Theft Auto®, Red Dead Redemption®, Midnight Club®, NBA 2K®, BioShock®, Borderlands®, Civilization®, Mafia®, and Kerbal Space Program®, while Zynga’s portfolio includes renowned titles, such as CSR Racing™, Empires & Puzzles™, FarmVille™, Golf Rival™, Hair Challenge™, Harry Potter: Puzzles & Spells™, High Heels! ™, Merge Dragons!™, Toon Blast™, Toy Blast™, Words With Friends™, and Zynga Poker™.

Management Comments

“We are thrilled to announce our transformative transaction with Zynga, which significantly diversifies our business and establishes our leadership position in mobile, the fastest growing segment of the interactive entertainment industry,” said Strauss Zelnick, Chairman and CEO of Take-Two. “This strategic combination brings together our best-in-class console and PC franchises, with a market-leading, diversified mobile publishing platform that has a rich history of innovation and creativity. Zynga also has a highly talented and deeply experienced team, and we look forward to welcoming them into the Take-Two family in the coming months. As we combine our complementary businesses and operate at a much larger scale, we believe that we will deliver significant value to both sets of stockholders, including $100 million of annual cost synergies within the first two years post-closing and at least $500 million of annual Net Bookings opportunities over time.”

“Combining Zynga’s expertise in mobile and next-generation platforms with Take-Two’s best-in-class capabilities and intellectual property will enable us to further advance our mission to connect the world through games while achieving significant growth and synergies together,” said Frank Gibeau, CEO of Zynga. “I am proud of our team’s hard work to deliver a strong finish to 2021, with one of the best performances in Zynga’s history. We are incredibly excited to have found a partner in Take-Two that shares our commitment to investing in our players, amplifying our creative culture, and generating more value for stockholders. With this transformative transaction, we begin a new journey which will allow us to create even better games, reach larger audiences and achieve significant growth as a leader in the next era of gaming.”

Strategic Rationale and Stockholder Value Creation

With Zynga’s stockholders receiving approximately 64.5% 1 of the transaction consideration in Take-Two stock, both groups of stockholders will benefit from the combined company’s greater scale, enhanced financial profile, and the synergies created through the transaction.

Combined company is well-positioned to capitalize on the interactive entertainment industry’s strong tailwinds, including a leadership position in mobile. The video game sector has experienced rapid growth over the last few years and is now the largest vertical in the entertainment industry 2 . Mobile gaming is the fastest growing segment within the industry, with an estimated $136 billion 2 in gross bookings in 2021, and an expected compound annual growth rate of 8% 2 over the next three years. The transaction is expected to establish Take-Two as a leader in mobile gaming, with mobile expected to comprise over 50% of its Net Bookings in Fiscal Year 2023 (as compared to an estimated 12% in Fiscal Year 2022). The transaction will bolster Take-Two’s mobile offerings, which include popular games such as Dragon City, Monster Legends, Top Eleven, Two Dots, and WWE SuperCard, and consist of a diverse array of titles that focus on many of the most popular genres in mobile gaming, including casual, hyper-casual, lifestyle, mid-core, puzzle, social casino and sports games.

Formation of an industry-leading portfolio, comprising Take-Two’s best-in-class intellectual properties and Zynga’s renowned mobile titles. The transaction will create a powerful and diverse portfolio of industry-leading titles that span key platforms and genres across interactive entertainment, developed by some of the most creative and forward-thinking talent within the industry. By sharing best practices and key data insights across the enterprise, the Company is expected to benefit from significant development and publishing synergies, unlock new revenue streams and reach new audiences around the world.

The combined entity has significantly greater scale , with $6.1 billion in Net Bookings, and $769 million 3 in Adjusted Unrestricted Operating Cash Flow on a pro-forma basis for the trailing twelve-month period ended September 30, 2021. Looking ahead, the combined company is expected to deliver a 14% 4 compound annual growth rate for Net Bookings (excluding the annual Net Bookings opportunities and any future acquisitions) over the three-year period from Take-Two’s Fiscal Years 2021 through 2024.

Addition of Zynga’s mobile titles will expand the Company’s base of Recurrent Consumer Spending (“RCS”). Through the addition of Zynga’s mobile business, particularly its diversified portfolio of live services and upcoming pipeline of new releases, Take-Two will increase its sources of RCS, a highly-attractive revenue stream that helps reduce volatility across reporting periods that has historically been driven by the cadence of Take-Two’s console and PC release slate.

Take-Two has also identified over $500 million of incremental annual Net Bookings opportunities to unlock over time, driven by:

Creation of new mobile games for many of the iconic franchises within Take-Two’s portfolio of intellectual property. Take-Two has an extensive catalog of commercially and critically successful console and PC titles with engaged and loyal communities of players, and there is a meaningful opportunity to create mobile games and new cross-platform experiences for many of these properties. Zynga’s nearly 3,000 employees include highly-talented mobile developers, paving the way for Take-Two to accelerate this strategic initiative and introduce its iconic intellectual properties across the fastest-growing platform in the industry.

Ability to optimize RCS by leveraging the collective knowledge across both companies. Both Take-Two and Zynga have extensive capabilities to engage players through live operations (“LiveOps”) and RCS initiatives. By combining resources and proven acumen, the teams at Take-Two and Zynga will deploy best-in-class practices throughout the organization to enhance and grow existing titles across the portfolio. Key opportunities include cross-marketing through a larger, shared customer database and improving game economies through more effective data analytics and machine learning models.

Other strategic benefits include the use of Zynga’s Chartboost advertising platform, which will improve new user acquisition through better audience targeting and optimize mobile advertising inventory to achieve greater yields; geographic expansion into growth markets across Asia, including India, and the Middle East, among other regions; and an enhanced focus on technological innovation and new business models that will utilize the collective knowledge of forward-thinking talent.

Take-Two expects approximately $100 million of annual cost synergies within the first two years after closing, primarily driven by the rationalization of duplicative overhead including corporate general and administrative expenses and public company costs, as well as the benefit of scale efficiencies across the enterprise.

The acquisition is structured to maintain a strong balance sheet , including significant annual cash generation. The combined company’s strategic and financial flexibility is expected to be greater than each company on a standalone basis, providing Take-Two with the financial resources to continue to invest in talent, development, and innovation, while also pursuing select inorganic growth opportunities.

At the close of the transaction, Strauss Zelnick will continue to serve as Chairman and CEO, and the management team of Take-Two will continue to lead the combined company. Zynga’s highly skilled and proven management team, led by Frank Gibeau and Zynga’s President of Publishing, Bernard Kim, will drive the strategic direction for Take-Two’s mobile efforts and will oversee the integration, and day-to-day operations of the combined Zynga and T2 Mobile Games business, which will operate under the Zynga brand as its own label within the Company. Additionally, Take-Two will expand its Board of Directors to 10 members upon the closing of the transaction to add two members from Zynga’s Board of Directors.

Terms of the Acquisition

Zynga stockholders will receive $3.50 in cash and $6.36 1 in shares of Take-Two common stock for each share of Zynga common stock outstanding at the closing. The transaction is valued at $9.86 1 per share of Zynga common stock based on the market closing as of January 7, 2022, implying an enterprise value of approximately $12.7 billion.

The transaction includes a collar mechanism on the equity consideration, so that if Take-Two’s 20-day volume weighted average price (“VWAP”) ending on the third trading day prior to closing is in a range from $156.50 to $181.88, the exchange ratio would be adjusted to deliver total consideration value of $9.86 per Zynga share (including $6.36 of equity value based on that VWAP and $3.50 in cash). If the VWAP exceeds the higher end of that range, the exchange ratio would be 0.0350 per share, and if the VWAP falls below the lower end of that range, the exchange ratio would be 0.0406 per share.

Within the collar range, the final number of Take-Two shares estimated to be issued on a fully diluted basis will range between approximately 50.3 million and 58.5 million shares. Upon closing of the transaction, current Take-Two stockholders will own between 67.2% and 70.4% and current Zynga stockholders are expected to own between 29.6% and 32.8% of the combined company on a fully diluted basis, respectively, including the shares associated with expected settlement of Zynga’s two outstanding series of convertible notes due 2024 and 2026.

As part of the transaction, Take-Two has received committed financing of $2.7 billion from J.P. Morgan and intends to fund the cash component of the transaction through a combination of cash from its balance sheet as well as proceeds of new debt issuance.

The merger agreement provides for a “go-shop” provision under which Zynga and its Board of Directors may actively solicit, receive, evaluate, and potentially enter negotiations with parties that offer alternative proposals during a 45-day period following the execution date of the definitive agreement, expiring on February 24, 2022. There can be no assurance this process will result in a superior proposal. Zynga does not intend to disclose developments about this process unless and until its Board of Directors has made a decision with respect to any potential superior proposal.

• Within a 7.5% symmetrical collar based on a Take-Two share price of $169.19 as the midpoint.
• Source: IDG Consulting.
• Based on the trailing twelve-month period ended September 30, 2021. Combines Take-Two’s Adjusted Unrestricted Operating Cash Flow of $467 million and Zynga’s Operating Cash Flow of $302 million.
• Due to different fiscal year ends, appropriate modifications were made to calculate information based on Take-Two’s fiscal year end.

Approvals and Close Timing

The transaction, which is expected to be completed during the first quarter of Take-Two’s Fiscal Year 2023, ending June 30, 2022, is subject to the approval of both Take-Two and Zynga stockholders and the satisfaction of customary closing conditions, including applicable regulatory approvals.

The transaction has been unanimously approved by the Take-Two and Zynga Boards of Directors. Moreover, each director and executive officer of Take-Two and Zynga have entered into voting agreements to support the transaction.

J.P. Morgan and LionTree Advisors are serving as financial advisors to Take-Two and Willkie Farr & Gallagher LLP is serving as legal counsel. Goldman Sachs & Co. LLC is acting as financial advisor to Zynga and Wilson Sonsini Goodrich & Rosati, Professional Corporation is serving as legal counsel.

Transaction Conference Call and Supplemental Materials

Take-Two and Zynga will host a conference call today at 8:00 a.m. Eastern Time to review the transaction and host a question and answer session. The call can be accessed by dialing (877) 407-0984 or (201) 689-8577. A live listen-only webcast of the call will be available by visiting http://ir.take2games.com . During the conference call and webcast, management will review a presentation summarizing the transaction, which can be accessed at http://t2mobile.take2games.com . All materials will be available following the call at the same location.

Operational Metric – Net Bookings

Net Bookings is defined as the net amount of products and services sold digitally or sold-in physically during the period, and includes licensing fees, merchandise, in-game advertising, strategy guides and publisher incentives.

Non-GAAP Financial Measure

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses a Non-GAAP measure of financial performance: Adjusted Unrestricted Operating Cash Flow, which is defined as GAAP net cash from operating activities, adjusted for changes in restricted cash. The Company’s management believes it is important to consider Adjusted Unrestricted Operating Cash Flow, in addition to net cash from operating activities, as it provides more transparency into current business trends without regard to the timing of payments from restricted cash, which is primarily related to a dedicated account limited to the payment of certain internal royalty obligations. This Non-GAAP financial measure is not intended to be considered in isolation from, as a substitute for, or superior to, GAAP results. This Non-GAAP financial measure may be different from similarly titled measures used by other companies. In the future, Take-Two may also consider whether other items should also be excluded in calculating this Non-GAAP financial measure used by the Company. Management believes that the presentation of this Non-GAAP financial measure provides investors with additional useful information to measure Take-Two’s financial and operating performance. In particular, this measure facilitates comparison of our operating performance between periods and may help investors to understand better the operating results of Take-Two. Internally, management uses this Non-GAAP financial measure in assessing the Company’s operating results and in planning and forecasting.

About Take-Two Interactive Software

Headquartered in New York City, Take-Two Interactive Software, Inc. is a leading developer, publisher, and marketer of interactive entertainment for consumers around the globe. We develop and publish products principally through Rockstar Games, 2K, Private Division, and T2 Mobile Games. Our products are designed for console systems, personal computers, and mobile, including smartphones and tablets, and are delivered through physical retail, digital download, online platforms, and cloud streaming services. The Company’s common stock is publicly traded on NASDAQ under the symbol TTWO. For more corporate and product information please visit our website at http://www.take2games.com .

About Zynga

Zynga is a global leader in interactive entertainment with a mission to connect the world through games. With massive global reach in more than 175 countries and regions, Zynga has a diverse portfolio of popular game franchises that have been downloaded more than four billion times on mobile including CSR Racing™, Empires & Puzzles™, FarmVille™, Golf Rival™, Hair Challenge™, Harry Potter: Puzzles & Spells™, High Heels!™, Merge Dragons!™, Merge Magic!™, Toon Blast™, Toy Blast™, Words With Friends™ and Zynga Poker™. With Chartboost, a leading mobile advertising and monetization platform, Zynga is an industry-leading next-generation platform with the ability to optimize programmatic advertising and yields at scale. Founded in 2007, Zynga is headquartered in California with locations in North America, Europe and Asia. For more information, visit www.zynga.com or follow Zynga on Twitter, Instagram, Facebook or the Zynga blog.

All trademarks and copyrights contained herein are the property of their respective holders.

Additional Information About the Proposed Acquisition and Where to Find It

This communication relates to a proposed business combination of Take-Two and Zynga that will become the subject of a registration statement on Form S-4 to be filed by Take-Two with the U.S. Securities and Exchange Commission (the “SEC”), which will include a joint proxy statement/prospectus. The registration statement on Form S-4, including the joint proxy statement/prospectus, will provide full details of the proposed combination and the attendant benefits and risks. This communication is not a substitute for the registration statement on Form S-4, including the joint proxy statement/prospectus, or any other document that Take-Two or Zynga may file with the SEC or send to their respective stockholders in connection with the proposed combination. Investors and security holders are urged to read the registration statement on Form S-4, including the definitive joint proxy statement/prospectus, and all other relevant documents filed with the SEC or sent to Take-Two’s or Zynga’s stockholders as they become available because they will contain important information about the proposed combination. All documents, when filed, will be available free of charge at the SEC’s website (www.sec.gov). You may also obtain these documents by contacting Take-Two’s Investor Relations department at [email protected]; or by contacting Zynga’s Investor Relations department at [email protected]. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.

Participants in the Solicitation

Take-Two, Zynga and their respective directors and executive officers may be deemed to be participants in any solicitation of proxies in connection with the proposed business combination. Information about Take-Two’s directors and executive officers is available in Take-Two’s proxy statement dated July 27, 2021 for its 2021 Annual Meeting of Stockholders. Information about Zynga’s directors and executive officers is available in Zynga’s proxy statement dated April 5, 2021 for its 2021 Annual Meeting of Stockholders. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the registration statement on Form S-4, including the joint proxy statement/prospectus, and all other relevant materials to be filed with the SEC regarding the proposed combination when they become available. Investors should read the registration statement on Form S-4, including the joint proxy statement/prospectus carefully when it becomes available before making any voting or investment decisions.

Cautionary Note Regarding Forward-Looking Statements

Statements contained herein which are not historical facts may be considered forward-looking statements under federal securities laws and may be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” or words of similar meaning and include, but are not limited to, statements regarding the proposed business combination of Take-Two and Zynga and the outlook for Take-Two’s or Zynga’s future business and financial performance. Such forward-looking statements are based on the current beliefs of Take-Two’s and Zynga’s respective management as well as assumptions made by and information currently available to them, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may vary materially from these forward-looking statements based on a variety of risks and uncertainties including: the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the inability to obtain Take-Two’s or Zynga’s respective stockholder approval or the failure to satisfy other conditions to completion of the proposed combination, including receipt of regulatory approvals, on a timely basis or at all; risks that the proposed combination disrupts each company’s current plans and operations; the diversion of the attention of the respective management teams of Take-Two and Zynga from their respective ongoing business operations; the ability of either Take-Two, Zynga or the combined company to retain key personnel; the ability to realize the benefits of the proposed combination, including net bookings opportunities and cost synergies; the ability to successfully integrate Zynga’s business with Take-Two’s business or to integrate the businesses within the anticipated timeframe; the outcome of any legal proceedings that may be instituted against Take-Two, Zynga or others following announcement of the proposed combination; the amount of the costs, fees, expenses and charges related to the proposed combination; the uncertainty of the impact of the COVID-19 pandemic and measures taken in response thereto; the effect of economic, market or business conditions, including competition, consumer demand and the discretionary spending patterns of customers, or changes in such conditions, have on Take-Two’s, Zynga’s and the combined company’s operations, revenue, cash flow, operating expenses, employee hiring and retention, relationships with business partners, the development, launch or monetization of games and other products, and customer engagement, retention and growth; the risks of conducting Take-Two’s and Zynga’s business internationally; the impact of changes in interest rates by the Federal Reserve and other central banks; the impact of potential inflation, volatility in foreign currency exchange rates and supply chain disruptions; the ability to maintain acceptable pricing levels and monetization rates for Take-Two’s and Zynga’s games; and risks relating to the market value of Take-Two’s common stock to be issued in the proposed combination.

Other important factors and information are contained in Take-Two’s and Zynga’s most recent Annual Reports on Form 10-K, including the risks summarized in the section entitled “Risk Factors,” Take-Two’s and Zynga’s most recent Quarterly Reports on Form 10-Q, and each company’s other periodic filings with the SEC, which can be accessed at www.take2games.com in the case of Take-Two, http://investor.zynga.com in the case of Zynga, or www.sec.gov. All forward-looking statements are qualified by these cautionary statements and apply only as of the date they are made. Neither Take-Two nor Zynga undertakes any obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

(Investor Relations) Nicole Shevins Senior Vice President Investor Relations & Corporate Communications Take-Two Interactive Software, Inc. (646) 536-3005 [email protected]

(Corporate Press) Alan Lewis Vice President Corporate Communications & Public Affairs Take-Two Interactive Software, Inc. (646) 536-2983 [email protected]

(Investor Relations) Rebecca Lau Vice President Investor Relations & Corporate Finance [email protected]

(Corporate Press) Kenny Johnston Director Communications [email protected]

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Take-Two buys gaming group Zynga in $12.7bn deal

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Take-Two will buy Zynga, in a union of two top game makers.

Adding Zynga’s stable of app developers is meant to help Take-Two roll out more smartphone versions of its popular video game titles.

By Michael J. de la Merced and Kellen Browning

• Jan. 10, 2022

The video game publisher Take-Two Interactive agreed on Monday to buy Zynga , a mobile game maker, for more than $11 billion, in a deal that unites the makers of Grand Theft Auto and FarmVille.

With the deal, Take-Two — known for producing games like Grand Theft Auto and NBA 2K for traditional platforms like the Sony PlayStation console and personal computers — is acquiring a specialist in mobile and social gaming, with Zynga’s best-known titles including Words With Friends and other apps.

Adding Zynga’s stable of app developers is meant to help Take-Two roll out more smartphone versions of its popular titles. Zynga will also help Take-Two expand its revenue from so-called recurrent consumer spending, in which players pay for new content and upgrades within games.

The deal values Zynga at about $12.7 billion, making it one of the largest in the history of the video game industry, topping the purchase of Supercell by the Chinese internet giant Tencent in 2016 for $10 billion and Microsoft’s acquisition of ZeniMax Media for $7.5 billion in 2020.

The gaming industry has boomed during the pandemic, providing large tech companies with the cash to buy smaller rivals. It has also helped more troubled companies like Zynga, which found early success tying itself to Facebook with the mobile game FarmVille. The company stumbled as the mobile gaming industry shifted away from social media and toward apps like Clash of Clans and Candy Crush.

Zynga has laid off employees and cycled through executives over the years as it struggled to maintain relevance. It was still losing money — $42 million — in its most recent quarterly earnings report.

By contrast, Take-Two is profitable and has gone on a buying spree since the pandemic, adding a handful of smaller studios to its portfolio of games.

“This strategic combination brings together our best-in-class console and PC franchises, with a market-leading, diversified mobile publishing platform that has a rich history of innovation and creativity,” Strauss Zelnick, Take-Two’s chairman and chief executive, said in a statement.

Frank Gibeau, Zynga’s chief executive, said in a statement that combining the two companies would “allow us to create even better games, reach larger audiences and achieve significant growth as a leader in the next era of gaming.”

Under the terms of the deal, Take-Two will pay $3.50 in cash and $6.36 worth of newly issued stock for each Zynga share. That amounts to $9.86 a share, up 64 percent from where Zynga closed on Friday.

Michael de la Merced joined The Times as a reporter in 2006, covering Wall Street and finance. Among his main coverage areas are mergers and acquisitions, bankruptcies and the private equity industry. More about Michael J. de la Merced

Kellen Browning is a technology reporter in the Bay Area covering the video game industry and general tech news. He graduated from Pomona College. More about Kellen Browning

Take-Two to acquire mobile gaming giant Zynga for $12.7B

Huge consolidation is afoot in the world of gaming. Today Take-Two Interactive announced a plan to acquire mobile games giant Zynga, in a deal valued at $9.86 per share — $3.50 in cash and the remaining $6.36 in shares of Take-Two common stock. Zynga’s enterprise value in the deal works out to $12.7 billion.

The deal will bring together two gaming powerhouses, Take-Two in consoles and PC games (including such iconic titles as Grand Theft Auto) and Zynga in a massive swathe of mobile games, a genre that was arguably largely defined by the company (it’s behind FarmVille, Empires & Puzzles, Words with Friends and more).

The deal, Take-Two said, will result in $6.1 billion in 12-month pro-forma net bookings (ending September 30, 2021), making it one of the largest gaming companies overall, regardless of platform.

The transaction is expected to close in Q1 of fiscal year 2023, subject to shareholder and regulatory approvals.

“We are thrilled to announce our transformative transaction with Zynga, which significantly diversifies our business and establishes our leadership position in mobile, the fastest growing segment of the interactive entertainment industry,” said Strauss Zelnick, chairman and CEO of Take-Two, in a statement. “This strategic combination brings together our best-in-class console and PC franchises, with a market-leading, diversified mobile publishing platform that has a rich history of innovation and creativity. Zynga also has a highly talented and deeply experienced team, and we look forward to welcoming them into the Take-Two family in the coming months. As we combine our complementary businesses and operate at a much larger scale, we believe that we will deliver significant value to both sets of stockholders, including $100 million of annual cost synergies within the first two years post-closing and at least $500 million of annual Net Bookings opportunities over time.”

“Combining Zynga’s expertise in mobile and next-generation platforms with Take-Two’s best-in-class capabilities and intellectual property will enable us to further advance our mission to connect the world through games while achieving significant growth and synergies together,” added Frank Gibeau, CEO of Zynga. “I am proud of our team’s hard work to deliver a strong finish to 2021, with one of the best performances in Zynga’s history. We are incredibly excited to have found a partner in Take-Two that shares our commitment to investing in our players, amplifying our creative culture, and generating more value for stockholders. With this transformative transaction, we begin a new journey which will allow us to create even better games, reach larger audiences and achieve significant growth as a leader in the next era of gaming.”

Strauss Zelnick will lead the larger company, with Gibeau and Zynga’s president of Publishing, Bernard Kim, overseeing the larger mobile business (including integrating Zynga with Take-Two’s existing mobile operations).

As with a lot of other consolidation moves, this is about cost savings through synergies. Take-Two said the deal would help the larger business save about $100 million annually after two years (first will come integrations). Take-Two already has a number of mobile games titles and has expanded its franchises into mobile, but this will give the company a significantly larger holding in the space.

This is key, considering how Zynga has fared over the years. Since a huge boom in its share price when it first went public, the company has been on a bit of a roller coaster, and over the last year has seen its share price drop , making it an acquisition target.

The move also puts to an end an era of sorts. As a startup based out of San Francisco’s SOMA district just as the city was coming into its own as a tech hub separate from Silicon Valley, it was an early mover in spotting and scaling the mobile gaming opportunity.

Initially it found huge traction as a social gaming giant, leaning on growth by way of Facebook’s social graph, but as that became annoying and spammy, over time Facebook changed the rules and cut off Zynga’s audience supply. More generally, the mobile gaming market has proven to be a more precarious one when it comes to consumer tastes and usage, and so a lot of Zynga’s success has been banked around finding (and sometimes acquiring) the next hot new title and franchise to replace those that have waned in popularity. (One of its bigger recent acquisitions was acquiring, in 2020, Turkey’s Peak Games, which had already established traction with Toon Blast and Toy Blast, for $1.8 billion .)

Combining with Take-Two, which also publishes Red Dead Redemption, Midnight Club, NBA 2K, BioShock, Borderlands, Civilization, Mafia and Kerbal Space Program, will give it a large library of franchises and IP from which to build new mobile gaming experiences. Similarly, Zynga’s IP may now find new traction in different formats and different screens.

What is interesting is whether and how the larger company will use its expanded content IP to think about how it engages with the market at large. These days so much action in gaming happens more on the platforms where people meet to discuss games and be social with each other, whether that is over Twitch, Discord or somewhere else.

The gaming market has seen a huge surge of attention in the last couple of years, as one of the “winners” in the wake of the COVID-19 pandemic with more people looking for diversions while staying put at home.Take-Two quoted figures that said overall the mobile gaming industry saw $136 billion in gross bookings in 2021 and is growing currently at 8%. Mobile will now account for half of Take-Two’s bookings, it said.

More to come…

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Watch CBS News

Take-Two Interactive buys Zynga in $12.7 billion deal

Updated on: January 10, 2022 / 1:54 PM EST / CBS/AP

Take-Two Interactive, maker of Grand Theft Auto and Red Dead Redemption, is buying Zynga, maker of FarmVille and Words With Friends, in a cash-and-stock deal with an enterprise value of about $12.7 billion.

Zynga shareholders will receive $3.50 in cash and $6.36 in shares of Take-Two common stock for each share of Zynga outstanding stock at closing.

Take-Two said Monday it anticipates $100 million in annual cost savings. The company's other popular games include BioShock, Borderlands and NBA 2K. Zynga's titles also include CSR Racing, Harry Potter: Puzzles & Spells and Toon Blast. 

"The existing Zynga portfolio contains a broad array of long-lived titles, and the potential synergies from a deal on [Take=Two's] operations have the potential to be significant," Andrew Marok, an analyst with Raymond James said in a report, adding that Take-Two "instantly becomes a major mobile player" with the transaction.

"Mobile remains the largest and fastest-growing platform in gaming, and this deal shows how serious" Take-Two is in pushing into the space, Marok said.

The deal is expected to close during the first quarter of Take-Two's fiscal 2023, ending June 30. It still needs approval of both Take-Two and Zynga stockholders.

Shares of Zynga, based in San Francisco, jumped 52% to $9.14. Shares of Take-Two Interactive Software, based in New York City, fell more than 8% to $150.66.

"Combining Zynga's expertise in mobile and next-generation platforms with Take-Two's best-in-class capabilities and intellectual property will enable us to further advance our mission to connect the world through games while achieving significant growth and synergies together," Zynga CEO Frank Gibeau said in a statement. 

Take-Two chief executive Strauss Zelnick will continue to serve as CEO after the purchase is complete. 

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Take-Two to Acquire Zynga in $12.7 Billion Deal

Video game maker (“Grand Theft Auto,” the “2K” games) for platforms buys mobile game maker

Take-Two is acquiring Zynga for $12.7 billion in cash and shares.

The terms are as follows: Take-Two is getting all of the outstanding Zynga shares for $9.86 apiece, which is a 64% premium on Friday’s closing price. Zynga shareholders will get $3.50 in cash and $6.36 in Take-Two common stock shares.

Take-Two Chairman and CEO Strauss Zelnick will continue to run the combined company under his current titles. Zynga CEO Frank Gibeau and President Bernard Kim will lead Take-Two’s mobile efforts. Zynga will continue to operate as its own label within the company.

Take-Two is best known for its video games made for current and previous-gen platforms, like the “Grand Theft Auto” series and all the “2K” games, as well as “Red Dead Redemption,” “BioShock” and others. It has made mobile games like “WWE SuperCard.”

Zynga is best known for making mobile games like “Words With Friends” and “FarmVille.” Mobile gaming is the industry’s fastest-growing segment.

The transaction is expected to close in the quarter ending June 30, 2022. Take-Two will expand its board of directors to 10 members to add two members from Zynga’s board.

“We are thrilled to announce our transformative transaction with Zynga, which significantly diversifies our business and establishes our leadership position in mobile, the fastest growing segment of the interactive entertainment industry,” Zelnick said in a statement on Monday. “This strategic combination brings together our best-in-class console and PC franchises, with a market-leading, diversified mobile publishing platform that has a rich history of innovation and creativity. Zynga also has a highly talented and deeply experienced team, and we look forward to welcoming them into the Take-Two family in the coming months. As we combine our complementary businesses and operate at a much larger scale, we believe that we will deliver significant value to both sets of stockholders, including $100 million of annual cost synergies within the first two years post-closing and at least $500 million of annual Net Bookings opportunities over time.”

“Combining Zynga’s expertise in mobile and next-generation platforms with Take-Two’s best-in-class capabilities and intellectual property will enable us to further advance our mission to connect the world through games while achieving significant growth and synergies together,” Gibeau added. “I am proud of our team’s hard work to deliver a strong finish to 2021, with one of the best performances in Zynga’s history. We are incredibly excited to have found a partner in Take-Two that shares our commitment to investing in our players, amplifying our creative culture, and generating more value for stockholders. With this transformative transaction, we begin a new journey which will allow us to create even better games, reach larger audiences and achieve significant growth as a leader in the next era of gaming.”

• Entertainment /

Why Take-Two wants to pay nearly $13 billion for the maker of FarmVille

Take-two wants zynga’s expertise with free-to-play mobile games.

By Jay Peters , a news editor who writes about technology, video games, and virtual worlds. He’s submitted several accepted emoji proposals to the Unicode Consortium.

Share this story

Take-Two Interactive just announced its intent to buy FarmVille developer Zynga for $12.7 billion in what could be the biggest acquisition in video game history. It’s an absolutely massive deal; to put it in perspective, the acquisition would be $5 billion more than Microsoft’s $7.5 billion purchase of the parent company of Skyrim maker Bethesda Softworks. You could throw in the money Disney paid for Lucasfilm and still have cash left over.

So what is Take-Two getting for its money? Yes, big Zynga games like FarmVille , Words With Friends , and High Heels! will join Take-Two’s own roster of franchises that includes Grand Theft Auto , NBA 2K , and Civilization . But perhaps more importantly, Take-Two will now be able to use Zynga’s expertise building hugely popular free-to-play mobile titles so it can make new hit games based on its own properties. In fact, Zynga will be the new brand for Take Two’s mobile efforts, and current Zynga CEO Frank Gibeau will lead that organization, indicating the potential direction of Take Two’s mobile future. 

Developers across the industry have been bringing big franchises to mobile

Developers across the industry have been bringing big franchises to mobile and earning a lot of money doing so. PUBG Mobile was the top-grossing mobile game worldwide in November 2021, earning “close to” $254 million, according to Sensor Tower . League of Legends: Wild Rift , the mobile-optimized version of the hit PC MOBA, was in the top ten for App Store revenue that same month. Pokémon Go brought in more than $5 billion in revenue as of its five-year birthday in July , Sensor Tower reported . The Tencent-owned studio that makes Call of Duty: Mobile reportedly earned $10 billion in 2020 .

And some of the biggest publishers have been buying their way into the space for years, with Activision Blizzard buying Candy Crush maker King for $5.9 billion in 2015 and EA buying Kim Kardashian: Hollywood developer Glu and Golf Clash maker Playdemic in 2021. Mobile games are big business, and it’s not hard to see Take-Two releasing free-to-play mobile versions of its biggest franchises with the help of Zynga. 

Take-Two was fairly explicit Monday on its intention to take this path. “We see tremendous untapped potential to bring Take-Two’s renowned console and PC properties to mobile, a high-priority initiative that will be energized by the addition of Zynga’s leading development, publishing, and live operations teams,” Take-Two CEO Strauss Zelnick said in an investor call Monday. Take-Two also noted that the acquisition offered a “clear path to bring Take-Two’s console/PC games to mobile” in an investor presentation ( PDF ). (The deal is expected to close in Take-Two’s first fiscal quarter of 2023, which ends on June 30th, 2022.)

The Zynga acquisition doesn’t mean that Take-Two will be bringing its franchises to mobile for the first time. Right now, you can download and play Grand Theft Auto III , Vice City , and San Andreas on your phone, for example. But those are paid titles on the iOS App Store and likely aren’t nearly as lucrative as some of the huge free-to-play hits on the market right now. (Take-Two already has some experience in that space, with its microtransaction-laden version of NBA 2K for mobile.)

It’s not hard to imagine Take-Two wanting to translate the massive success of ‘GTA Online’ to mobile

And speaking of GTA , it’s not hard to imagine Take-Two wanting to translate the massive success of GTA Online onto mobile platforms with Zynga’s expertise. Despite being released in 2013 — and requiring that you own Grand Theft Auto V to play it ( well, for now ) — GTA Online has remained hugely popular. In February 2021, Take-Two said the game “had more players in every month and for the entirety of calendar 2020 than in any other year since its launch,” according to GameSpot . It also offers in-game currency for real-world money that has proven to be lucrative; Take-Two cited the game as one of its largest contributors to its revenue as recently as its November earnings release ( PDF ).

In addition to the very obvious business opportunity there — it’s hard not to see some sort of free-to-play GTA being an absolutely massive hit — Zynga also brings expertise in supporting games for years at a time. Zynga still offers multiple free-to-play versions of Words With Friends , including both a “classic” version and a sequel, Words With Friends 2 , which seems like a better way to generate long-term revenue from a franchise than one-offs like 2K Games’ expensive and short-lived iOS port of BioShock . Imagine Take-Two and Zynga replicating the long-term model for GTA , Red Dead Redemption , Borderlands , and the rest of its titles, and you can start to see why Take-Two decided to pay as much as it did for the FarmVille -maker.

The deal isn’t just about turning Take-Two games into mobile hits. Take-Two highlighted how its “expertise in console/PC can be applied to Zynga’s cross-play ambitions;” Zynga is set to put its toe into console gaming with Star Wars: Hunters, which is coming to Nintendo Switch, iOS, and Android sometime this year . Take-Two plans to use Zynga’s Chartboost ad platform to “acquire new users more efficiently and optimize mobile ad inventory.” And yes, there may be something with NFTs in the future — Gibeau said during Monday’s investor call that “the idea that players will play-to-earn or play-to-own is a very compelling idea that we think will have legs as the industry develops,” according to Decrypt .

But it seems likely that the biggest shift following the acquisition is that Take-Two will start expanding its most important franchises into the lucrative world of free mobile games. While we don’t know exactly when the first games from the Take-Two / Zynga tie-up might be released, the acquisition could mean the next GTA might not be as far off as fans have worried — it just might be on your phone instead.

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Take-Two Interactive To Acquire Zynga

ANKARA, TURKEY - MARCH 13: In this photo illustration, a computer screen displays the logos of ... [+] "Zynga inc" and "Echtra Games inc" and a smart phone screen displays the logo of "Zynga inc", in Ankara, Turkey on March 13, 2021. (Photo by Aytac Unal/Anadolu Agency via Getty Images)

[Updated: 1/10/2022] Take-Two To Acquire Zynga

Take-Two Interactive (NASDAQ: TTWO) has announced its plan to acquire Zynga (NASDAQ: ZNGA) in a deal valued at $12.7 billion. Zynga shareholders will get $9.86 per share, including $3.50 in cash and $6.36 of Take-Two stock. This transaction reflects a large 64% premium to Zynga’s current value of $6 per share. [ 1 ] We have long maintained our view that ZNGA stock is undervalued, given its decline of over 37% over the last one year, compared to a large 23% rise for the broader S&P500.

Declining user engagement levels compared to the pandemic, and changes to Apple’s ad tracking policy are some of the reasons why ZNGA stock was being weighed down over the recent quarters. Zynga over the recent years has made multiple acquisitions and improved its revenue growth, a trend which is expected to continue going forward, as well. The stock price of ZNGA is up over 50% in after hours trading. Our coverage on Zynga, which includes Zynga Revenue Comparison , Zynga EBITDA Comparison , and Zynga Valuation , among others, provides more details on the company’s financial performance.

While ZNGA stock will likely see higher levels today, it is helpful to see how its peers stack up. Check out Zynga Stock Comparison With Peers to see how ZNGA stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons .

Below you’ll find our previous coverage of ZNGA stock where you can track our view over time.

[Updated: 12/7/2021] ZNGA Stock Update

The stock price of Zynga (NASDAQ: ZNGA) continues to underperform its peers as well as broader indices. While the S&P500 index has seen a rise of 9% over the last six months, ZNGA stock is down over 40%. Now, most of the gaming stocks, including TTWO and EA, have also underperformed the broader markets with negative returns of over 10% in the last six months, still faring better than ZNGA. ATVI stock is also down over 40% over the last six months, but it has its own stock-specific issues . Overall, user engagement levels for gaming were very high last year, when people were confined to their homes, but now with economies opening up, engagement levels are lower compared to last year.

For Zynga, such a large stock decline is unwarranted, in our view. Other than falling user engagement levels, what has impacted ZNGA stock is rising competition from the likes of Roblox, a gaming platform where users can play games developed by other users in a metaverse (refers to a virtual reality environment where users can interact with each other), and there are concerns over Apple’s policy on in-game advertising. Apple released a privacy update for iOS in April, making it hard for applications to track iPhone users without their consent. This ad-tracking change is likely to result in higher player acquisition costs for Zynga.

That said, the advertising growth of nearly 2x in Q3 2021, also aided by Rollic’s hyper-causal gaming portfolio acquisition, was better than the street estimates. The management also raised its full-year outlook and it has new game launches slated for Q4 and 2022, which, along with its Chartboost acquisition this year, is likely to bolster the top and bottom line growth going forward.

Going by our Zynga’s valuation of a little over $10, based on expected EPS of $0.38 and a P/E multiple of 27x, there is an upside potential of over 60% from the current levels of around $6. In fact, the $11 estimate as per average of analyst forecasts, reflects an even larger 73% upside from the current levels, clearly pointing that ZNGA stock is undervalued currently, and investors can use the current dip as a buying opportunity for strong gains in the long term.

But what about the near term, given that ZNGA stock has seen a fall of 12% in a month? Going by its historical performance, there is a slightly higher chance of a fall in ZNGA stock over the next month. Out of 313 instances in the last ten years that ZNGA stock saw a twenty-one day fall of 12% or more, 154 of them resulted in ZNGA stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 154 out of 313, or only a 49% chance of a rise in ZNGA stock over the coming month . See our analysis on ZNGA Stock Chances of Rise for more details.

So, if this follows its historical pattern, ZNGA stock may remain sideways in the near term. However, given that the stock is undervalued with a large upside potential, we still find the current levels to be attractive.

Wondering how Zynga’s peers stack up. Check out Zynga Stock Comparison With Peers to see how ZNGA stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons .

[Updated: 9/22/2021] ZNGA Stock Decline

The stock price of Zynga (NASDAQ: ZNGA) has seen a decline of 6.5% over the last week, while it is down 22% year-to-date. ZNGA stock has seen a gradual decline since it reported sluggish Q2 results in early August. Despite the recent acquisition of Rollic, the earnings were well short of our estimates, and there are rising concerns if Zynga can seen a meaningful earnings expansion over the coming years, something which the company has delivered in the past. Furthermore, there are already signs of slowing growth in user engagement levels after a sharp rise during the pandemic and gaming stocks at large have seen lower levels over the recent months.

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Now, there are some positive developments for Zynga as well. Recently, a federal judge ruled that Apple can’t force developers to use in-app purchases. [ 2 ] Gaming developers, such as Zynga, will now be able to offer payment options other than Apple, which takes between 15-30% of gross sales. This should help gaming companies improve their margins going forward.

The company also plans to launch FarmVille 3 for mobile, and it will likely result in better growth for Zynga’s revenue going forward, given the popularity of the franchise. The company will also launch its free-to-play Star Wars game, which is expected to bolster its user base and in-game purchases. Zynga also announced a social deception game - ReVamp - for Snapchat.

If you are considering Zynga stock as an investment option over a larger time frame, you can explore our forecast for Zynga’s valuation . We have maintained our view that ZNGA stock is undervalued and any dip can be used as a buying opportunity for long-term investors. But what about the near-term? Will ZNGA stock continue its downward trajectory over the coming weeks, or is a rise in the stock imminent?

According to the Trefis Machine Learning Engine, which identifies trends in the company’s stock price using ten years of historical data, returns for ZNGA stock average around -0.4% in the next one-month (twenty-one trading days) period after experiencing a 6.5% fall over the previous week (five trading days), implying that the stock is best avoided in the near term . But how would the returns fare if you are interested in holding ZNGA stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Zynga stock price forecast . You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!

MACHINE LEARNING ENGINE – try it yourself:

If ZNGA stock moved by -5% over five trading days, then over the next twenty-one trading days ZNGA stock moves an average of 0.3%, with only a 52% probability of a positive return over this period, based on the stock’s historical performance.

Some Fun Scenarios, FAQs & Making Sense of Zynga Stock Movements:

Question 1: Is the price forecast for Zynga stock higher after a drop?

Answer: Consider two situations,

Case 1: Zynga stock drops by -5% or more in a week

Case 2: Zynga stock rises by 5% or more in a week

Is the price forecast for Zynga stock higher over the subsequent month after Case 1 or Case 2?

ZNGA stock fares better after Case 2 , with an expected return of 0.2% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an expected return of 0.3% for Case 2. This implies a price forecast of $8 in Case 1 and a figure of $8 in Case 2 using ZNGA market price of $7.66 on 9/22/2021.

In comparison, the S&P 500 has an expected return of 3.1% over the next 21 trading days under Case 1, and an expected return of just 0.5% for Case 2 as detailed in our dashboard that details the expected return for the S&P 500 after a rise or drop .

Try the Trefis machine learning engine above to see for yourself how the forecast for Zynga stock is likely to changes after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer: If you buy and hold Zynga stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you - at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For ZNGA stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Zynga after a larger loss over the last week, month, or quarter.

Question 3: What about the stock price forecast after a rise if you wait for a while?

Answer: The expected return after a rise is understandably lower than after a drop as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.

It’s pretty powerful to test the trend for yourself for Zynga stock by changing the inputs in the charts above.

[Updated: 8/10/2021] ZNGA Stock Update

Zynga (NASDAQ: ZNGA) recently reported its Q2 results, which were below our estimates. The company reported revenues of $712 million, in-line with the consensus estimate of $713 million but slightly lower than our forecast of $725 million. The company’s adjusted EPS of $0.05 was well below the $0.11 per Trefis and $0.09 consensus estimates. While the company benefited from its recent acquisitions, including Rollic, a slower than expected growth in user pay impacted the company’s overall performance. Note that is was a tough comparison to the prior year quarter, which benefited from Covid-19 related lockdowns, as people were confined to their homes, eschewing more public forms of entertainment. This resulted in higher user-engagement levels for gaming companies, including Zynga.

Looking forward, the company has lowered its outlook for revenues to be around $2.8 billion, 3% lower than its previous guidance. This can primarily be attributed to two factors - 1. reopening of economies resulting in lower user engagement levels, and 2. Apple’s ad-tracking changes resulting in higher player acquisition costs for Zynga. Following a dismal Q2, and lowered guidance, ZNGA stock plummeted 18% in a single trading session on Aug 6.

We have updated our model following the Q2 release. We now forecast sales to be $2.6 billion for the full-year 2021, up 33% y-o-y, compared to our previous estimate of around $2.9 billion, and lower than the company’s guidance. Looking at the bottom line, we now estimate adjusted EPS to be $0.36, compared to our earlier estimate of $0.45. We believe that the impact of Apple’s changes to ad tracking on Zynga’s earnings will likely be higher than earlier estimated. Given the changes to our revenues and earnings forecast, we have revised our Zynga Valuation at a little over $11 per share, based on $0.36 expected EPS and a little under 31x P/E multiple for 2021. Although this marks a 20% discount to our prior estimate, it is still at a premium of around 37% to the current market price of $8, implying that ZNGA is undervalued currently, and investors can use this dip to buy for long-term gains.

[Updated: 8/4/2021] Zynga Q2 Earnings Preview

Zynga (NASDAQ: ZNGA) is scheduled to report its Q2 2021 results on Thursday, Aug 5. We expect the company to likely post revenue and earnings above the consensus estimates, primarily led by continued growth in the company’s key franchises - Empires & Puzzles and Merge Dragons. Zynga’s top-line will also be bolstered by contribution from its recent acquisitions. However, the company has cautioned for some pressure on advertising due to changes in the policies related to advertising from Apple. Barring the pressure on advertising, we expect Zynga to navigate well based on these trends over the latest quarter.

Furthermore, our forecast indicates that Zynga’s valuation is $14 per share, which is 40% above the current market price of around $10, implying that ZNGA stock is undervalued at its current levels. Our interactive dashboard analysis on Zynga Pre-Earnings has additional details.

(1) Revenues expected to be slightly above the consensus estimates

Trefis estimates Zynga’s Q2 2021 revenues (total bookings - includes change in deferred revenue along with total revenue) to be around $725 million, slightly above the $713 million consensus estimate, and $710 million per the company’s provided guidance. Despite the economies opening up with vaccination programs underway in multiple countries, the user engagement levels for gaming has remained on the higher side, compared to the pre-pandemic levels, and Zynga, in particular, has benefited significantly, due to its recently acquired gaming portfolios, which should bolster the overall top-line growth in Q2. Zynga’s Q1 2021 total bookings were up a solid 69% y-o-y to $720 million, primarily driven by higher user engagement levels for its top games, as well as the contribution from acquisitions of games from Rollic. Our dashboard on Zynga Revenues offers more details on the company’s segments.

2) EPS likely to be above the consensus estimates

Zynga’s Q2 2021 adjusted earnings per share is expected to be $0.11 per Trefis analysis, two cents above the consensus estimate of $0.09. The company’s net loss of $23 million in Q1 2021 was much better than a $104 million loss in the prior year quarter. However, on an adjusted basis, the company reported earnings of $84 million or $0.08 on a per share basis. For the full year 2021, we expect the adjusted EPS to be higher at $0.45 compared to $0.35 in 2020, and above the $0.40 consensus estimate.

(3) Stock price estimate a large 40% above the current market price

Going by our Zynga’s Valuation , with an EPS estimate of $0.45 and a P/E multiple of 31x in 2021, this translates into a price of $14, which is 40% above the current market price of around $10. In fact, at the current market price of $10, ZNGA stock is trading at just 22x its 2021 EPS estimate of $0.45. We continue to believe that Zynga deserves a higher P/E multiple given the strong revenue and earnings growth delivered over the recent past, a trend expected to continue going forward, as well.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year.

While ZNGA stock looks undervalued, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for IAC Interactive vs Activision Blizzard .

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

ZNGA Stock Return

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See all Trefis Price Estimates

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Take-Two Interactive Software (TTWO) Q1 2025 Earnings Call Transcript

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NASDAQ: TTWO

Take-two interactive software.

TTWO earnings call for the period ending June 30, 2024.

Image source: The Motley Fool.

Take-Two Interactive Software ( TTWO 2.43% ) Q1 2025 Earnings Call Aug 08, 2024 , 4:30 p.m. ET

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Greetings, and welcome to the Take-Two Interactive first quarter fiscal year 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator instructions].

As a reminder, this conference is being recorded.It is now my pleasure to introduce to you Nicole Shevins, SVP of investor relations and corporate communications. Thank you. Nicole, you may begin.

Nicole B. Shevins -- Senior Vice President, Investor Relations and Corporate Communications

Good afternoon. Thank you for joining our conference call to discuss our results for the first quarter of fiscal year 2025 ended June 30, 2024. 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. Now, I'll turn the call over to Strauss.

Strauss H. Zelnick -- Chairman and Chief Executive Officer

Thanks, Nicole. Good afternoon, and thank you for joining us today. I am pleased to report that fiscal year 2025 is off to a solid start. Our first quarter net bookings of $1.2 billion were in line with our expectations and our management team remains highly confident in our path forward.

We are reiterating our net bookings outlook for the year. As we release our groundbreaking pipeline, we expect to achieve tremendous growth, including sequential increases in net bookings in fiscal 2026 and 2027. I would like to thank our talented teams across our labels for their boundless passion, hard work, and dedication to our mission. Now, turning to our business highlights from the quarter.

The Grand Theft Auto series exceeded our expectations, as momentum continues to build ahead of the launch of Grand Theft Auto VI in fall 2025. Unit sales for Grand Theft Auto V continue to grow, and to date, the title has sold in over 200 million units. Grand Theft Auto Online also surpassed our projections, led by its summer content pack, Bottom Dollar Bounties, which launched June 25th. The audience for Rockstar's premium membership service, GTA+, grew strong double digits over last year, with Rockstar Games offering its members an array of valuable benefits that range from enhancing the in-game experience to providing access to their classic titles, including the recent addition of L.A.

Noire. We are pleased with the performance of Red Dead Redemption 2, which has sold in more than 65 million units to date. In addition, Red Dead Online continued to engage its audience during the period with new monthly bonuses and free outfits inspired by top content creators within the Red Dead community. NBA 2K24 delivered a solid quarter and, to date, has sold in close to 11 million units.

Engagement remains strong, with users playing more frequently and participating in more games compared to NBA 2K23 for the same period last year. The franchise continues to expand its audience through several innovative mobile experiences, including NBA 2K24, MyTEAM, a free-to-play card-collecting experience that has been downloaded nearly 3 million times since its launch in February. Moreover, NBA 2K24 Arcade Edition continues to enjoy huge success on Apple Arcade and is consistently a top two game on the service. WWE 2K24, which launched at the end of fiscal 2024, has continued to grow its audience and enhance its profitability.

Our teams have driven meaningful engagement through the release of several content packs, with more on the way. To date, players have logged 27 million hours of gameplay across more than 200 million matches featuring a series-high roster of over 300 past and present superstars. On April 4th, 2K and Cat Daddy Games released NFL 2K Playmakers, a new free-to-play mobile title that allows fans to collect NFL player cards and assemble an exciting roster of offensive, defensive, and special teams. We are proud to add NFL 2K Playmakers to our ever-expanding mobile portfolio in partnership with the NFL and the NFL Players Association.

On April 26th, 2K and Hangar 13 launched TopSpin 2K25, marking the return of our popular tennis franchise after a 13-year hiatus. The title was well-received by critics and fans alike, who praised its authentic tennis experience with deep personalization and legendary venues. 2K is supporting TopSpin with a series of Centre Court Passes that feature iconic courts, brands, and tournaments. During the period, we added to the caliber of our world-class development teams with our acquisition of Gearbox Entertainment.

We are thrilled to welcome Randy Pitchford and his studio to the Take-Two and 2K family. We have identified many potential growth opportunities for the Borderlands series and Gearbox's catalog. In addition, tomorrow marks the box office debut of the star-studded Borderlands feature film from Lionsgate, and we hope that audiences will enjoy experiencing the series' vibrant and character-driven world on the big screen. Zynga delivered another solid quarter, including phenomenal performance at Peak.

Match Factory! is scaling quickly and has established itself as one of Zynga's largest contributors to net bookings. The title is responding well to our investment in user acquisition, reflected in net bookings growth of more than 50% over last quarter. We believe that there are even more growth opportunities ahead as we add new features and updates. Toon Blast delivered strong year-over-year growth for the third consecutive quarter.

As the title celebrates its 7th anniversary this month, we are pleased that it has become a top 10 grossing game in the U.S. Apple App Store this quarter and has achieved more than $2.5 billion in lifetime gross bookings. On June 4th, Zynga and Lucasfilm Games launched Star Wars: Hunters. the label's first-ever cross-platform title, which is available for free on Nintendo Switch and iOS and Android devices.

Expanding the iconic Star Wars universe with new locations and characters, the competitive battle arena game received a tremendous amount of fanfare from the media and audiences around the globe. Players can look forward to additional content offerings coming soon. Our blended monetization efforts in hyper-casual are progressing well at Rollic, which crossed 3.6 billion all-time downloads. Fan-favorite titles, Screw Jam and Twisted Tangle, both performed well this quarter, becoming top 50 and top 100 grossing games, respectively, in the U.S.

Apple App Store. Our direct-to-consumer business continues to grow, and our teams are working actively to add more titles each quarter to this highly accretive, owned distribution channel. Looking ahead, Zynga has numerous titles in development and soft launch, including the latest installment in their popular racing franchise, CSR Racing 3. In closing, I believe that our talented creative teams and owned portfolio of iconic entertainment franchises are driving both the consistent performance of our company and our potential to achieve unprecedented levels of multiyear growth.

As we focus on our strategic priorities and embody our core tenets of creativity, innovation, and efficiency, I am confident that we will set new benchmarks for our industry and deliver strong returns for our shareholders. I will now turn the call over to Karl.

Karl Slatoff -- President

Thanks, Strauss. I'd like to thank our teams for continuing to deliver immersive and engaging entertainment experiences that are strengthening the foundation for our long-term success. Turning to our recent releases and announced offerings for the current year. On July 25th, Zynga launched a new Puzzle RPG title, Game of Thrones: Legends, which invites players to journey through the magical land of Westeros, featuring characters, lores, and storylines from HBO's popular Game of Thrones and House of the Dragon franchises.

The game marked the exciting return of Emmy and Golden Globe-nominated actor, Kit Harington, to the franchise, who also starred in a marketing campaign set in the title's immersive world. Player reception has been positive, with the title entering the top 10 in the overall Free Games category on the U.S. Apple App Store and on Google Play in the U.S. 2K and Visual Concepts will once again set new standards of excellence and realism for basketball in our industry with the launch of NBA 2K25.

The title officially launches on September 6th, and we are excited to offer fans that have preordered the game the ability to play up to two days early. Players will be able to forge a dynasty in MyCAREER and compete in new MyTEAM modes. Those on Gen 9 platforms will experience an added sixth era in MyNBA, a more dense and interactive city, and the chance to cement their GOAT status in The W. We are thrilled that Visual Concepts will release the Gen 9 version of NBA 2K25 for PC, which will provide our passionate community access to our series' most advanced gameplay and stunning graphics.

2K will have more details to share about the game leading up to its launch. In addition, Visual Concepts is currently developing WWE 2K25, which promises to take our successful pro-wrestling franchise to new heights when it launches later this fiscal year. Later this month, 2K and Firaxis Games will reveal more details about the eagerly anticipated launch of Sid Meier's Civilization VII, a revolutionary new chapter in our epic strategy video game franchise. In this 4X strategy game, players can establish their civilization, and construct cities and architectural wonders to expand their territory, conquer or cooperate with rival civilizations, and explore the far reaches of the unknown world.

We can't wait for Civ fans around the world to enjoy what promises to be the best title in the series' 30-year history. We also successfully launched a mobile Civilization game in China through our partnership with Tencent and are pleased that the title hit No. 1 on iOS and Android stores at launch. In closing, as we continue to execute upon our strategy, we believe that there are many opportunities that will enable us to deliver a period of significant margin expansion, long-term growth, and shareholder returns for Take-Two.

I'll now turn the call over to Lainie.

Lainie Goldstein -- Chief Financial Officer

Thanks, Karl, and good afternoon, everyone. We achieved solid first-quarter results by engaging our players with exciting new game releases and content updates while maintaining our focus on efficiency. We continue to have great confidence in our ability to deliver a multiyear period of growth. Our core franchises remain healthy, our teams are hard at work on the most ambitious development pipeline in our company's history, and we remain focused on new growth opportunities to enhance our business model and financial profile.

I'd like to thank our teams for enabling us to captivate millions of players every day and for their unwavering support for our long-term vision. Turning to our results, we delivered first-quarter net bookings of $1.22 billion, which was in line with our guidance range of $1.2 billion to $1.25 billion. Recurrent consumer spending was flat for the period and accounted for 83% of net bookings. Mobile increased mid-single digits, driven by the addition of Match Factory! and growth in Toon Blast, which was partially offset by declines in our hyper-casual mobile portfolio and Empires and Puzzles.

Grand Theft Auto Online and NBA 2K were both down. During the quarter, we launched TopSpin 2K25, No Rest for the Wicked on Early Access for PC, NFL 2K Playmakers, and Star Wars Hunters. GAAP net revenue increased 4% to $1.34 billion, while cost of revenue declined 6% to $567 million, and operating expenses increased by 8% to $956 million. On a management basis, operating expenses rose 12% year over year, which was better than our forecast, due to lower R&D and marketing costs.

Turning to our guidance, I'll begin with our full fiscal year expectations. Our business is performing well, and as Strauss mentioned, we are reiterating our net bookings outlook range of $5.55 billion to $5.65 billion, which represents 5% growth over fiscal 2024. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, our hyper-casual mobile portfolio, Match Factory!, Empires & Puzzles, the Red Dead Redemption series, Sid Meier's Civilization VII, and Words with Friends. We continue to expect recurrent consumer spending growth of approximately 3%, representing 77% of net bookings.

Our recurrent consumer spending forecast assumes a high single-digit increase for mobile, driven by Match Factory! and Toon Blast, which are partially offset by declines in our hyper-casual mobile portfolio and Empires and Puzzles. We expect flat results for NBA 2K and a decline for Grand Theft Auto Online. We expect the net bookings breakdown from our labels to be roughly 50% Zynga, 32% 2K,17% Rockstar Games, and 1% Other. We forecast our geographic net bookings split to be about 60% United States and 40% international.

We now expect non-GAAP adjusted unrestricted operating cash flow to be an outflow of $150 million, and we plan to deploy approximately $140 million of capital expenditures, primarily for game technology and office build-outs. We expect GAAP net revenue to range from $5.57 billion to $5.67 billion and cost of revenue to range from $2.38 billion to $2.41 billion. Our total operating expenses are expected to range from $3.70 billion to $3.72 billion as compared to $5.83 billion last year. On a management basis, we expect operating expense growth of approximately 10% year over year.

This is largely due to an increase in ongoing marketing support for Match Factory!, as well as other mobile and immersive core launches planned for the year, the addition of Gearbox, and higher personnel costs, partially offset by savings from our cost-reduction program. Excluding incremental marketing and the addition of Gearbox, our operating expenses are expected to grow low single-digits over last year. Now, moving on to our guidance for the fiscal second quarter. We project net bookings to range from $1.42 billion to $1.47 billion, compared to $1.44 billion in the second quarter last year.

Our release slate for the quarter includes Game of Thrones: Legends and NBA 2K25. The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Match Factory!, our hyper-casual mobile portfolio, Empires & Puzzles, Words with Friends, the Red Dead Redemption series, and Merge Dragons. We project recurrent consumer spending to increase by approximately 5%, which assumes a low double-digit increase for mobile, driven by the addition of Match Factory! and growth in Toon Blast, which are partially offset by declines in our hyper-casual mobile portfolio and Empires and Puzzles. We expect flat results for NBA 2K and a decline for Grand Theft Auto Online.

We expect GAAP net revenue to range from $1.29 billion to $1.34 billion. Operating expenses are planned to range from $982 million to $992 million. On a management basis, operating expenses are expected to grow by approximately 27% year over year, which is primarily driven by additional marketing for Match Factory! and Game of Thrones: Legends and the addition of Gearbox, partially offset by savings from our cost reduction program. In closing, we are confident in our ability to deliver a strong multiyear trajectory of growth, driven by our industry-leading talent, our diverse portfolio of iconic owned intellectual properties, and our groundbreaking development pipeline.

As we capitalize on our competitive advantages and pursue our strategic priorities, we believe that we will continue to grow our business, enhance our profitability, and deliver long-term value for our shareholders. Thank you. I'll now turn the call back to Strauss.

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for delivering results consistently that reflect our unique ability to provide the highest quality and most engaging entertainment offerings to our player communities. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions.

Questions & Answers:

Thank you, sir. [Operator instructions] And the first question comes from the line of Doug Creutz with TD Cowen. Please proceed with your question.

Doug Creutz -- Analyst

Hey, thanks. Your largest peer just released a college football game that has done exceptionally well, as I'm sure you've seen. Just curious, if that's caused any thoughts about potentially adding a college basketball feature to NBA 2K, whether it's a unit-based item or just another mode in the game. It seems like there might be a nice opportunity there.

Thanks for the question, Doug. So, yeah, obviously we did. We have noticed the success with college football and it's exciting to be in the stream. We've taken note of that, and we obviously do have history with college basketball, with college 2K, and we're always listening to our community and their interest to see if there's something that we might be able to do in the future.

That's across the board, not necessarily just with college generally speaking. Nothing to announce now, but obviously it did, we did take notice of it.

OK. Thank you.

And the next question comes from the line of Colin Sebastian with Baird. Please proceed with your question.

Colin Sebastian -- Analyst

Thanks. Good afternoon, everybody. I guess first off, with at least a year or so to go on development of the next GTA, I was just curious if you could sort of outline perhaps generically at this point in the production cycle of a game, at this scale, what parts of development are left to complete? I guess, are you still in the midst of core development? Are you approaching the testing stage? Any sort of color there I think would be interesting. And as a follow-up, Lainie, the increase in opex guidance for the year, is that more to support with marketing new titles, or was that something related to Gearbox? Any clarification there would be great.

Thanks, Colin. First of all, where we would be in-depth would be title-specific. So, at this stage of the game, it really would vary depending on the title. There's really no cookie-cutter answer to your question.

But in any case, it's not the kind of insight that we would give with regard to any specific development that's going on at the company.

And in terms of the increase in the opex, it's mostly driven by the acquisition of Gearbox into a lesser extent higher marketing, personnel, and occupancy expenses.

OK. Thank you, guys.

And the next question comes from the line of Andrew Marok with Raymond James. Please proceed with your question.

Andrew Marok -- Analyst

Thanks for taking my question. Maybe kind of a corollary to the last question, but with the news of the strikes getting underway, I've seen the reports that it won't affect games in development before September '23. But maybe for some of the earlier stage projects, how are you able to adapt your processes to still make headway? And is there a point in the dev process where you could hit blockers?

So, look, we deeply value our talent relationships, and historically we worked very successfully with all of the unions, including SAG-AFTRA. We continue to work hard to come to a resolution on this current situation. In fact, we have common ground on 24 out of 25 proposals. So, I'm pretty confident that we can get to a deal that will be mutually beneficial.

At the same time, we don't expect any impact whatsoever on our titles that are in development. If a strike went on for a very long time, obviously, that would affect us, and that wouldn't be a good idea for us or for the industry.

But we're cautiously optimistic that we'll be able to find common ground, and that's certainly our goal.

Gotcha. Thank you. And then maybe one quick clarification question on the back of that. Is there anything to consider on the expense side related to the strikes, like potential savings from stopped labor, or is that just something that probably isn't very material? Thank you.

We certainly -- we don't get any benefit from the situation.

And the next question comes from the line of Drew Crum with Stifel. Please proceed with your question.

Drew Crum -- Analyst

OK. Thanks, you guys. Good afternoon. So, I want to go back to Doug's question on college football as it relates to NBA 2K.

Curious if you are seeing anything in terms of leading indicators you track or anticipating any impact on sales from what appears to be now a more crowded sports category.And then, Lainie, just on RCS, it looked like it was a tad off your guidance for fiscal 1Q, but you kept the annual outlook unchanged. Can you just reconcile the two? Thanks.

Thanks for the question, Drew. In terms of the question about college football, no, we're not expecting, we're not seeing any significant or any impact on our NBA title based on the success of college football. Look, we're always competing for the customer's mind share and wealth across all titles. So, I don't necessarily think it's necessarily a sports issue for us, but no, we're not anticipating any effect on NBA 2K25.

And for the RCS all year, it's being driven by Match Factory! and Toon Blast, so that's why we're able to keep the full year.

Which is good news.

Yeah. Those games are doing fantastic.

Got it. OK Thanks, guys.

And the next question comes from the line of Benjamin Soff with Deutsche Bank. Please proceed with your question.

Benjamin Soff -- Deutsche Bank -- Analyst

Hey, guys. Thanks for the question. I wanted to ask a little bit about Star Wars Hunters, and it seems like the first game of that type that you guys have released since acquiring Zynga. And so, does this provide a blueprint to bring more AAA content to mobile? I'm just kind of curious to hear your thoughts there.

Look, we're very happy with the Star Wars Hunters. It was a really ambitious title. I think the team at NaturalMotion has done a great job. And I think the Zynga label actually has been really excited to launch this cross-platform title based on beloved IP.

And it's early yet to see how it will perform. So, the jury is out, but it's off to a really good start. And I do think that this successful development does potentially inform other titles, but each title stands alone. And as you know, it is our preference to focus on intellectual properties that we own.

And then as a quick follow-up, it looks like the outlook for NBA RCS changed a little bit. Just curious if you could drill down into the moving pieces there. Thank you.

So, we had a slight miss in Q1 that was driven by a few active users and vendors this year, which was driven by lower sales of unit due to the Gen 8 unit. But when we look at the full year, we expect that overall to be flat, and a lot of that is driven by NBA 2K24. We still have the same expectations that we did for NBA 2K25 as we did at the beginning of the year.

OK. That's helpful. Thanks, guys.

And the next question comes from the line of Martin Yang with Oppenheimer and Co. Please proceed with your question.

Martin Yang -- Analyst

Hi. Thanks for taking my question. First question regarding your overall view, can you give us an updated view on your approach to UGC across different franchises and how are you open to maybe modding both on PC and console for your future games?

We've been very open-minded, and we certainly are very excited about many things that our users are delivering in their engagement with our titles and other people's titles. Obviously, we're excited about what we see in the modding for the community, for GTA, and we think that that's pretty exciting. At the end of the day, entertainment companies need to bring great entertainment to consumers. That is the starting point.

And I'm not a believer that the industry will turn into a UGC-driven industry. However, for certain titles, for example, Roblox, they are really more platforms than they are in digital entertainment titles. And I think this company, we pride ourselves on making the best entertainment of any sort on earth. And if consumers want to add to that and enhance that for their own use, generally speaking, we would like to enable that behavior, generally speaking, protective of our intellectual property.

We're protective of other people's intellectual properties. But we do think that that can be a positive addition to the industry. I don't think it will define either our company or the industry, however.

Got it. Thank you. Another question for Lainie. Can you maybe clarify if GTA and NBA 2K24, that both franchises grew bookings on a year-over-year basis in the first quarter?

So, for the quarter for GTA, and we saw some – the title declined for net bookings in RCS. I'm sorry, what was the second title that you asked about?

2K24 compared to 2K23.

Well, I don't have '24 versus '23, but in general, NBA 2K declined in the quarter.

Thank you. That's it for me.

And the next question comes from the line of Mike Hickey with the Benchmark Company. Please proceed with your question.

Mike Hickey -- Analyst

Hey, Strauss, Karl, Lainie, Nicole. Great quarter, guys. Thanks for taking our questions. Just to Strauss, obviously, a lot of debate on our economic future here in the near term.

Always curious of your opinion. But I guess more importantly, just how you are thinking about maybe sort of a darkening macroeconomic picture impact on your business. You already sort of weathered one storm on mobile life service. Do you feel like you are more resilient if you go into a more challenging environment again? And then number two, it looks like trends in current-gen hardware sales have slowed.

And prior gen is feeling pretty sticky here. Some of that maybe is the macro. Some of it's maybe, just haven't seen the price release, Strauss, that we normally do at this point in the cycle. But other pieces may be services like GTR Mini still being very strong on prior gen.

So, just curious, your view on sort of where we are in the cycle and what implications it may have for your business. Obviously, it's impacted NBA, but thinking about maybe new software that is more current gen versus prior gen, what sort of challenges, opportunities you might have from that situation. Thanks, guys.

As drawdowns go, it was not a terrible drawdown. The unemployment rate at 4.2 or 4.4 is still very low unemployment. 114,000 jobs or so were added in the period which is solid. As you know, people have left the workforce.

So, I'm not particularly worried from one report that we're heading into some kind of consumer recession. I don't see it now. I'm also not in the business of predicting that sort of thing, but the metrics don't support that. Generally speaking, the entertainment business is pretty resilient in such a situation.

Of course, the business is not counter-cyclical and in some massive downturn, we of course would be negatively affected, but I just don't see that on the horizon. So, not a current concern for us, and we're awfully well positioned. As you know, our industry is back in growth mode. Console business is – for software that is up low single digits, mobile is up mid-single digits.

So, there are tailwinds, and our mobile business is really performing with all these new great titles, which we referenced today. We're really excited about our console pipeline as well, which we think will continue to perform. Obviously, we're announcing a quarter where we're right on track with very consistent results, that are squarely within or better than guidance and consensus. We've reiterated our guidance for the year, and we've said that we expect tremendous growth in fiscal '26 and '27.

So, we're about as optimistic as we can be without overstating the case, something that we try really hard not to do. Specifically, with regard to hardware, I saw the same stats that you did, and it looks like if you just measure four years in, last time this time, it seems to be like there's a bit of slowing. The report I saw said, well, we're the pro devices and the like, but everything always changes. Four years ago, PC wasn't anywhere near as meaningful as it is today for console-type releases.

That's a big growth market. No, I don't think what consumers are saying is they are good with Gen 8 and don't care about Gen 9. We saw the exact contrary with regard to NBA 2K, where Gen 8 actually was not a high performer and performed worse than we expected. Gen 9 has been incredibly powerful.

So, I think the Gen 9 platforms will continue to perform. I think you'll continue to see meaningful growth in that installed base, and I wouldn't put too much weight on a particular period of time. I was asked earlier today by someone, what's next on the hardware side? We're not in the hardware business, and I wouldn't even know how to answer that question, but what's next on the entertainment side and the software side is we've got a bunch of great titles in-market, great live services, and great new titles coming. We have the best pipeline we've ever had, and it's close to coming to fruition.

We feel really great about that.

Thanks, Strauss. Good luck, guys.

And the next question comes from the line of Omar Dessouky with Bank of America. Please proceed with your question.

Omar Dessouky -- Analyst

Hey, thanks a lot for taking my question. Strauss, I wanted to ask you, how big is the opportunity for a second soccer simulation game in the market? Whether you would comment on any rumors about 2K acquiring the FIFA license, and what your philosophy is on developing sports games, how long you might take, and what your strength might be in that regard?

Yeah, there's a lot there. Look, we're in the soccer business. We have the No. 1 mobile soccer manager title in top 11.

We're really happy that we do. We're also very mindful that it's incredibly difficult to build a great SIM experience for console. It takes a long time. And that if you do it right, your users are very loyal and very embedded.

I would just note with regard to the FIFA license, it does not bring along with it rights. It doesn't come with players, teams, or leagues. So, it's not as simple, for example, as negotiating with the NFL or the NBA or MLB, where at most you often negotiate with league and a players association. So, for anyone who would want to compete in a straight-ahead SIM environment for soccer, you wouldn't just have to address one particular brand license.

There's a whole lot more than that. And I think from our point of view, we have a great sports portfolio led by NBA 2K. We have WWE 2K, which is growing and profitable, really robust. We have a superb partner in TKO, a great partner at the NBA, with the NBA and the NBA Players Association with great partners, the NFL and the NFL Players Association, we're in the tennis business, we're in the golf business, so and the list goes on.

I'm sure we will make more announcements in due course.

Thank you very much.

And the next question comes from the line of Clay Griffin with MoffettNathanson. Please proceed with your question.

Clay Griffin -- Analyst

Hi. Good evening. Thank you. I'm curious on this, the year-over-year change in advertising net revenue.

I suspect that's something to do with the reorientation of the hyper-casual business. But Strauss, maybe just talk about what you think advertising can do for your more core portfolio of mobile titles like what you have in peak. And would you prefer to see kind of, I guess, external sources of demand in advertising there, or do you think the bigger opportunity is to continue push into direct-to-consumer and really just investing in more of the in-app side?

It really varies title by title. There are certain titles that really aren't built for much advertising. They are really more meant for in-app purchases. There are titles that can be both, and then there are titles that really have to be ad-driven, we have all of those.

And we want to make sure that we do offer appropriate ad units where they do make sense, and that has been a very significant area of growth for Zynga since the acquisition, and I think that will continue. What we want to make sure is that we monetize all of the engagement. Now, this is – historically, the mobile business has been one where you monetized a very small part of the engagement, and we don't think that that ought to be the case. We think that if consumers engage, there ought to be a way to monetize through advertising, through in-app purchases, potentially through both, as long as it's a really high-quality experience.

I think that's a completely separate topic from a direct-to-consumer offering, and that has been an area of enormous growth for many of our titles, but again, not all of them. Obviously, if a title is only ad-driven, that's not a relevant opportunity. We still really value our retail partners for distribution and marketing. We intend to stay in business with them.

Our strategy is to be where the consumer is. We don't intend to cut anyone off or try to own 100% of the business. However, when it makes sense to go direct-to-consumer, we will, and that has presented an enormous margin opportunity for us.

Great. Thanks.

And the next question comes from the line of Chris Schoell with UBS. Please proceed with your question.

Chris Schoell -- UBS -- Analyst

Great. Thank you. You pointed to the multiyear ramp in bookings as the pipeline builds in '26 and '27. Lainie, can you remind us how you are thinking about operating leverage and efficiencies alongside the bookings ramp? I recognize you've been going through a period of development and investment, which has impacted margins in recent years, but is it fair to think we can see a return to more historic margin levels once your cost initiatives are implemented and these new titles are released? Thank you.

So, let's see. We're coming through in '26 and '27, and we look at the pipeline and bringing it to fruition. We really have been working very hard in terms of producing our cost structure, the organization, and looking at places that we could be more efficient. So, we have announced a couple of cost-cutting initiatives that we've been doing over the last couple of years and looking at ways to streamline our cost between our corporate departments and our labels, as well as look for areas that we can continue to improve.

Also, looking at our pipeline and looking at titles that we think will be the most commercially successful. So, we've been doing a lot of that this past year, and we'll see an annualization of those costs in fiscal year '26. So, that will improve our margins, and we expect to continue to look for those opportunities in the future, which will continue to improve our margins in '26 and '27 as well.

OK. Great. Thank you very much.

And our final question comes from the line of Ed Alter with Jefferies. Please proceed with your question.

Ed Alter -- Jefferies -- Analyst

Hi, everyone. Thanks for the question. I noticed the big GTA update this June was right at the end of the quarter, where last year was a few weeks earlier. Could you talk about how those two updates did kind of compare to each other rather than with their arbitrary quarter-end?

So, we're actually really excited about the summer release for GTA Online this year. I know it's a fantastic result for us. In terms of comparing them directly to the, typically we don't even really compare the releases. They are all very different and we have different expectations, and they have different deliveries.

This was very strong for us, and it certainly helped us exceed our expectations for the quarter. But in terms of giving a direct comparison between this one and the last one, that's not something that we're prepared to do.

Ladies and gentlemen, at this time, we have reached the end of the Q&A session. And I would like to pass the call back over to Strauss for any closing comments.

I just want to thank our team that delivered these great results, as always. We believe we have the best and most talented creative teams in the business, and we're so grateful that we do. We have a phenomenally talented executive leadership team as well. We have 12,500 colleagues all around the world who work really hard every day in service of delivering the best entertainment to our consumers.

That's what they deserve, and that's what we aim to give them. Thank you for joining us today. We're really optimistic about the rest of the year and the years ahead.

[Operator signoff]

Duration: 0 minutes

Call participants:

Strauss Zelnick -- Chairman and Chief Executive Officer

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Take-Two Earnings Emblematic of Endless Risk-Taking in Gaming Biz

By Kaare Eriksen

Kaare Eriksen

Media Analyst

• ‘Borderlands’ Blunder Proves Hollywood Hasn’t Mastered Adapting Video Games to Film 19 hours ago
• Bungie Layoffs Highlight Post-M&A Issues for Gaming Industry as Its Unions React 2 weeks ago
• Reality Check: Summer Hot Streak Won’t Dig U.S. Box Office Out of Deep Hole in 2024 2 weeks ago

In this article

• Since closing Zynga deal in 2022, Take-Two Interactive hasn’t seen profits for nine straight quarters
• Multiple rounds of layoffs were preceded by a decade of constant workforce expansion ahead of “GTA 6”
• The “Borderlands” film out today means seemingly little to CEO Strauss Zelnick

Between its leading live service, high revenues, heavy M&A activity and many layoff rounds, “Grand Theft Auto” parent Take-Two Interactive provides one of the best gaming biz gut checks every earnings season.

But after an enormous $2.9 billion loss last quarter , largely stemming from goodwill expenses incurred because of its $12.7 billion acquisition of mobile giant Zynga two years ago , what does a return to normal look like for the publishing group before its highly anticipated fall 2025 release window for “Grand Theft Auto 6”?

Truthfully, quarterly loss is the norm for Take-Two ever since its Zynga acquisition closed in May 2022. The second quarter of 2024 saw a net loss of $262 million, which was an improvement year over year but otherwise represents the ninth straight quarter of losses since Take-Two was last profitable.

This trend has persisted despite Zynga’s addition to the Rockstar and 2K labels proving an immediate boost for revenue, as Take-Two has raked in more than $1 billion in quarterly net bookings for two years.

Per chairman and CEO Strauss Zelnick , Q2 2024’s $1.2 billion in net bookings were in line with the company’s expectations, and management “remains highly confident in [Take-Two's] path forward,” indicating an acceptance of the losses incurred to get “GTA 6,” with its rumored $2 billion budget, to the finish line.

While all the in-game spending that came with a suite of popular Zynga games certainly complemented the near-$8 billion “Grand Theft Auto 5” has made to date, it didn’t erase the impact of adding thousands of roles to Take-Two's headcount when the deal closed, especially after Take-Two had already tripled in size in the wake of the 2013 “GTA 5” 2013 launch.

It’s no wonder the gaming giant has made as many as three rounds of layoffs within the span of a year, with its most recent cut in April affecting 5% of the company’s 12,400 employees (headcount as of the end of March).

That said, global layoffs in the games industry are trending downward, despite Bungie cutting 220 roles in July, and Take-Two chief Zelnick has indicated the company is not anticipating further layoffs ahead of “GTA 6” releasing next fall.

Take-Two's outlook for the rest of its fiscal 2025 isn’t expected to change much until FY26. It expects net bookings of $5.65 billion by the end of next March, slightly up from the $5.33 billion brought in throughout FY24. This is due in part to the completion of its acquisition of “Borderlands” studio Gearbox Software in June, which was valued at $460 million. 

However, Lionsgate’s adaptation of “Borderlands” that hit s theaters Friday isn’t representative of any big Hollywood push on Take-Two's part. Budgeted at around $115 million, the film is expected to misfire with an opening of $12 million to $16 million and critical pans as “Deadpool & Wolverine” continues to dominate the box office .  

It’s no sweat off Zelnick’s back, who reemphasized ahead of earnings that he’s “said all along that the value of [film] licenses is typically not all that significant, even in great success.” A “BioShock” film currently in the works was also scaled back in scope recently by Netflix, a move that lends credence to Zelnick’s trepidation over adapting gaming IP to the screen.

One year ago, Zelnick described film and TV projects as “typically very challenged asset classes” he’s familiar with, having come from a Hollywood background and chaired CBS before its 2019 merger with Viacom. 

As such, there won’t be a “Mario”-scale Hollywood success to help bridge the gap at Take-Two before “GTA 6” steers the “sequential increases in net bookings in fiscal 2026 and 2027” that Take-Two expects .

Likewise, Zelnick seemed unfazed on the earnings call when asked for his thoughts on SAG-AFTRA's recent strike against major gaming publishers, saying Take-Two doesn’t expect “any impact whatsoever” on its games in development, provided the strike doesn’t go on for a long time.

Until then, the company has September’s “ NBA 2K25 ” to keep prospects up for its post-layoff workforce as “GTA 6” hits the imminent one-year mark from its expected release.

As much as that game is likely to reverse the company’s ongoing losses, Take-Two remains a striking example of how the biggest gaming companies can suffer under the weight of necessary expansion to improve upon their products. 

‘Borderlands’ Blunder Proves Hollywood Hasn’t Mastered Adapting Video Games to Film

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Quarterly Earnings and Events

August 8, 2024 at 8:30 PM UTC

Q1 2025 Take-Two Interactive Software, Inc. Earnings Conference Call

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Q1 2025 Earnings Release

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May 30, 2024 at 5:50 PM UTC

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August 8, 2024

Take-Two Interactive Software, Inc. Reports Results for Fiscal First Quarter 2025

July 25, 2024

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July 11, 2024

Take-Two Interactive Software, Inc. to Report First Quarter Fiscal Year 2025 Results on Thursday, August 8, 2024

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About take-two interactive software.

Headquartered in New York City, Take-Two Interactive Software, Inc. is a leading developer, publisher, and marketer of interactive entertainment for consumers around the globe. The Company develops and publishes products principally through Rockstar Games, 2K, Private Division, and Zynga. Our products are currently designed for console gaming systems, PC, and Mobile including smartphones and tablets, and are delivered through physical retail, digital download, online platforms, and cloud streaming services. The Company’s common stock is publicly traded on NASDAQ under the symbol TTWO.

All trademarks and copyrights contained herein are the property of their respective holders.

Cautionary Note Regarding Forward-Looking Statements

Contact Information

Take-Two Interactive Software

Investor Relations / Corporate Communications

Email: [email protected]

• Transcripts

Take-Two Interactive Software, Inc. Q1 2025 Earnings Call Transcript

Take-Two Interactive Software, Inc. ( NASDAQ: TTWO ) Q1 2025 Earnings Conference Call August 8, 2024 4:30 PM ET

Company Participants

Strauss Zelnick - Chairman, Chief Executive Officer Karl Slatoff - President Lainie Goldstein - Chief Financial Officer Nicole Shevins - Senior Vice President of Investor Relations, Corporate Communications

Conference Call Participants

Doug Creutz - TD Cowen Colin Sebastian - Baird Andrew Marok - Raymond James Drew Crum - Stifel Benjamin Soff - Deutsche Bank Martin Yang - Oppenheimer & Co. Mike Hickey - The Benchmark Company Omar Dessouky - Bank of America Clay Griffin - Moffat Nathanson Chris Schoell - UBS Ed Alter - Jefferies

Greetings! And welcome to the Take-Two Interactive First Quarter Fiscal Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce to you Nicole Shevins, SVP of Investor Relations and Corporate Communications. Thank you, Nicole. You may begin.

Nicole Shevins

Good afternoon. Thank you for joining our conference call to discuss our results for the first quarter of fiscal year 2025, ended June 30, 2024. 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.

Now, I’ll turn the call over to Strauss.

Strauss Zelnick

Thanks, Nicole. Good afternoon and thank you for joining us today. I am pleased to report that fiscal year 2025 is off to a solid start. Our first quarter net bookings of $1.2 billion were in line with our expectations and our management team remains highly confident in our path forward.

We are reiterating our net bookings outlook for the year. As we release our groundbreaking pipeline, we expect to achieve tremendous growth, including sequential increases in net bookings in fiscal 2026 and 2027. I would like to thank our talented teams across our labels for their boundless passion, hard work, and dedication to our mission.

Now, turning to our business highlights from the quarter: The Grand Theft Auto series exceeded our expectations, as momentum continues to build ahead of the launch of Grand Theft Auto VI in fall 2025. Unit sales for Grand Theft Auto V continue to grow, and to date, the title has sold-in over 200 million units.

Grand Theft Auto Online also surpassed our projections, led by its summer content pack, Bottom Dollar Bounties, which launched June 25th. The audience for Rockstar’s premium membership service, GTA+, grew strong double digits over last year, with Rockstar Games offering its members an array of valuable benefits that range from enhancing the in-game experience to providing access to their classic titles, including the recent addition of L.A. Noire.

We are pleased with the performance of Red Dead Redemption 2, which has sold-in more than 65 million units to-date. In addition, Red Dead Online continued to engage its audience during the period with new monthly bonuses and free outfits inspired by top content creators within the Red Dead community.

NBA 2K24 delivered a solid quarter, and to-date, has sold-in close to 11 million units. Engagement remains strong, with users playing more frequently and participating in more games compared to NBA 2K23 for the same period last year.

The franchise continues to expand its audience through several innovative mobile experiences, including NBA 2K24, MyTEAM, a free-to-play card-collecting experience that has been downloaded nearly 3 million times since its launch in February. Moreover, NBA 2K24 Arcade Edition continues to enjoy huge success on Apple Arcade and is consistently a top two game on the service

WWE 2K24, which launched at the end of fiscal 2024, has continued to grow its audience and enhance its profitability. Our teams have driven meaningful engagement through the release of several content packs, with more on the way. To-date, players have logged 27 million hours of game play across more than 200 million matches featuring a series high roster of over 300 past and present super stars.

On April 4th, 2K and Cat Daddy Games released NFL 2K Playmakers, a new free-to-play mobile title that allows fans to collect NFL player cards and assemble an exciting roster of offensive, defensive, and special teams. We are proud to add NFL 2K Playmakers to our ever-expanding mobile portfolio in partnership with the NFL and the NFL Player’s Association.

On April 26th, 2K and Hangar 13 launched TopSpin 2K25, marking the return of our popular tennis franchise after a 13-year hiatus. The title was well-received by critics and fans alike, who praised its authentic tennis experience with deep personalization and legendary venues. 2K is supporting TopSpin with a series of Centre Court Passes that feature iconic courts, brands, and tournaments.

During the period, we added to the caliber of our world-class development teams with our acquisition of Gearbox Entertainment. We are thrilled to welcome Randy Pitchford and his studio to the Take-Two and 2K family. We have identified many potential growth opportunities for the Borderlands series and Gearbox’s catalog.

In addition, tomorrow marks the box office debut of the star-studded Borderlands feature film from Lionsgate, and we hope that audiences will enjoy experiencing the series’ vibrant and character driven world on the big screen.

Zynga delivered another solid quarter, including phenomenal performance at Peak. Match Factory! is scaling quickly and has established itself as one of Zynga’s largest contributors to net bookings. The title is responding well to our investment in user acquisition, reflected in net bookings growth of more than 50% over last quarter. We believe that there are even more growth opportunities ahead as we add new features and updates.

Toon Blast delivered strong year-over-year growth for the third consecutive quarter. As the title celebrates its 7th anniversary this month, we are pleased that it has become a top-10 grossing game in the US Apple App Store this quarter and has achieved more than $2.5 billion in lifetime gross bookings.

On June 4th, Zynga and Lucasfilm Games launched Star Wars: Hunters. the label’s first ever cross-platform title, which is available for free on Nintendo Switch and iOS and Android devices. Expanding the iconic Star Wars universe with new locations and characters, the competitive battle arena game received a tremendous amount of fanfare from the media and audiences around the globe. Players can look forward to additional content offerings coming soon.

Our blended monetization efforts in hyper-casual are progressing well at Rollic, which crossed 3.6 billion all-time downloads. Fan-favorite titles, Screw Jam and Twisted Tangle, both performed well this quarter, becoming top-50 and top-100 grossing games, respectively, in the US Apple App Store. Our direct-to-consumer business continues to grow, and our teams are working actively to add more titles each quarter to this highly accretive, owned distribution channel. Looking ahead, Zynga has numerous titles in development and soft launch, including the latest installment in their popular racing franchise, CSR Racing 3.

In closing, I believe that our talented creative teams and owned portfolio of iconic entertainment franchises are driving both the consistent performance of our company and our potential to achieve unprecedented levels of multi-year growth.

As we focus on our strategic priorities and embody our core tenets of creativity, innovation, and efficiency, I am confident that we will set new benchmarks for our industry and deliver strong returns for our shareholders.

I will now turn the call over to Karl.

Karl Slatoff

Thanks, Strauss. I’d like to thank our teams for continuing to deliver immersive and engaging entertainment experiences that are strengthening the foundation for our long-term success.

Turning to our recent releases and announced offerings for the current year: On July 25th, Zynga launched a new Puzzle RPG title, Game of Thrones: Legends, which invites players to journey through the magical land of Westeros, featuring characters, lores, and storylines from HBO’s popular Game of Thrones and House of the Dragon franchises.

The game marked the exciting return of Emmy and Golden Globe-nominated actor, Kit Harington, to the franchise, who also starred in a marketing campaign set in the title’s immersive world. Player reception has been positive, with the title entering the Top 10 in the overall Free Games category on the US Apple App Store and on Google Play in the US.

2K and Visual Concepts will once again set new standards of excellence and realism for basketball in our industry with the launch of NBA 2K25. The title officially launches on September 6th and we are excited to offer fans that have preordered the game the ability to play up to two days early.

Players will be able to forge a dynasty in MyCAREER and compete in new MyTEAM modes. Those on Gen-9 platforms will experience an added sixth era in MyNBA, a more dense and interactive City, and the chance to cement their GOAT status in The W.

We are thrilled that Visual Concepts will release the Gen 9 version of NBA 2K25 for PC, which will provide our passionate community access to our series’ most advanced game play and stunning graphics. 2K will have more details to share about the game leading up to its launch.

In addition, Visual Concepts is currently developing WWE 2K25, which promises to take our successful pro-wrestling franchise to new heights when it launches later this fiscal year. Later this month, 2K and Firaxis Games will reveal more details about the eagerly anticipated launch of Sid Meier’s Civilization VII a revolutionary new chapter in our epic strategy video game franchise.

In this 4X strategy game, players can establish their civilization, and construct cities and architectural wonders to expand their territory, conquer or cooperate with rival civilizations, and explore the far reaches of the unknown world. We can’t wait for Civ fans around the world to enjoy what promises to be the best title in the series’ 30-year history. We also successfully launched a mobile Civilization game in China through our partnership with Tencent and are pleased that the title hit Number 1on iOS and Android stores at launch.

In closing, as we continue to execute upon our strategy, we believe that there are many opportunities that will enable us to deliver a period of significant margin expansion, long-term growth, and shareholder returns for Take-Two.

I’ll now turn the call over to Lainie.

Lainie Goldstein

Thanks Karl, and good afternoon everyone. We achieved solid first quarter results by engaging our players with exciting new game releases and content updates, while maintaining our focus on efficiency. We continue to have great confidence in our ability to deliver a multi-year period of growth.

Our core franchises remain healthy, our teams are hard at work on the most ambitious development pipeline in our company’s history, and we remain focused on new growth opportunities to enhance our business model and financial profile. I’d like to thank our teams for enabling us to captivate millions of players every day and for their unwavering support for our long-term vision.

Turning to our results, we delivered first quarter net bookings of $1.22 billion, which was in line with our guidance range of $1.2 billion to $1.25 billion. Recurrent consumer spending was flat for the period and accounted for 83% of net bookings.

Mobile increased mid-single digits, driven by the addition of Match Factory and growth in Toon Blast, which was partially offset by declines in our hyper-casual mobile portfolio and Empires and Puzzles. Grand Theft Auto Online and NBA 2K were both down. During the quarter, we launched TopSpin 2K25, No Rest for the Wicked on Early Access for PC, NFL 2K Playmakers, and Star Wars Hunters.

GAAP net revenue increased 4% to $1.34 billion, while cost of revenue declined 6% to $567million and operating expenses increased by 8% to $956 million. On a management basis, operating expenses rose 12% year-over-year, which was better than our forecast, due to lower R&D and marketing costs.

Turning to our guidance, I’ll begin with our full fiscal year expectations. Our business is performing well, and as Strauss mentioned, we are reiterating our net bookings outlook range of $5.55 billion to $5.65 billion, which represents 5% growth over fiscal 2024.

The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, our hyper-casual mobile portfolio, Match Factory, Empires & Puzzles, the Red Dead Redemption series, Sid Meier's Civilization VII, and Words with Friends.

We continue to expect recurrent consumer spending growth of approximately 3%, representing 77% of net bookings. Our recurrent consumer spending forecast assumes a high single digit increase for mobile, driven by Match Factory and Toon Blast, which are partially offset by declines in our hyper casual mobile portfolio and Empires and Puzzles. We expect flat results for NBA 2K and a decline for Grand Theft Auto Online.

We expect the net bookings breakdown from our labels to be roughly 50% Zynga, 32% 2K,17% Rockstar Games, and 1% Other. We forecast our geographic net bookings split to be about 60% United States and 40% international.

We now expect Non-GAAP adjusted unrestricted operating cash flow to be an outflow of $150 million, and we plan to deploy approximately $140 million of capital expenditures, primarily for game technology and office build outs.

We expect GAAP net revenue to range from $5.57 billion to $5.67 billion and cost of revenue to range from $2.38 billion to $2.41 billion. Our total operating expenses are expected to range from $3.70 billion to $3.72 billion as compared to $5.83 billion last year.

On a management basis, we expect operating expense growth of approximately 10% year-over-year. This is largely due to an increase in ongoing marketing support for Match Factory, as well as other mobile and immersive core launches planned for the year; the addition of Gearbox; and higher personnel costs; partially offset by savings from our cost reduction program. Excluding incremental marketing and the addition of Gearbox, our operating expenses are expected to grow low single-digits over last year.

Now, moving onto our guidance for the fiscal second quarter: We project net bookings to range from $1.42 billion to $1.47 billion, compared to $1.44 billion in the second quarter last year. Our release slate for the quarter includes Game of Thrones: Legends and NBA 2K25.

The largest contributors to net bookings are expected to be NBA 2K, the Grand Theft Auto series, Toon Blast, Match Factory, our hyper-casual mobile portfolio, Empires & Puzzles, Words with Friends, the Red Dead Redemption series, and Merge Dragons.

We project recurrent consumer spending to increase by approximately 5%, which assumes a low double-digit increase for mobile, driven by the addition of Match Factory and growth in Toon Blast, which are partially offset by declines in our hyper-casual mobile portfolio and Empires and Puzzles.

We expect flat results for NBA 2K and a decline for Grand Theft Auto Online. We expect GAAP net revenue to range from $1.29 billion to $1.34 billion. Operating expenses are planned to range from $982 million to $992 million. On a management basis, operating expenses are expected to grow by approximately 27% year-over-year, which is primarily driven by additional marketing for Match Factory and Game of Thrones Legends and the addition of Gearbox, partially offset by savings from our cost reduction program.

In closing, we are confident in our ability to deliver a strong multi-year trajectory of growth, driven by our industry-leading talent; our diverse portfolio of iconic, owned intellectual properties; and our groundbreaking development pipeline.

As we capitalize on our competitive advantages and pursue our strategic priorities, we believe that we will continue to grow our business, enhance our profitability, and deliver long-term value for our shareholders.

Thank you. I’ll now turn the call back to Strauss.

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for delivering results consistently that reflect our unique ability to provide the highest quality and most engaging entertainment offerings to our player communities. To our shareholders, I want to express our appreciation for your continued support.

We'll now take your questions. Operator.

Question-and-Answer Session

Thank you, sir. [Operator Instructions]. And the first question comes from the line of Doug Creutz with TD Cowen. Please proceed with your question.

Doug Creutz

Hey, thanks. Your largest peer just released a college football game that has done exceptionally well as I'm sure you've seen. Just curious, if that's caused any thoughts about potentially adding a college basketball feature to NBA 2K, whether it's a unit-based item or just another mode in the game. It seems like there might be a nice opportunity there. Thanks.

Thanks for the question, Doug. So yeah, obviously we did. We have noticed the success with college football and it's exciting to be in the stream. We’ve taken note of that, and we obviously do have history with college basketball, with college 2K, and we're always listening to our community and their interest to see if there's something that we might be able to do in the future. That's across the board, not necessarily just with college generally speaking. Nothing to announce now, but obviously it did, we did take notice of it.

Okay, thank you.

And the next question comes from the line of Colin Sebastian with Baird. Please proceed with your question.

Colin Sebastian

Thanks. Good afternoon, everybody. I guess first off, with at least a year or so to go on development of the next GTA, I was just curious if you could sort of outline perhaps generically at this point in the production cycle of a game, at this scale, what parts of development are left to complete? I guess, are you still in the midst of core development? Are you approaching the testing stage? Any sort of color there I think would be interesting.

And as a follow-up, Lainie, the increase in OpEx guidance for the year, is that more to support with marketing new titles or was that something related to Gearbox? Any clarification there would be great. Thank you.

Thanks Colin. First of all, where we would be in depth would be title-specific. So at this stage of the game, it really would vary depending on the title. There's really no cookie-cutter answer to your question. But in any case, it's not the kind of insight that we would give with regard to any specific development that's going on at the company.

And in terms of the increase in the OpEx, it's mostly driven by the acquisition of Gearbox into a lesser extent higher marketing, personnel and occupancy expenses.

Okay. Thank you, guys.

And the next question comes from the line of Andrew Marok with Raymond James. Please proceed with your question.

Andrew Marok

Thanks for taking my question. Maybe kind of a corollary to the last question, but with the news of the strikes getting underway, I've seen the reports that it won't affect games in development before September ‘23. But maybe for some of the earlier stage projects, how are you able to adapt your processes to still make headway? And is there a point in the dev process where you could hit blockers?

So look, we deeply value our talent relationships, and historically we worked very successfully with all of the unions, including SAG-AFTRA. We continue to work hard to come to a resolution on this current situation. In fact, we have common ground on 24 out of 25 proposals. So, I'm pretty confident that we can get to a deal that will be mutually beneficial.

At the same time, we don't expect any impact whatsoever on our titles that are in development. If a strike went on for a very long time, obviously that would affect us, and that wouldn't be a good idea for us or for the industry.

Okay, great.

But we're cautiously optimistic that we'll be able to find common ground, and that's certainly our goal.

Got you. Thank you. And then, maybe one quick clarification question on the back of that. Is there anything to consider on the expense side related to the strikes, like potential savings from stopped labor or is that just something that probably isn't very material? Thank you.

Oh, we certainly, we don't get any benefit from the situation.

And the next question comes from the line of Drew Crum with Stifel. Please proceed with your question.

Okay, thanks you guys. Good afternoon. So, I want to go back to Doug's question on college football as it relates to NBA 2K. Curious if you are seeing anything in terms of leading indicators you track or anticipating any impact on sales from what appears to be now a more crowded sports category.

And then, Lainie, just on RCS, it looked like it was a tad off your guidance for fiscal 1Q, but you kept the annual outlook unchanged. Can you just reconcile the two? Thanks.

Thanks for the question, Drew. In terms of the question about college football, no, we're not expecting, we're not seeing any significant or any impact on our NBA title based on the success of college football. Look, we're always competing for the customer's mind share and wealth across all titles. So, I don't necessarily think it's necessarily a sports issue for us, but no, we're not anticipating any affect on NBA 2K25.

And for the RCS all year, it's being driven by Match Factory and Toon Blast, so that's why we're able to keep the full year.

Which is good news.

Yes, into [inaudible].

Got it. Okay, thanks guys.

And the next question comes from the line of Benjamin Soff with Deutsche Bank. Please proceed with your question.

Benjamin Soff

Hey guys. Thanks for the question. I wanted to ask a little bit about Star Wars Hunters, and it seems like the first game of that type that you guys have released since acquiring Zynga. And so, does this provide a blueprint to bring more AAA content to mobile? I’m just kind of curious to hear your thoughts there. Thank you.

Look, we're very happy with the Star Wars Hunters. It was a really ambitious title. I think the team at NaturalMotion has done a great job. And I think the Zynga label actually has been really excited to launch this cross-platform title based on beloved IP. And its early yet to see how it will perform. So the jury is out, but it’s off to a really good start. And I do think that this successful development does potentially inform other titles, but each title stands alone. And as you know, it is our preference to focus on intellectual properties that we own.

And then as a quick follow-up, it looks like the outlook for NBA RCS changed a little bit. Just curious if you could drill down into the moving pieces there. Thank you.

So we had a slight miss in Q1 that was driven by a few active users and SSCR [ph], which was driven by lower sales of unit due to the Gen 8 unit. But when we look at the full year, we expect it overall to be 4.0 [ph] and a lot of that is driven by NBA 2K24. We still have the same expectations that we did for NBA 2K25 as we did at the beginning of the year.

Okay, that's helpful. Thanks guys.

And the next question comes from the line of Martin Yang with Oppenheimer and Co. Please proceed with your question.

Martin Yang

All right, thanks for taking my question. First question regarding your overall view, can you give us an updated view on your approach to UGC across different franchises and how are you open to maybe modding both on PC and console for your future games?

We've been very open-minded and we certainly are very excited about many things that our users are delivering in their engagement with our titles and other people's titles. Obviously, we're excited about what we see in the modding for the community, for GTA, and we think that that's pretty exciting.

At the end of the day, entertainment companies need to bring great entertainment to consumers. That is the starting point. And I'm not a believer that the industry will turn into a UGC-driven industry. However, for certain titles, for example, Roblox, they are really more platforms than they are in digital entertainment titles. And I think this company, we pride ourselves on making the best entertainment of any sort on earth.

And if consumers want to add to that and enhance that for their own use, generally speaking, we would like to enable that behavior, generally speaking, protective of our intellectual property. We're protective of other people's intellectual properties. But we do think that that can be a positive addition to the industry. I don't think it will define either our company or the industry, however.

Got it, thank you. Another question for Lainie. Can you maybe clarify if GTA and NBA 2K24, they both franchise role bookings on a year-over-year basis in the first quarter?

So, for the quarter for GTA, and we saw some – the title decline for net bookings in RCS. I'm sorry, what was the second title that you asked about?

2K24, compared to 2K23.

I don't have ‘24 or the first ‘23, but in general, NBA 2K declined in the quarter.

Thank you. That's it for me.

And the next question comes from the line of Mike Hickey with the Benchmark Company. Please proceed with your question.

Mike Hickey

Hey Strauss, Karl, Lainie, Nicole, great quarter guys. Thanks for taking our questions. Just to Strauss, obviously, a lot of debate on our economic future here in the near term. Always curious of your opinion. But I guess, more importantly, just how you are thinking about maybe sort of a darkening macroeconomic picture impact on your business. You already sort of weathered one storm on mobile life service. Do you feel like you are more resilient if you go into a more challenging environment again?

And then number two, it looks like trends in current gen hardware sales have slowed. And prior gen is feeling pretty sticky here. Some of that maybe is the macro. Some of its maybe, just haven't seen the price release Strauss that we normally do at this point in the cycle. But other pieces maybe services like GTR Mini still being very strong on prior gen.

So just curious, your view on sort of where we are in the cycle and what implications it may have for your business. Obviously, it's impacted NBA, but thinking about maybe new software that is more current gen versus prior gen, what sort of challenges, opportunities you might have from that situation. Thanks guys.

As drawdowns go, it was not a terrible drawdown. The unemployment rate at 4.2 or 4.4 is still very low unemployment. 114,000 jobs or so were added in the period which is solid. As you know, people have left the workforce. So I'm not particularly worried from one report that we're heading into some kind of consumer recession. I don't see it now. I'm also not in the business of predicting that sort of thing, but the metrics don't support that.

Generally speaking, the entertainment business is pretty resilient in such a situation. Of course, the business is not counter cyclical and in some massive downturn, we of course would be negatively affected, but I just don't see that on the horizon. So not a current concern for us, and we're awfully well positioned.

As you know, our industry is back in growth mode. Console business is – for software that is up low single digits, mobile is up mid-single digits. So there are tailwinds and our mobile business is really performing with all these new great titles, which we referenced today. We're really excited about our console pipeline as well, which we think will continue to perform.

Obviously, we're announcing a quarter where we're right on track with very consistent results, that are squarely within or better than guidance and consensus. We've reiterated our guidance for the year and we've said that we expect tremendous growth in fiscal ‘26 and ‘27. So we're about as optimistic as we can be without overstating the case, something that we try really hard not to do.

Specifically with regard to hardware, I saw the same stats that you did, and it looks like if you just measure four years in, last time, this time, it seems to be like there's a bit of slowing. The report I saw said, well, we're the pro devices and the like, but everything always changes. Four years ago PC wasn't anywhere near as meaningful as it is today for console type releases. That's a big growth market.

No, I don't think what consumers are saying is they are good with Gen 8 and don't care about Gen 9. We saw the exact contrary with regard to NBA 2K, where Gen 8 actually was not a high performer and performed worse than we expected. Gen 9 has been incredibly powerful.

So I think the Gen 9 platforms will continue to perform. I think you'll continue to see meaningful growth in that installed base, and I wouldn't put too much weight on a particular period of time.

I was asked earlier today by someone, what's next on the hardware side? We're not in the hardware business, and I wouldn't even know how to answer that question, but what's next on the entertainment side and the software side is we've got a bunch of great titles in market, great live services, and great new titles coming. We have the best pipeline we've ever had, and it's close to coming to fruition. We feel really great about that.

Thanks Strauss. Good luck guys!

And the next question comes from the line of Omar Dessouky with Bank of America. Please proceed with your question.

Omar Dessouky

Hey, thanks a lot for taking my question. Strauss, I wanted to ask you, how big is the opportunity for a second soccer simulation game in the market? Whether you would comment on any rumors about 2K acquiring the FIFA license, and what your philosophy is on developing sports games, how long you might take, and what your strength might be in that regard?

Yeah, there's a lot there. Look, we're in the soccer business. We have the number one mobile soccer manager title in Top 11. We're really happy that we do. We're also very mindful that it's incredibly difficult to build a great SIM experience for console. It takes a long time. And that if you do it right, your users are very loyal and very embedded.

I would just note with regard to the FIFA license, it does not bring along with it rights. It doesn't come with players, teams or leagues. So it's not as simple, for example, as negotiating with the NFL or the NBA or MLB, where at most you often negotiate with league and a players association.

So for anyone who would want to compete in a straight ahead SIM environment for soccer, you wouldn't just have to address one particular brand license. There's a whole lot more than that. And I think from our point of view, we have a great sports portfolio led by NBA 2K. We have WWE 2K, which is growing and profitable, really robust.

We have a superb partner in TKO, a great partner at the NBA, with the NBA and the NBA Players Association with great partners, the NFL and the NFL Players Association, we're in the tennis business, we're in the golf business, so and the list goes on. I'm sure we will make more announcements in due course.

Thank you very much.

And the next question comes from the line of Clay Griffin with Moffat Nathanson. Please proceed with your question.

Clay Griffin

Hi, good evening. Thank you. I'm curious on this, the year-over-year change in advertising net revenue. I suspect that's something to do with the reorientation of the hyper-casual business. But Strauss, maybe just talk about what you think advertising can do for your more core portfolio of mobile titles like what you have in peak. And would you prefer to see kind of, I guess, external sources of demand in advertising there or do you think the bigger opportunity is to continue push into direct-to-consumer and really just investing in more of the in-app side?

It really varies title-by-title. There are certain titles that really aren't built for much advertising. They are really more meant for in-app purchases. There are titles that can be both, and then there are titles that really have to be ad-driven, we have all of those. And we want to make sure that we do offer appropriate ad units where they do make sense, and that has been a very significant area of growth for Zynga since the acquisition, and I think that will continue.

What we want to make sure is that we monetize all of the engagement. Now this is – historically the mobile business has been one where you monetized a very small part of the engagement, and that, we don't think that that ought to be the case. We think that if consumers engage, there ought to be a way to monetize through advertising, through in-app purchases, potentially through both, as long as it's a really high-quality experience.

I think that's a completely separate topic from a direct-to-consumer offering, and that has been an area of enormous growth for many of our titles, but again, not all of them. Obviously, if a title is only ad-driven, that's not a relevant opportunity.

We still really value our retail partners for distribution and marketing. We intend to stay in business with them. Our strategy is to be where the consumer is. We don't intend to cut anyone off or try to own 100% of the business. However, when it makes sense to go direct-to-consumer, we will, and that has presented an enormous margin opportunity for us.

Great. Thanks.

And the next question comes from the line of Chris Schoell with UBS. Please proceed with your question.

Chris Schoell

Great. Thank you. You pointed to the multi-year ramp in bookings as the pipeline builds in ‘26 and ‘27. Lainie, can you remind us, how you are thinking about operating leverage and efficiencies alongside the bookings ramp? I recognize you've been going through a period of development and investment, which has impacted margins in recent years, but is it fair to think we can see a return to more historic margin levels once your cost initiatives are implemented and these new titles are released? Thank you.

So, let’s see. We're coming through in ‘26 and ‘27, and we look at the pipeline and bringing it to fruition. We really have been working very hard in terms of producing our cost structure, the organization, and looking at places that we could be more efficient. So, we have announced a couple of cost cutting initiatives that we've been doing over the last couple of years and looking at ways to streamline our cost between our corporate departments and our labels, as well as look for areas that we can continue to improve.

Also, looking at our pipeline and looking at titles that we think will be the most commercially successful. So we've been doing a lot of that this past year, and we'll see an annualization of those costs in fiscal year ‘26. So that will improve our margins, and we expect to continue to look for those opportunities in the future, which will continue to improve our margins in ‘26 and ‘27 as well.

Okay, great. Thank you very much.

And our final question comes from the line of Ed Alter with Jefferies. Please proceed with your question.

Hi, everyone. Thanks for the question. I noticed the big GTA update this June was right at the end of the quarter, where last year was a few weeks earlier. Could you talk about how those two updates did kind of compare to each other rather than with their arbitrary quarter end?

So, we're actually really excited about the summer release for GTA Online this year. I know it’s a fantastic result for us. In terms of comparing them directly to the, typically we don't even really compare the releases. They are all very different and we have different expectations and they have different deliveries. This was very strong for us, and it certainly helped us exceed our expectations for the quarter. But in terms of giving a direct comparison between this one and the last one, that's not something that we're prepared to do.

Ladies and gentlemen, at this time, we have reached the end of the Q&A session and I would like to pass the call back over to Strauss for any closing comments.

I just want to thank our team that delivered these great results as always. We believe we have the best and most talented creative teams in the business, and we're so grateful that we do. We have a phenomenally talented executive leadership team as well. We have well than a half thousand colleagues all around the world who work really hard every day, in service of delivering the best entertainment to our consumers. That's what they deserve, and that's what we aim to give them.

Thank you for joining us today. We're really optimistic about the rest of the year and the years ahead.

Ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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