Take-Two Interactive today reported its financial results for the quarter ended June 30. The company continued to post significant losses, but the top-line growth of recent quarters has slowed down due to the acquisition of Zynga closing partway through the year-ago quarter, making for more difficult comparisons going forward.

The Numbers:

Take-Two fiscal 2024 first quarter results

Net revenue: Up 17% to $1.28 billion
Net bookings: Up 20% to $1.2 billion
Net losses: Nearly doubled to $206 million from the year-ago quarter’s $104 million

The Highlights:

Take-Two’s earnings report this quarter looks a lot like the last few, with significant gains in revenue and bookings paired with significant losses.

That’s been the pattern ever since Take-Two’s acquisition of Zynga closed during the first quarter of its previous fiscal year, but now that the combined Take-Two/Zynga is no longer being compared against the performance of Take-Two on its own, that top-line growth has started to slow.

One part of the business that still posted eye-catching growth was recurrent consumer spending, with net bookings in the virtual currency/DLC/in-game ads catch-all category growing 38% year-over-year.

Take-Two has put a lot of emphasis on growing its recurrent consumer spending over the years, so we ask Take-Two CEO Strauss Zelnick in an earnings briefing whether that was due more to increasing the number of players paying for add-ons, or if that was due to a similar cohort of paying players significantly increasing how much they spend on add-ons.

“It could be either mathematically, but our goal is to reach the broadest audience we can and serve them as effectively as we can,” Zelnick says.

But if recurrent consumer spending increases because people are paying more on average instead of reaching a broader audience, would there be a ceiling on how much Take-Two could expect that figure to be able to grow?

“We’re still well below that limit if you look at our competitors,” Zelnick says, “and we want to be there because we want to make sure that consumers not only have a great entertainment experience, but they feel that the economics were sound too.

“You can have a great experience, but if it feels like you overpaid for it, it taints the experience and you don’t want to repeat it. We never want consumers to feel like they spent too much, even if they got something they loved for it. So our goal is not to max out what a consumer can spend; our goal is to entertain consumers and reach as many consumers as we can.”

As for the continued losses, Take-Two has cautioned investors that it expects to finish the current year at least half a billion in the red, but it has also given them something to look forward to with an $8 billion net bookings forecast for fiscal 2025, which many have taken to mean that Grand Theft Auto 6 will debut during that year, even if the company isn’t confirming that.

“We continue to believe that we are positioning our business for a significant inflection point in Fiscal 2025 that will culminate in us delivering new record levels of operating performance next year and beyond,” the company said in releasing its results. “For the last several years, we have been preparing our business to release an incredibly robust pipeline of projects that we believe will take our company to even greater levels of success.”

Take-Two’s optimism isn’t limited to its own business. In light of Newzoo’s Global Gaming Market report projecting a return to growth for the industry in 2023, we ask Zelnick if what he’s seen in recent months suggests the “softness” in the market he cited in recent quarters has improved.

“It feels that way, but it’s early days,” Zelnick says. “On the console side, we’re seeing some return to strength. The mobile side is still challenged. That’s either slightly down or flat depending on how you look at it. I do believe we’re in the fastest growing part of the entertainment business and will be in that place for the next 20 years or so.

“Obviously to be down in ’22 – as the industry was – was very surprising and disappointing. I would say it’s early to declare victory, but not too early to say that we see some green shoots.”

In the meantime, Take-Two continues to move along, reporting net bookings on the high end of its forecast thanks to the usual suspects like NBA 2K23, Grand Theft Auto Online and Grand Theft Auto V, its hyper-casual mobile portfolio, Empires & Puzzles, Toon Blast, Merge Dragons!, Words With Friends, Red Dead Redemption 2 and Red Dead Online, and Toy Blast.

One game that wasn’t mentioned as a bookings driver was new release Lego 2K Drive. Zelnick seemed optimistic about the game’s longer-term potential.

“It’s early days still,” he said. “I think it’s a title that will sell over a long period of time because it’s a great title.”

Lego 2K Drive was released in May, less than two months after the game was announced. We asked about the trade-offs of short gaps from reveal to release, and what games might be better served by such a strategy than a slower build-up to launch.

“People’s attention is pretty thoroughly divided these days and you want your title to be front-of-mind,” Zelnick said. “Depending on the title, we could have a much longer window between announcement and release. But in certain instances you want to surprise people with an announcement, do a bunch of marketing and then go to market. It’s more art than it is science.”

During the quarter, Grand Theft Auto 5 added another 5 million to its units shipped total, which now stands at 185 million copies, and June saw more Grand Theft Auto Online players than any pre-pandemic June managed. (Grand Theft Auto 5 will mark its 10th anniversary later this quarter.)

Red Dead Redemption 2 added another 2 million to its shipment total, and now stands at 55 million shipped since its 2018 release.

NBA 2K23 has shipped 13 million copies, up 11% over its predecessor’s performance to this point, and now sitting as the NBA 2K game with the second-best sell-through ever, behind only NBA 2K20.

We ask Zelnick for an update on the cost reduction plan Take-Two announced in February, and whether we should expect any more layoffs associated with it.

“We announced a $50 million cost reduction program and overachieved that,” Zelnick said, adding, “While we’re always looking to be efficient – our three-part strategy is creativity, innovation, and efficiency – we don’t expect to have any more layoffs.”

Finally, with VGC reporting that some third-party publishers don’t want Nintendo’s Switch successor to have backward compatibility, we ask Zelnick how much of a negative impact a feature like backward compatibility has on software sales for new systems.

“I’m not sure,” he admits. “You need to give consumers what they want and optimize their experience, and you can’t not deliver a feature you’re able to deliver so as to maximize sales. That isn’t fulfilling your contract with consumers. You have to do the very best you can for them. I suppose it’s possible the lack of backward compatibility could enhance your revenue for a period of time, but at what cost?

“We’re not a hardware manufacturer so we don’t get to make those decisions. But I think if you can be compatible technically, then you want to be. However, in certain instances if the leap forward is great enough, that’s not a possibility.”