Grand Theft Auto Online continues to drive Take-Two

Grand Theft Auto Online has been performing for Take-Two for almost four years now, and it apparently has plenty of gas left in the tank. The company today reported first quarter results for its fiscal 2018 today, posting better-than-expected results thanks in part to Grand Theft Auto Online's best quarter ever.

In a briefing call with GamesIndustry.biz, Take-Two chairman and CEO Strauss Zelnick acknowledged the game's ongoing success has surprised the company, which didn't originally plan on it sticking around this long, let alone still breaking records.

"When we first launched GTA Online, we didn't know how the title would be received," Zelnick said. "And we didn't know how virtual currency sales would pencil out. One of the reasons we haven't released a lot of metrics around that is because we've been learning as we go along. What I'm proud of is our approach at this company genuinely is first and foremost to entertain and delight our consumers, and only well after that point to think about how we monetize that engagement. As it turns out, monetization has gone very well indeed.

"When we launched GTA Online, we had virtual currency sales experience with NBA 2K, but we had no experience about what an online offering could look like on an ongoing basis. Even this year, we said we expected GTA Online to moderate its results. Now we're expecting it to have a record year. So clearly we continue to learn about consumer behavior as it occurs."

The game's continuing success is key for Take-Two this fiscal year, as the company's lineup of major releases took a major hit with the delay of Red Dead Redemption 2 into fiscal 2019. Take-Two's only release during the recently completed first quarter was a downloadable content pack for Mafia III, and the announced slate for the rest of the year consists entirely of Mafia III and XCOM 2 DLC, annualized stalwarts NBA 2K18 and WWE 2K18, and an expansion for the recently acquired indie hit Kerbal Space Program.

Even if the company can get by on the strength of GTA Online and NBA 2K--2K17 is officially now the most successful sports title the company has produced, with more than 8.5 million units shipped--Zelnick doesn't want to go through years like this too often.

"We don't want a light release schedule to become a common matter," Zelnick said. "To the contrary, we're trying to build up our frontline release schedule, and we've successfully done so in the past few years. Sometimes though, the vagaries of the development process will lead to a year that happens to have a limited release schedule. As we continue to increase our development capacity, the goal is to have more frontline titles reflecting these powerful franchises we own, and in any given year, bringing enough of them to market that we have a phenomenal year. And we've achieved that in past years. But it is gratifying to know we have a solid, diversified business, and in a year where we have a limited frontline release schedule, we have so many other activities inside the company that we can still deliver net sales and cash flow."

The light release schedule means investors as well as gamers will be looking ahead to the company's fiscal 2019, when Red Dead Redemption 2 is scheduled to launch. Zelnick acknowledged that anticipation, saying the company is expecting record net sales (a metric similar to what companies used to report as non-GAAP revenues) for fiscal 2019 of $2.5 billion. The previous record would likely be held by the company's fiscal 2014, which saw the company post non-GAAP net revenues of $2.414 billion on the strength of the original Grand Theft Auto V launch.

For the three months ended June 30, Take-Two reported net revenues up 34% to $418.2 million, with a net income of $60.3 million showing far better than the previous first quarter's net loss of $38.6 million. While the company's revenues were within guidance and it actually missed its projections for net income, it reported net sales of $348.3 million, considerably above the $290 million upper end of its forecast.

For the full fiscal year, Take-Two said it is was increasing its net sales expectations from $1.42 to $1.52 billion to a range of $1.65 to $1.75 billion based on a better-than-expected first quarter. However, it significantly cut its GAAP figures because the continued success of Grand Theft Auto V and GTA Online meant the company had to extend their lifespan, so under SEC regulations, much of the revenue they were expected to contribute must instead be recognized in future quarters. It previously expected GAAP net income of $504 to $540 million off GAAP net revenues of $1.95 to $2.05 billion, but now expects GAAP net income of $112 to $140 million on GAAP net revenues of $1.62 to $1.72 billion.