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Record years from Grand Theft Auto Online and NBA 2K18 drive Take-Two

Unannounced entry from big 2K franchise pushed to fiscal 2020 as Strauss Zelnick talks Red Dead Redemption 2 expectations, loot boxes, and battle royale

Red Dead Redemption 2's original delay left a hole in Take-Two Interactive's fiscal 2018 release schedule big enough to drive a wagon train through. That said, thanks to strong performances from remaining releases like NBA 2K18 and WWE 2K18 and the continuing success of five-year-old games Grand Theft Auto Online and Grand Theft Auto V, Take-Two went on to post some of its best numbers ever.

The publisher reported its fiscal 2018 full-year results today, showing net revenues up slightly year-over-year to $1.793 billion, its best full-year since fiscal 2014, when the launch of Grand Theft Auto V helped push it to $2.35 billion. However, that number still fell shy of Take-Two's initial forecast for the year of between $1.95 billion and $2.05 billion. Net bookings were also up 5% to $1.99 billion, while net income was up 158% to $173.5 million.

For the fourth quarter (ended March 31), Take-Two reported net revenues down 21% to $450.3 million, while net income dipped 8% to $90.9 million. However, the quarter's net bookings were up slightly to $411.4 million.

Speaking with today, Take-Two CEO Strauss Zelnick acknowledged it was a catalog-driven year. In particular, Grand Theft Auto Online enjoyed another record year and a record fourth quarter, and Grand Theft Auto V reached 95 million copies shipped worldwide. As for new releases, NBA 2K18 was 2K's best-selling sports game ever, shipping 9 million copies in its first year, with recurrent consumer spending up 34% year-over-year.

Those numbers aside, the year ahead is far more interesting than the year behind for the company. While it announced a "highly anticipated title from one of 2K's biggest franchises" had been delayed from fiscal 2019 into fiscal 2020, the current campaign is still expected to see the much anticipated launch of Red Dead Redemption 2. When Take-Two first pushed the game into the current fiscal year, it reassured investors by giving an early forecast of its fiscal 2019. At the time, it expected revenues over $2.5 billion and net cash provided by operating activities over $700 million, which would both set new records for the company.

The company provided slightly more detail on that forecast today, projecting net revenues of $2.5 billion to $2.6 billion, with net cash from operating activities of approximately $710 million. While those numbers are up slightly from the original projection, they might come as a surprise given the delay of the unannounced 2K title. So if the release slate is slimmer, does that mean Red Dead Redemption 2 is expected to do even better, or was the unannounced game's contribution to the current fiscal year simply not factored into the initial forecast?

"We're factoring in the entire operation, how good the catalog is going, how Grand Theft Auto is doing, how Grand Theft Auto Online is doing, all the way to how WWE Supercard has been doing, which has been downloaded over 17 million times, or the fact that NBA 2K Online in China remains the number one online PC sports title, and we have NBA 2K Online 2 coming in China in this fiscal year," Zelnick said. "So across the board, the lineup is looking good and better. And obviously, of course we're highly excited about Red Dead Redemption 2, coming October 26."

When asked if he had any concerns about people developing unrealistic expectations for how Red Dead Redemption 2 would perform, Zelnick said the company is at least mindful to not get carried away internally.

"We never want to get ahead of our skis," he said. "All I can say is Rockstar Games is aiming to make the very best experience they can. They're utterly devoted to that, as you know. And then we are extraordinarily excited and we believe the marketing support will be phenomenal. Beyond that, of course, the consumer's going to vote, and we respect that."

Zelnick also addressed the recent spate of legislative concerns over loot boxes in light of a Belgian Gaming Commission recommendation for criminal prosecution against Activision, Valve, and Electronic Arts for the way they've handled the mechanic in some of their titles.

"The ESA's put out a statement on loot boxes and taken a position we support that loot boxes should not be considered a form of gambling in the first place," Zelnick said. "As it happens, it's not a game mechanic we typically use, although we have used it in the past. It's not a primary game mechanic for our titles. But we think game mechanics need to be tailored to the experience, and this can be an appropriate game mechanic. Naturally, we are sensitive to whatever's going on in the marketplace, and we're naturally sensitive to any potential regulatory situation. But I wouldn't say Take-Two expects to be meaningfully influenced by these concerns."

As for other industry trends drawing commentary from publisher executives in recent quarterly reports, Zelnick also addressed the success of battle royale games.

"There's no doubt Fortnite and PUBG have been incredibly successful, and the good news is that hits are good for business," he said. "They bring in new players to the market and create excitement around the market. And much as I would like to say we've cornered the market on hits, that's not realistic for any company. I would observe that while these games have been doing well, Grand Theft Auto Online delivered record results in the full fiscal year and the fourth quarter. So obviously that's very good news indeed in the context of this competitive environment, whatever that means."

As for the mechanic itself, Zelnick noted that Grand Theft Auto Online had several modes with similar features this year, but said Take-Two wouldn't be retooling its business to be derivative of another company's hits.

"We don't think that's how you create great intellectual property," Zelnick said.

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