Take-Two Interactive Financial Deep Dive (Pixels & Profits #6) ft. Eric Kress

hello everyone and welcome to pixels and profits episode number six today we're doing something a little bit different where we go super deep and into fine detail on take two interactive take Deuce our Focus as pixels and profits will be on the business and financial analysis of the company and joining us today to discuss take two we have well we're joined by the Eric Cress from The Constructor fund podcast principal at gossamer Consulting and besides Eric again with us today you have the pixel Brothers myself Joseph K Matthew Countryman and Brian peganov welcome back guys and just to get things kicked off a little bit I was wondering what's going on like what what games are you playing and before we get into like the the numbers and the details uh what are you guys up to today's episode is sponsored by data.ai to access estimates rankings downloads

Revenue usage or engagement for millions of apps on the App Store and Google Play sign up for data.ai Matthew what are you doing you picked the wrong person I'm like nosy the like licensing exams right now so like I actually haven't played Diablo or Final Fantasy yet it's all on my list I'll get there when I'm done with this but I mean other in in the real world they've been playing golf you know I've got a handicapped down another another point so that's nice nice nice all right what kind of a self-respecting gamer are you like dude this is like the best year of games ever and you're out on the golf course I'm outside yeah hate me for being outside stop it no no no no I am uh playing Remnant 2 which I'm having a lot of fun with it's a co-op shooter it's a lot different than the first title so it's uh gearbox published um owned by embracer uh a lot of fun it's Co-op like I said call PVP shooter

or PVE shooter um it's got like some Destiny Vibes to it and a little bit of like Dark Souls it's got those hard puzzles in there mixed in but uh yeah one of the better games I played in a while okay what about you Eric I actually I did start remin2 uh I only got for like the first like 20 minutes but uh yeah I've just been knee deep in Diablo so I'm I'm season one I just level 50 at season one so uh just trying to hit that Grime this is this is my kind of looter shooter dude just like you know you know kill loot kill loot continue type thing so loving it nice all right well maybe we jump right in and Brian maybe you can go over the company fundamentals AKA fundies as you would call it yeah so uh take two publicly traded video game publisher and developer with a market cap of about 25 billion that makes it one of the largest and most Diversified after Activision which is 65

billion and EA at 37 billion so take two reports Gap revenue and net bookings alongside Gap EPs and as we know public market valuations for gaming names can take multiple different forms but historically take two Ebbs and flows off forward buy side expectations on adjusted EPS so the investment Community takes inputs for management and takes out the impact of non-recurring items uh So Tay 2 does not guide to adjust the DPS the next earnings call is going to be on August 8th and that is fiscal first quarter 2024. so the fiscal year runs from April to March so fiscal Q4 of 25 will report in April of 25 closing in March and just as a refresher netbookings is a measure of products and services sold in minus things like discounts and returns so take two did about 5.3 billion in 2023 with 833 million in ebitda and 300 3.46

in adjusted EPs and for fiscal 24 they've guided to five and a half billion net bookings driven by things like GTA online they're hyper casual portfolio which was formerly called Rolex Zynga midcore and Red Dead Redemption Opex was about 3.4 billion down one percent year on year on Lower UA Zynga synergies offset by things like higher stock comp Personnel expenses which is just shorthand for hiring and I T costs and that results in a gap net loss of 500 million bucks or roughly negative three dollars per share now last quarter management noted that fiscal 25 which is just a you know calendar 20 24 is a highly anticipated year for the company touting an incredibly robust pipeline of products alongside this they offered guidance of eight billion dollars in net bookings

and greater than one billion dollars in operating cash flow moreover they suggested year on year growth for fiscal 26 which is calendar 25 and the stock ripped about 10 11 percent the day after and has continued marching higher since then so you know with that is context take two is trading at about 3.1 forward bookings and call it like low 20s times forward ocf so the buy side debate right now is how much that 8 billion guy translates into adjusted EPS so again a bunch of moving Parts there which for the Bulls is somewhere in the seven to eight dollar range the stock is at 150 bucks last I checked and so we're looking at roughly 18 to 21 times forward eps so the obvious question here and the delegate controversy is how much uh how the company is going to grow um you know 2.5 billion dollars incrementally year on year uh especially since management didn't really call out

a GTA 6 uh timeline which is you know the biggest proxy for the stock historically um so you know Joe and Matt are going to go into the Oodles of Ip that take two has but the big question is is that achievable without GTA 6 and you know what are we missing there's not a huge amount of color in the in the financial disclosures around you know what sorts of games are coming out just that there is a butt load of games coming out yeah so I mean just for the audience because you went over a lot of numbers I think it's really important to highlight like the the big change here in terms of the guidance right so going from 5.5 billion to 8 billion is a pretty massive Gap and so when you think about you know what could possibly drive that much additional bookings I think we got to think it's you know I've been looking at the the Zynga or the new Zynga portfolio it's I you know and I'd love to hear from from Eric but I I feel like it's certainly not coming from mobile um you guys could speak to other parts of the business but I I think like and I

think probably everybody thinks this has got to be GTA 6 and I I don't know I mean I you know maybe actually Eric let's let's hear what you think like what what is your opinion on this yeah so this is like classic Strauss now I've been covering this company for what 20 years now it seems and this is like classic Strauss like don't look here look over there right this year is an absolute [ __ ] train wreck right so they're declining in Revenue [ __ ] zynga's a [ __ ] [ __ ] Show Everything is Everything is falling apart and they have no product right to release you know what the in the middle of a cycle when when the console business is as hot as it ever could be they don't have one game coming out this year I mean it's it's actually almost unforgivable right that that they don't really have any strategy whatsoever right this year and and we're going to talk about it later the Zynga acquisition was probably the most the worst acquisition ever made in video games right and so what he did was he

basically said look this year sucks but wait next year we're gonna do like a good deal million dollars in revenue and so everyone's like oh God that must be the GTA here and and there he goes right he's just managing wall Street's expectations absolutely flawlessly right and so the stock is almost getting close to the all-time high right now in the anticipation of that um and that's it and so the only thing that could really fill the Gap to answer your question is GTA um uh so releasing next year you know everything else is kind of uh small right so they have Bioshock they have Judas from Ken Levine you know basically that's the same game from different Studios um Revenue potential at five six million seven million units maybe right maybe maybe it could outperform I don't know um but uh yeah that's it GTA next year and my gut tells me honestly if you were gunning my head right now that they they will probably push it to fiscal 20

or calendar 26 right or sorry calendar 25. well then they have they have a little bit of leeway there too just because of the slippage and fiscal year so they could technically launch GTA ahead of March and still have that contribute towards next year's fiscal yeah you know you think it comes out for the holidays that's kind of the Ninja one no no I think it comes out in May of 2025 if I were to just you know educated guests right so they'll push you have an exceptional year the year after right and no one cares no one will care right if it's fy25 or FY 26 they're just gonna look at the flashy this game I mean we'll talk about it later but like I'm already seeing estimates for 35 million plus units in the first 12 months like this game is going to do gangbusters and be one of the biggest video game releases of all time red except it actually works and they won't release it broken they'll wait because they know that they can because it doesn't matter when they release it went back on that whole thing

about Zynga like what do you think the position of the stock would be right now if they hadn't made that transaction right because I think that we had some benefits of Zenga was this whole smoothing factor and maybe some incremental profitability to even out these troughs like it it's no longer just a trough and Peak EPS name it has some continent continuity to it but do you think they're worse off I think it's some in some sense they are I mean this is like kind of a uh albatross around their neck of declining revenue and earnings um so unlike if you compare this to the king acquisition was absolutely brilliant right where they bought it for like I think at the time they bought it for like 10 times earnings and they were trading it 20 times and and so they bought this thing and it didn't grow that much right it basically was like flat line declining a little bit but the [ __ ] cash flows were insane and so they did this total multiple Arbitrage and it basically increased the valuation of the company this is almost the opposite of that right where the

multiple that they paid was ridiculously high for for a business that was declining and the stock was at six dollars for a reason they bought it for 12 right um and and they're In Perpetual Decline and what we'll talk about this later but they they are continuing to decline when the Market's kind of stabilizing which is a little bit frightening you know and they have no pipeline so do you think it's a factor of King being super casual and Zenga being super mid hardcore I think that's part of it with idfa and all these other uh troubles with the mobile market which is not a very good place to be right now uh King was also like two products that mattered right so they they reinvested all their efforts and money ultimately into the two products and did an absolutely insane job of of managing the live Ops and then on top of that they added advertising which took them a long long time but that's just been just paying huge

dividends um so uh it was just a different and a much better business frankly than Zynga um and and and and and I think Bobby did a much better job of of buying it at the right time and then also managing it moving forward a completely different era in Mobile gaming too that that too that too we don't have this apple ecosystem in which apple is destroying the ecosystem with their nonsense you know um turning into a king low Fest we have to steer back on target here right so let's steer back on target so I'm gonna do a uh an overview of Rockstar and take uh 2K sides of the business and I'll pass it to right or Matthew just before you start just for the audience maybe we could also let them understand so so for you guys to understand take two you got to think about it in terms of like four groups basically four labels basically which is Rockstar Games 2K this thing called private division which maybe Matthew you can talk about a little bit as well and then Zynga which is like

where all the mobiles it sits today so go ahead Matthew uh Rockstar uh Rockstar 2K in private division I'll start with private division because it's easiest it's kind of irrelevant from a financial perspective like if you're into indie games they release some cool games but it doesn't really make any material amounts of money for take two so it's not really relevant to the investment conversation um but prior to the acquisition of Zynga you know take two is largely a console into electrical degree PC developer and publisher split across its 2K and Rockstar labels right so if we start with the 2K side of the business and uh the largest franchise is by bookings there uh NBA 2K is the biggest it's 135 million units sold lifetime the latest installment eclipsing 11 million units and that's on Pace to be another another record year for NBA 2K it you know continues to grow every year just like a lot of the sports franchises do across the console ecosystem Borderlands is in there 80 million units lifetime Borderlands 3 sold 17 million units Borderlands 2 sold 27 million units and

that is the highest selling game in 2K history you have civilization in there 67 million units BioShock 42 million units we talked about a new Bioshock coming and you got the other sports games and they're like WWE and PGA golf which I know Eric Kress wants to do 30 minutes talking about the competitive landscape for golf games um and then moving to Rockstar which is a bit more than half of netbookings for the overall company the key France is obviously your GTA um kind of always talk about how powerful GTA GT Online is but it's always nice to actually see the numbers the entire franchise historically has sold over 400 million units which I think is just an insane number to think about GTA 5 specifically has crossed 180 million unit 180 million units across three different console Generations so yes I'm one of the people who bought GTA 5 on like six different devices at this point but you know it's still insane that they've sold 180 million units uh GTA online is a big part of the story and that drives a lot of Revenue now and then Red Dead Redemption is like the other kind of big IP in there which is

sold 75 million in its lifetime with Red Dead Redemption Red Dead Redemption 2 reaching 53 and there's a bunch of smaller IPS in there like Max Payne L.A Noir and Midnight Club um the only thing I'll mention from private division that's notable just because it's a personal favorite game of mine is the outer worlds it's a really kind of fun looter shooter RPG game if you're into that um and oddly enough they're making a sequel and private division is still publishing it even though the developer obsidian bought by Xbox so it's an Xbox game being published by private division it's all a little bit weird anyways um Eric your thoughts on just kind of like the core business pre-zinga and how that's trending yeah I mean I would say like from an investment perspective I think their business is very very simple it's basically GTA and 2K you know kind of everything else is a footnote to some degree like they it adds something here and there like Bioshock um is coming again and that used to be a big franchise but we haven't seen that for a long long time Civ is like once every four years which

is a great PC game which adds some profitability but it's not it's not that big of a game Judas is in the works from Levine uh but I think it's not going to make too much money it's going to basically I think be a loser given how long it's been take to development um and then they have this absolutely ridiculous non-core Sports strategy something like kids sports division which was the dumbest like fever dream of someone at 2K that I've ever heard of it's like a casual football game a tennis game casual basketball game you know then the Lego 2K Drive was kind of dumb although I think I did okay but still it's just dumb it's just not smart and then the other one that actually um is interesting is Borderlands which is a big franchise for them but Randy Pitchford um kind of I think a squandered this franchise a little bit I don't think they really innovated enough uh they basically made the same game they'd have forever uh the same experience over and

over again so it's not really staying contemporary with things like Destiny and Division and others and now it's part of embracer and that place is just blowing up so I don't know it's really unclear as whether or not they can execute well against that but that also could be coming um this generation um so I guess my my whole thinking is if you really kind of understand what's going to happen with GTA and 2K you can make a justifiable case for investing in this company everything else is just kind of noise to some degree um and uh yeah and so I think that's why investors are getting excited again because of GTA's coming um and I will also note I think that they might also be trying to dip their toes in the shooter space they hired Michael condray to build a new studio out in Sanford I mean I don't know what that looks like in like three years without but you know you don't hire a Cod that had a the former head of Sledgehammer Games and a Cod guy if you're not going to build a shooter right yeah worth noting with the content you guys have laid out with the investment case for just Rockstar in 2K

is those two studios are the ones that have adapted their games to move away from just straight up box sales right Bioshock hasn't um so that's like it adds a lot of chop and volatility to the stock which is already very present uh if Borderlands that's one of my favorite games of all time Borderlands 2 was just an absolute Masterpiece but like Eric said like they didn't update graphic Fidelity or gameplay or much else it's just the same kind of thing and if you don't adapt you kind of get stuck in that similar kind of units mode where you sell in 10 12 maybe 19 million units for a great game but you're not going to get to the 30 40 50 that would drive a incremental increase in the stock and that that franchise for what it's worth could and especially if it could monetize Post Release with better things than just like you know new story packs and characters making it a true live service game that can be pretty special I yeah and and that's actually kind of what I was alluding to that was what their opportunity was right Borderlands actually lends itself perfectly to the

New World Order of software as a service live Ops content Cadence you know micro transactions all the stuff you know and and cosmetics and non-cosmetics like they could have done anything with that franchise it was like tabula rasa from the perspective of what people perceive that game to be which is a looter shooter right instead they made the same [ __ ] game they did in Borderlands 2. and yeah look people love that right and they played but that's not that's not lending themselves to upside long term and at the end of the day I don't know for Andy if it's Randy maybe he just doesn't have I mean he's kind of a lunatic right so like I don't know if he has that kind of vision for that franchise um and they haven't really built anything else successful since then so I I don't know I if he's a purist about it and he just keeps building the same thing I just don't think you can't expect any better results is kind of what I my thinking is but you're right it does have a lots of opportunity super thin again with this whole embracer thing like who the hell knows what's

gonna happen right I mean it's it's a it's a powder keg like there's no way he's sticking around with embracer at like 10 of the value when he was acquired right you know so yeah it'll be interesting to see how that all evolves and frankly the best thing for them to do to be somehow is to buy them out right if I think take two should be buying um Randy and his team from embracer because they need the cash right so that that would that could be something that happens yeah that would be bullish if I remember the the details of the of the gearbox acquisition as well I think most of it was back-end loaded right in terms of yeah based on the stock so yeah yeah all those Acquisitions are that that definitely sounds like a lot of move if yeah if if um definitely interesting possibility all right um so let's let's talk mobile Zynga all right and this one is very

interesting it is a huge boost for take two in terms of like mobile reach in Revenue and there does seem to have been a consolidation in which take two mobile games which included social Point play Dots and nordius are now kind of all under the Zynga label and Brian Mitch that take two did about 5.3 billion in bookings uh the last fiscal and now Zynga and all the mobile comprise the majority of Revenue about two and a half billion of that 5.3 billion um and in terms of titles I think the new Zinga label has key titles like CSR Racing Dragon City Empires and puzzles Farmville golf rival a Harry Potter puzzle of spells merge dragons merge magic Monster Legends tune blast top 11 toy blast two dots Words with Friends and syncopoker um there's also a bunch of hyper casual titles which still seems to be driving a ton of downloads surprisingly like downloads seem to be actually trending up with games like fill the fridge parking Jam 3D pressure washing run and

pull the pin but on a revenue basis and I was just looking at the top 18 titles from data.ai the revenue does seem to be trending downward which is not not a good good direction for it to be moving in and I do think Eric to your point you mentioned idfa deprecation I think that a lot of the impact of IDF deprecation has been blunted by fingerprinting and so for me the big question is going to be what happens in not necessarily an idfa deprecate post idfa deprecation rules but a post fingerprinting world now what happens in terms of AD revenues what happens in terms of well-based games like Empires and puzzles um I guess we'll find out I think that um you know just just looking at some analysis from Wall Street it does seem like they are counting on mobile to contribute to some degree in terms of additional bookings maybe 100 200

million or so so yeah I guess if if GTA 6 does not perform I don't think Mobile's gonna help help out the case what do you think Eric I mean look I I think fundamentally Zynga was the worst acquisition in the gaming industry from a value loss perspective um they gave up almost 40 percent of the company for a declining business um they've already taken a 500 million dollar impairment charge on the acquisition in the first quarter after after it was closed I mean the fact that Strauss and those guys were not fired for this it's just kind of a testimony in terms of uh strauss's uh you know kind of position within the company or you know whatever um the truth of matter is that you know app and he saw them tracking down like about four 14 and 22 they're down about 17 so far and calendar 23 off the down 14 I

mean so they are basically heading almost I mean heading to zero to some degree um you know advertising is helping soften this a little bit but they're still down about five to ten percent but I think what you need to understand is that they promised after this acquisition that that zingo was going to be growing at 10 plus 10 to 11 you know ongoing right and so they are literally 20 below their expectations at this point right so um but a lot of that has already been priced in the stock so that to be clear I mean people understand that that this acquisition is not good right but as you alluded to there I'm hearing well first of all I'm really worried about fingerprinting because you're right I think a lot of people have moved to fingerprinting in order to um help with uh attribution and targeting and that's going to be removed by the end of the year both for mobile for for iOS but then also for Android ultimately um and and that's gonna cause another

downward trend for the mobile space overall much less uh what's happening with zingo so while in the mobile space we see a little bit of of breathing room in the first six months of the year we're only down about three percent year over year once those things are put into place then I think we'll see another decline in the business and I think that will hurt um Zynga as well but I'm also hearing Rumblings that Frank is preparing to leave and without Frank leadership I'm just not sure the business will ever stabilize right um so I I'm I'm really worried about that I don't think the bench is deep enough to really maintain and keep this thing you know this this this big ship going um and they have absolutely nothing in the pipeline that's meaningful um and their Core Business continues to decline so it feels like something that's going to be down like five to ten percent for the next two or three years so that you're right they're not going to get any type of love from Zynga that I can see

um and then the biggest thing that I that kind of from my experience with Acquisitions that haven't worked out is that you know as you optimize for when you when you start to decline in Revenue you're you start optimizing around profitability right and as you optimize around profitability you start to decrease spend right which could continue the spiraling decline because successful games in this business are driven by user acquisition and so the minute you start to remove user acquisition from the table then you could continue to cut revenue and then ultimately continue to decline profitability and then you have to reduce more costs so as they cut more and more costs I just think that this becomes a more and more of a challenge for them to continue to grow um particularly to invest in new games right um so anyway I I just don't really see a way out of this and again if Frank leaves then that would even make it worse because they won't have a senior executive that's really supporting

um growth initiatives and and and spend against the business so anyway I don't know am I being way too negative on this guys I don't know I think well I'm going to get a little more negative the uh the part that I think that uh other folks maybe on the buy side are hinging against is like the huge uptick in developer head count that take two received with the acquisition of Zynga right like headcount went up dramatically and that this should spur Innovation and the ability to create more games but I think maybe joke and touching this a little better than I can but there's a big difference between uh folks that are developing mobile games and then folks that are developing things that you think more about the take to ecosystem right like these big fantastic open World Shooters core single player experiences that you know shock and awe with graphic Fidelity and things like that and then if we take a look at what sing is actually published or produced from an internal development standpoint over the last 10 years like I have a hard time figuring out much of anything right there were a few Casino titles that did over 100 million bucks they had some merge titles that did something in the high order of a 50 60

million bucks but they haven't had a breakout hit uh as long as I've been covering gaming in the stock market which is you know you know 10 years now I it's going to be a tough call and I think that it's probably more likely that it would have to do significant org Cuts if Zengo continues a struggle not deploying folks from corzynga over to like High Fidelity PC console type ecosystem projects uh and I guess the last thing we'll touch on too is like the notion that perhaps take to IP of which they have you know arguably more than anybody else in the entire gaming ecosystem uh publishing hits in a mobile format factor which I think is another thing that we've discussed in this podcast before but not always the best move uh those those experiences are on PC and console for a reason and they don't transition very easily to Casual unless you have this really crazy uh core Loop that just resonates with the IP and those are few and far between very very low hit rate yeah I think to your point Eric I I think that they're they're probably going to get a little

bit of a pass with GTA 6 coming and I I think but if you look at the the soundness or the health of the business as of the last fiscal and today it's not that great and so you know certainly when we look at GTA 5 and from like fiscal 14 to 15 we just saw like a huge drop after GTA 5 launched and so what happens I think 26 and out when you know all the revenue from GTA 6 starts to decline and you're really then again looking at the business is this a healthy business or not and I think to your point Eric I I you know they're gonna have to they're gonna have to manage this thing well they're gonna have to figure out how to um how to operate this company a little bit a little bit better in some way whether through additional hits or or through operating for cost I guess the part that we can also mention too is that there's this risk in being a little bit deeper in the name that you can kind of lose the is it the force for the trees or have you said like

uh 26 and 27 estimates just don't matter in this environment and right now like like I said buy side expectations are off next year's EPS um we have a high degree of confidence that they're going higher because most of us believe that GTA 6 will be the biggest game of all time if I could say that um at any point in time but then yeah like after that you know there's a there's a there's a valid exercise that maybe people fade the stock if they don't think that there's confidence beyond that but you know it'll take another six seven years for another cycle like this to happen it's just a very uh intricate point in the company's history that happens every five or six or seven years um and the Zynga thing may just be an afterthought but it's certainly not going to be a Tailwind yeah and I want to be clear on this actually at the beginning of the year um I was once once the news that that Zynga was just kind of falling apart that it wasn't it wasn't a great acquisition I got pulled up on the stock because I'm like look they're gonna announce GTA this year right they have to right because I because of what I said earlier it's like he knows he's

looking down the barrel of a gun of a terrible year he has to basically reinvigorate confidence in the investor Base by by suggesting that GTA is coming out next year and so I'm I'm actually bullish on this stock as much as I talk trash about it I think like I think if you're an investor like you buy this thing right the the the console generation is looking absolutely amazing the uh the uh the hardware sales are tremendous and then um and the engagement's getting better and better and games are just selling off the shelves um constantly so anyway so it I I'm still actually bullish on the stock despite my negative comments but to your point I think after this fact after the GTA comes out like what to expect and so the one thing I want to caution investors in and this is like the CD project type thing is that they are selling GTA 6 into a much smaller install base than GTA 5 right we are in the middle of the cycle right and and you have to take a certain attach rate to the current Hardware that's available when this thing comes out and it is a

much smaller number than what happened the first time on top of that they were able to continue to sell this game when next gen came out right so they were at the tail end of last cycle and adoption of the new cycle and one of you all said it earlier is how many versions of GTA have you bought right because people they don't they just double dipped you know on current gen and next-gen and PC yeah a triple quadruple dipped in some cases right so this is a different calculus to some degree in terms of how many units they can do 25 30 million that that sounds like the right number for the first 12 months right but when people start going nutso and start talking about 50 million 60 million because they're trying to comp it against GTA 6 or 5 excuse me I think that's when things get a little dicey right so just real quick on that they've been better on PC like in the last couple years relative to the launch of GTA 5 does that affect you at all or is this it's really still a console story and PC is incremental well the question

is do you think they do a simultaneous release on PC right that really probably has more to do with the marketing and any exclusive Deals they have with consoles right more so than like I feel like I feel like if there was no restrictions they would because they've had a lot of success on PC in the last call of three years there was also a piracy issue with PC that they are concerned about that they want to have console have some legs but you're right you're probably right it's for money that Sony or either Microsoft or Sony or pink most likely Sony obviously the one and again into something you talked about earlier kind of this this Push by take two to release a lot more games you mentioned it in like the sports area with the arcadey games but overall like they they claim they have 52 games planned for release in the next three years 17 immersive core games like NBA 2K and GTA 6 these indie games from private division all these random mobile games that aren't probably going to do anything material like Star Wars Hunters which is already dead in arrival and GTA

mobile like okay whatever um and then these midcore games does it make sense for them to be publishing all of these games that are going to sell a million units here two million units there or like like just I don't think it like it kind of is irrelevant like we've kind of said that already from the investment case but like wouldn't that money be better spent on just more bodies for GTA online at this point well I would make two argue I'll answer them quickly I'll make two arguments I think first of all I think they have enough bodies on GTA right I I think Rockstar is basically one product Studio they're going from Red Dead Redemption GTA Red Dead Redemption now GTA again and then likely Red Dead Redemption maybe actually I don't know anyway the problem is because that didn't do very well after uh release um so I think what these guys have not done a good job of is building capability to deliver new AAA experiences I think they should have taken the GTA money and build new Studios even even within

Rockstar or without I just don't think they've done a good job and all their PR and investor relations nonsense around 90 games in development 50 games in development is complete [ __ ] [ __ ] okay it's just absolute nonsense okay and and everyone can see through that and what I said originally is like investors don't give a [ __ ] about any of that right like they they want it to be true but they know it's not right and I in my opinion anyway so um I think they should have done a much better job of reinvesting some of the money that they've made on GTA on real AAA Studios and uh the studio that you were talking about with the ex-sledgehammer guy like that kind of thing or what EA did with respawn acquire that studio and now they have three or four Studios working on new AAA experiences Ubisoft despite the fact that they spend way too much money they they have invested in tons of Studios right um I don't think take two or Activision have done a really good job of that um over the years frankly um so anyway so yes none of this stuff

makes sense you know having an indie division having a publishing division at all these days doesn't make sense um uh they need to refocus right um you know like what what they should have been working on another soccer game right or you know another sports game a real sports game right um not like Lego right um yeah I don't know I think they could be doing a lot better on that side yeah I think there's there's like some Nuance around these private labels so EA Originals is another one um I like the creative quotient it injects into the industry and I also like that it you know offers like jobs and funding to Studios that are taking risks um yeah I think it takes two was like an EA Originals title that was very well reviewed uh but I think that the lingering issue here is like those studios are again pushing towards you know box type sales which again good for the creative quotient but not necessarily good for the financial outcomes portion investors are going to

reward new experiences that have a live operations tail or even like a live operation is fattening right like you want to see uh an initial boost of box sales and then make a huge you know Revenue Tailwind for the next two or three years and really like there's only a few that have done that and Rockstar uh GTA is the kind of golden ticket in the industry even like you know Call of Duty hasn't done that they have a release every year which has a short burst of live operations post but then it's recycled every year um I I can't pick you know very many games out of a hat that that are able to exhibit that kind of financial profile it's more like a SAS stock than a gaming stock at that point and that's again that's what investors are going to work with the higher multiple all right so just so I understand in terms of outlook for the company or so you guys are kind of positive till GTA 6 launch and post that where you guys are a little bit negative is that is that

there's there's lots of issues but it though they don't matter like right like GTA 6 is all that matters and as long as that bogey is out there that's what people are gonna cling to and we'll talk about it as well but possibly an acquisition Target you know I think that we can wrap up with that topic but yeah as long as GTA 6 is out there and NBA 2K keeps killing it that's what I mean Crest said it well it's like that's kind of all that matters and everything is just surrounding error after that yeah it's a good question too like do you think take two is going to be a publicly traded company at the end of 2025 and uh if you look at the the tea leaves it's like probably not but you have to wonder too is is Zynga kind of like unity's iron source and complicates things for a takeout not sure yeah you know it's interesting like anybody that would want to acquire something this big would probably want some kind of mobile to say that they have mobile despite how it's performing I don't know you know it's really hard to say like who are the acquisition

targets like Amazon maybe right um Sony Sony's just too big for Sony uh but I think yeah and the Asian named China names are completely off the table because they can't do Acquisitions in the US they're forced to do Acquisitions in the in Europe um Amazon makes a lot of sense right they've been investing in gaming to various degrees and unlike Google they didn't get in and pull out right and so it's kind of like you know with the Annie assuming Microsoft Activision does go through which it seems like it's happening at this point if the antitrust headwind is not there money's not really an issue for them yeah it's kind of the same case for all the big tech companies I mean Apple could do it but that's not something they would do no it's just not in their DNA or you start talking about the big media companies like that's a whole nother like Pandora's Box to open but like Bob Iger is back through 2026 at Disney he's getting paid basically based on share price appreciation if you read his employment contract what's going to get

Disney stock up maybe it's a big acquisition of a gaming company I don't know but like clearly he's only got a window to do something to boost the stock price to get paid and so he's going to do whatever he thinks is going to be best to do that what's a better pairing than Little Mermaid Grand Theft Auto yeah I think EA makes more sense at Disney just from yeah but yeah yeah it definitely makes more sense yeah I mean looking further out like you know when I think about growth opportunities for take two and two for me I am pretty negative on take tea just longer term just because I I I I have um I have a lot of fears about the way that some of these um Chinese companies like mihoyo operate and how they systematically go and look for big targets and when GTA 6 comes out I do think they're gonna like train their sights on on Rockstar but uh uh I don't know in terms of of um growth I

mean the only thing I I really see is that because 60 of Revenue is U.S maybe some potential to expand internationally along Wall Street guys think that there's a lot of potential in GTA online but in terms of growth what do you how do you guys see like can if you guys can convince me of a brighter outlook for take two what would that be I mean if we take a look at uh you know this eight billion dollar Target for for next year if you want to dream the dream you have to start thinking about backing into eight and a half nine billion the year after and maybe exiting 26 at like 10 billion and that puts it in line with um EA and Activision roughly in terms of top line so does take to have the roster of Ip and talent to produce 10 billion dollars of recurring revenue-ish like recurring-ish revenue or do you think the more likely scenario is they revert back down to like a five and a half six seven kind of time frame if you think that five to seven is more likely in 2026 which you know I it's not now the

realm of possibility like yeah this stock is in trouble so like there's there has to be more strategic outcomes over the next two years whether it's an acquisition whether it's getting bought whether it's redesigning the way that they make games to be more live operations focused whether it's fixing Borderlands so it is like this beautiful live Services thing that it should be uh and I don't have a clear-cut answer for that because like like you said before it's that they're just very cagey with their their content lineup and it's hard to back into that kind of stuff with that that is the backdrop I didn't answer your question maybe but like you know for right now it's like everyone's gonna dream the dream until the till that that bubble pops or if it pops and right now like that's like we're around GTA six it is going to be the biggest game of all time yeah yeah I'm having trouble seeing the dream post GTA 6. the GTA 7. 00 yeah well there's two drivers that could continue their growth I think NBA is kind of a smaller driver although the

popularity of that uh that league is is increasing worldwide so latam and Eastern Europe and China and Asia so like they can continue to grow that franchise kind of in you know like a 10 to 15 a year so that helps to some degree to stabilize stuff but it's really GTA right can they learn from all the crap they've been doing for the last like what I don't know 10 how long has it been 10 years since this game came out 12 years in a decade yeah yeah so all this learning that they've gotten as as a company can they actually put that into GTA 6 and make a better mousetrap right can build a better life service I have to think the answer is yes right but um yeah but but we'll see the proof is in the pudding right to some degree and and I know this is not going to be very popular with the core people out there um but I think they need to to do more pay to progress you know pay to win type mechanics right a deeper uh depth of spend um in order to like really kind of

uh leverage that that core base of players that play GTA so if they can really leverage that then they could actually build a real like software as a service like super core hardcore and then Revenue could go through the roof and and be maintained better than what they do with GTA because despite success with GTA 5 it was a shitty experience right load times were [ __ ] forever content drops were much much in less frequent than they should have been uh depth of spend was actually relatively low um I mean depending on how you ask I suppose there's a lot more they could do with that I don't want to go into a deep dive of monetization for GTA but there's definitely more that they could do um to make that a better service uh um and and obviously they never really released new content per se they you know they never really release increase the map size which is part of what they're talking about doing is making a much smaller map for the initial GTA and then expanding it going forward which is

a much much smarter way of release content so I think there's a lot they're thinking about doing that can keep this thing as a live service and and grow uh Revenue as well as profitability um and so I think that that that could be their Avenue to maintain revenue and earnings and I'm sure that's the bull case for a lot of investors out there it's going to be tough for them to grow sequentially whatever the whatever year GTA 6 comes out unless they do release you know March 2025 to meet their fiscal 2025 because then yes they will grow sequentially in 26 but just because most of the unit sales will come in 26 right but like whatever the year after the first 12 months of GTA 6 is unless there is I don't even know like you mentioned it Bioshock and all those other games don't get you there they're not going to get you 30 million units to offset GTA 6. I don't think GTA online in its first year I mean that's just the nature of a live service it's not going to offset a

billion dollars of Revenue in its first year like it's going to scale up to that over time unless basically they're recreating fortnite and this massive you know IP driven live service but like that's just not in their DNA right and so I'm kind of skeptical I think that was mostly a carrot to you know exactly as we said like Zynga sucks we're gonna dangle GTA 6 and we'll give you we're gonna grow after that like I think it's a carrot for investors and a carrot for potential choirs like I think Strauss is a smart guy and he sees the market really well I also think he's been one of the more rational CEOs in the space like when VR was a thing he he poo-pooed it when everyone else was talking it up when nfts were a thing and everyone else was talking about people who did like cloud gaming he's been you know kind of just negative on forever right so I do think he's been one of the more rational guys from that perspective at Chris I see you have thoughts no I see the thing is I agree with everything you're saying but this Zynga acquisition makes no [ __ ] sense to me it's like how in the

hell was he duped into buying something so not valuable I I mean I honestly I A lot of times at the time I was basically saying I think it was all ego right he wanted to create he he has always wanted to create a competitor to Activision and EA to be the same size and scale as those and I think he felt like he couldn't do it without mobile and Zynga was the only acquisition that could get him there I suppose but no I agree with that person had a lot of I think he had a lot of credibility up until that point and even before that he kept saying we can build a mobile business organically and with small talking Acquisitions and every time they bought one of these little companies it didn't matter it was are you gonna buy something bigger and he kept saying no no no no and then they bought Zynga so I agree with you like he heard his credibility and he heard his stature with investors with that um you know even ignoring the fact that the mobile market tanked after they announced the deal and they literally top ticked the mobile market like yeah even even if Apple hadn't killed the mobile market you'd still probably look

back on it and say you bought a business that never has grown organically doesn't know how to grow organically um and then you then you add the the Apple effect and the macro environment of mobile games it was just horribly time bad acquisition and really bad advice you know whoever was like advising them whether it was Goldman or you know I don't know who it was but it sounds like a Goldman thing or a Mackenzie where you know you you throw a PowerPoint together and you say well one plus one equals 2.5 or whatever and you're like well [ __ ] off you don't know anything about mobile and the fact that these businesses are going to the [ __ ] right now and they did this crazy acquisition for 40 of the company dude they gave up 40 I mean that's crazy right it was it was JP Morgan and lion tree advise take too and lion tree with that startup advisory company that was big in media deals what the [ __ ] do they know about gaming right I mean Jesus like it's crazy it is so crazy that that actually happened you

know like if if they had waited like three months even dude they would have gotten it for like six dollars like half right because the stock was on its way to to to zero I was talking about this on the podcast for like a year right about how crappy Zynga was and anybody could have told him that right just at a moment in time of like and this is not to to say that it was a good deal or anything there was a lot of competitive tension in the m a space for assets and scarcity value and things like that it doesn't right the wrong um but I can see and I saw how that kind of thing was firing up buyers at the time right right but by no means was this uh a value-add for the for that right he lost the ea uh sorry he lost the code master deal right because he had a deal on the table and he lost that

there was another deal he lost too and it came I'm not remembering it for some reason well then EA bought glue and he's like well [ __ ] we have to buy Zynga now right which glue was the second worst acquisition ever in the video game Space right sorry right no dude I don't care dude that that was like so bad like the value just fell apart within like the first three months you know I don't know what you're talking about yeah come on um so anyway I think yeah I think you there yeah there's a little bit of fomo and there's a little bit of like ego uh about losing deals to EA and he felt like he had to make a move and I just think he got really really bad advice from JP Morgan and whoever else advised him on that deal um because they clearly don't know what they were doing at the time because it was so obvious like that's why I'm just wondering I just wanted to make sure that everyone knows that it was really really obvious that this was not a good deal like from the get-go and the stock got crushed because of it

um so I don't know I think a lot of it had to do with just kind of reverting back to hey look what uh Activision did with King right in a different era uh oh yeah push back on that deal at the time was like oh this this King asset will never uh trade in line with console PC multiples uh and yet you know it did over time I mean that that has the probability of hoodwicking because you know a different it was a moment in time yeah but zynga's never also gonna have a 40 even though margins money right because and and Bobby of all the stuff they said they were going to do with King that failed including freaking Mega shooter which in hindsight you know it makes total sense for a company that makes match three games to make a shooter but you know the one thing they did was reign in costs and they killed a lot of the smaller games and the margins and the money that King has printed with largely flat Revenue since they bought it has been really good like yeah they didn't meet all the things they said they were going to do but at least it prints money right but okay I think you're you're under

selling what King has done because they basically have this huge library of games and then they narrowed it down to basically two maybe three two and a half right yep and they just live Ops the [ __ ] out of it released more content got better at monetization and AD advertising so they've managed that business and continue to grow it five to ten percent a year for the last like you know decade um and and and do it very profitably so it's been huge and they've a huge thing for Bobby which was great acquisition of the time but also the the management team did a good job of managing it now they didn't do anything else to your point but that's good enough I remember that slide deck it had like here's the three things we're gonna do to drive value from King and then it was literally the same three things that were in the slide deck for take two and things yeah exactly we're gonna cross sell it if any synergies that you talk about product synergies on these deals is just complete [ __ ] right from the get-go like I can tell you that right

any acquisition you see that says product Energies ignore slash ignore slash ignore this just that does not happen in this space uh every count every Studio organization is accounted for right Studios don't want to work on your [ __ ] IP right they don't have the capability of doing anything else like there's so many reasons that that doesn't work um that's gonna be a home run yeah of course of course yeah like say good yeah Romeo's gonna leverage Sega Sega IP to bring whole new modernization and and capabilities to grow things Sonic the Hedgehog Edition angry Sonic foreign but to conclude for me anyway I think take two is an interesting stock for the next two years until when GTA releases and and what I what you should be watching for is what what the potential is and what expectations are for the game um because if you start hearing the 50 million dollar unit Mark I think you you got to like pause a little bit and then also got to keep track of what they're

doing from an online perspective and how they're going to monetize the audience better than they did previously um and more regular Cadence of content Etc et cetera like those are things that I'm kind of watching out for um and then the only other one is any type of litigation around loot boxes and you know and monetization but I I think we'll over okay from that perspective all right I also mentioned too that there's this isn't this isn't like a unique challenge to take to right these and this is not uh piling on by any sort there's this debate happens for every video game company and pretty much any software company something conductor company in this space uh the out year two or three year growth trajectory is always a big question for investors so just uh doing the work all right well guys is that um any remaining thoughts or should we should we call it a day since we still have 30 minutes now we can dive into the Dynamics of the golf simulation market

right and talk about the PGA Tour 2K versus yeah units worldwide that there's like fighting over tooth I just remember when when these games got announced and you went on dof the podcast and ranted about golf games for 10 minutes or whatever dude I bought it me too I love it don't get me wrong I just saying it's two million units right like you're just like you're like begging for scraps dude if you're trying to go after a marker and and the cost of making those games is not immaterial either because it is quite complicated to get all the different views of these these these real live courses and and render them in real time in 3D you know and the players likenesses and all the licenses associated with the PGA like it's it's a waste of freaking money dude it's like a tennis game like tennis is like a stupid sport for that or why don't you just build qriket games you know like [ __ ] that dude no one gives a [ __ ] about Cricket you know or rugby we've done this all I was at EA we did all of this

stuff and it was a disaster absolute disaster and golf is just the same baseball is not much further up the up the food chain of sports right it's football basketball and soccer you know that's about it right all right and what no no no pickleball video games coming dude pickleball dude Jesus Christ that's like every er's nightmare right it's like how many like 60 plus are going into the ER with pickleball injuries that's the dumbest sport ever unite uh UBS said that 400 million dollars more of of hospital visits from pickleball Industries injuries this year yeah so go long like uh yeah yeah it makes sense all right guys well you know I learned a lot about take two it's great having you guys upine with all of the various thoughts but thank you very much Eric for joining us and for our audience we

will catch you next time bye everybody [Music] thank you foreign [Music]