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Take-Two Interactive Software, Inc. (TTWO) Q4 2018 Earnings Conference Call Transcript


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Take-Two Interactive Software, Inc. (NASDAQ: TTWO)
Q4 2018 Earnings Conference Call
May 16, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to Take-Two Q4 FY18 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Hank Diamond. Please go ahead.

Henry Diamond -- Senior Vice President, Investor Relations and Corporate Communications

Good afternoon. Welcome and thank you for joining Take-Two's conference call to discuss its results for the fourth quarter and Fiscal Year 2018 ended March 31st, 2018. 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 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.

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I'd also like to note that all numbers we will be discussing today are GAAP and, unless otherwise stated, all comparisons are year over year. Additional details regarding our actual results and financial outlook are contained in our press release, including the items that our management uses internally to adjust to our GAAP financial results in order to evaluate our operating performance. In addition, we have posted to our website the slide neck that visually presents our results and financial outlook. Our press release and filings with the SEC may be obtained on our website at www.taketwogames.com.

And now, I'll turn the call over to Strauss.

Strauss Zelnick -- Chairman and Chief Executive Officer

Thanks, Hank. Good afternoon and thank you for joining us today. I'm pleased to report that during the fourth quarter, Take-Two delivered growth in net bookings driven by increased recurrent consumer spending, including better than expected results from Grand Theft Auto Online.

Our solid performance marked the completion of another outstanding year for Take-Two, highlighted by growth in net bookings, earnings, and cashflow, along with margin expansion, and of course, our fiscal 2018 operating results greatly surpassed the initial outlook that we provided at the start of the year.

During Fiscal 2018 and first quarter Fiscal 2019, we returned $308 million to our shareholders through the repurchase of 3.1 million shares of our stock at an average price of approximately $99.00 per share. At fiscal year end, we had over $1.4 billion in cash and short-term investments.

Grand Theft Auto V and Grand Theft Auto Online continued to exceed our expectations in Fiscal 2018, as they have every year since their release, with combined net bookings from the titles growing year over year. Grand Theft Auto Online broke monthly audience records in June, July, and September, added more new users in the prior year and delivered its biggest year yet for virtual currency sales.

During the fourth quarter, Grand Theft Auto Online generated better than expected year over year net bookings growth. Rockstar Games achieved these results through the ongoing release of free additional content, including during the past fiscal year four significant updates coupled with a weekly schedule of new content offerings and they have much more planned going forwards.

Grand Theft Auto V has now old 95 million units worldwide, reflecting its status of the highest-rated title of the current console generation and the must have game for purchasers of PlayStation 4 and Xbox One.

The incredible ongoing success of Grand Theft Auto V and Grand Theft Auto Online underscores Rockstar Games unparalleled skill at producing iconic entertainment experiences that attract and engage new audiences for years after release. We're confident that Rockstar Games will again set new benchmarks for creative excellent with the October 26th launch of Red Dead Redemption 2, which is our first title developed from the ground up for the current console generation.

Turning to our flagship basketball series, NBA 2K18 continues to expand its audience and is now our highest selling sports title ever, selling today over 9 million units, up 17% over last year's release. In addition, our NBA 2K series continues to benefit from growing engagement and recurrent consumer spending.

During Fiscal 2018, the average revenue per user, revenue per hour, and unique multiplayer users all increased double-digits and recurrent consumer spending on NBA 2K grew 34% to a new record. We believe there remains substantial worldwide growth opportunity for NBA 2K, both through traditional and emerging platforms and business models. To that end, earlier this month, the NBA 2K league commenced its inaugural season, which Karl will discuss.

Our Fiscal 2018 results were also enhanced by a number of other recent releases and catalog titles, including WWE 2K18 and WWE SuperCard, NBA 2K17, Social Point's mobile games, Sid Meier's Civilization VI and its add-on content, and L.A. Noire.

We remain highly focused on our strategy to deliver innovative ways to drive consumer engagement. During Fiscal 2018, recurrent consumer spending grew 48% to a new record and accounting for 48% of total net bookings. In addition to virtual currency for Grand Theft Auto Online and NBA 2K, recurrent consumer spending was enhanced by a variety of other offerings.

In the free to play category, Social Point's mobile games contributed meaningfully to net bookings through its two biggest titles, Dragon City and Monster Legends. During the current quarter, we have significant updates planned for both. We've used Social Point as an important long-term growth opportunity for Take-Two.

Recurrent consumer spending on WWE SuperCard grew over 20% and the game has now been downloaded nearly 17 million times. During the last fiscal year, 2K released the season four update, which enhanced our popular WWE card battling game with over 250 new cards, additional tiers, and more.

And NBA 2K Online remains the number one PC online sports game in China with over 37 million registered users. In addition, net bookings from add-on content grew more than 40%, lead by offerings for Sid Meier's Civilization, particularly the Rise and Fall expansion pack, XCOM 2, particularly War of the Chosen, WWE 2K, and Mafia III.

We expect Fiscal 2019 to be another year of profitable growth for Take-Two, including both record net bookings and record net cash provided by operating activities, led by the launch of Red Dead Redemption 2 along with new annual releases from NBA 2K and WWE 2K. We will also continue to support our titles with offerings designed to drive engagement and recurrent consumer spending.

The highly anticipated from one of 2K's biggest franchises that have been planned for release in the current fiscal year is now planned for launch during Fiscal 2020 to allow for additional development time. We remain as excited as ever about this title and are expected to enhance our results next fiscal year.

I'd like to take a moment to acknowledge that this year marks the 25th anniversary of Take-Two. Over that time, we've built that company into a diversified and profitable enterprise. In particular, I'm extremely proud that Take-Two is home to our industry's best talent, whose passion and creative vision consistently captivate and engage audiences around the world.

Take-Two is exceedingly well-positioned to capitalize on the vast opportunities in their industry, including advances in hardware, the ability to drive ongoing engagement through connected experiences and additional content and the continued proliferation of mobile platforms and emerging business models. As a result, Take-Two is poised to deliver growth and returns for our shareholders over the long-run.

I will now turn the call over to Karl.

Karl Slatoff -- President

Thanks, Strauss. I'd like to begin by thanking our teams for delivering another great year for creative and financial results for our organization. It's your passion and commitment that drives Take-Two and it's reflected in our terrific Fiscal 2018 operating results and record net bookings and cashflow outlook for the current year.

Turning to our recent and upcoming releases -- last month, Rockstar Games released the Grand Theft Auto V Premium Online Edition for PlayStation 4, Xbox One, and PC. This comprehensive offering features the complete Grand Theft Auto V story experience, the ever-evolving world of Grand Theft Auto Online, and all existing gameplay upgrades and content, including Doomsday Heist, Gun Running, Smuggler's Run, Bikers and much more. In addition, purchasers receive the criminal enterprise starter pack, which provides access to a huge range of content, including properties, vehicles, weapons, and more.

On October 26th, Rockstar Games will launch Red Dead Redemption 2, the eagerly awaited sequel to one of the label's most critically acclaimed and beloved titles. Two weeks ago, Rockstar Games unveiled a beautiful cinematic trailer for the game that set the stage for what is shaping up to be another massive entertainment event. Player reaction to the trailer was phenomenal.

Last month, Rockstar Games hosted select media outlets at their Rockstar North studio for an extended look at the game. We have been delighted by their first impressions. We could not be more excited about the upcoming launch of Red Dead Redemption 2. Rockstar Games will have additional details to share about the game in the coming months.

This fall, the next annual installment of NBA 2K will return to the hardwood court with the series' signature style and deep authenticity. This year marks the 20th anniversary of our industry-leading basketball simulation. We are confident that 2K and Visual Concepts will once again take the series to exciting new heights with the release of NBA 2K19.

Also this fall, 2K's WWE series will be back with WWE 2K19, bringing gamers into the virtual squared circle with their favorite WWE superstars, gameplay modes and variety of hard-hitting in-ring action.

Throughout Fiscal 2019, we will continue to support our titles with additional content designed to deepen consumers' experience and drive engagement including updates for Grand Theft Auto Online, WWE SuperCard, and others. In addition, Social Point and 2K will continue to broaden our offerings from mobile devices.

Earlier this month, the NBA 2K League, our joint venture with the NBA, kicked off its inaugural season. 102 of the best NBA 2K players were drafted by 17 NBA teams and are competing in a 15-week season, which will conclude with NBA 2K League playoffs and finals in August. While each team is living and training together in their home market, all league play and tournaments will take place in New York City.

In addition, the league has been steadily building its portfolio of partnerships and sponsorships with high-profile brands. Dell is the leagues official PC hardware and monitor partner, featuring its elite gaming brand, Alienware. And Intel is powering all PCs with its state of the art 8th Gen professor.

Throughout the partnership, Dell and Intel will work with the league to identify new opportunities to innovate and enhance gameplay as the latest technology evolves. Both companies have agreed to make significant marketing commitments, including sponsoring the league's halftime show.

Twitch has signed on as the league's official livestreaming partner for games throughout the season, including weekly matchups, in-season tournaments, playoffs, and the NBA 2K League finals. The livestream includes various talent providing commentary, analysis, and additional league updates.

Last week, the league announced two official sponsorships, Scuf gaming controllers and HyperX gaming headsets. We look forward to watching the continued progress and growth of the league, which has the long-term potential to enhance engagement, and to be a meaningful driver of profits for our company.

China remains another long-term emerging growth opportunity for Take-Two. Building on the popularity of NBA 2K Online, 2K and Tencent are teaming up again to codevelop and release the title's highly anticipated successor, NBA 2K Online 2. This new game is based on the console edition of NBA 2K and features 2K's legendary gameplay, 27 customizable position types, new player trading systems, e-sports optimized features, localized commentary, and more. NBA 2K Online 2 is currently in closed beta testing and is planned for commercial release this fall.

In addition, we are pleased to expand our successful partnership with Tencent with last month's announcement that Kerbal Space Program will be released on Tencent's WeGame distribution platform as a premium PC game at a date to be determined. We are excited about Tencent's WeGame platform and the opportunity to grow our business in China.

We are also very enthusiastic about the long-term potential of Private Division, our new publishing label that is dedicated to bringing titles from top independent developers to market. Private Division currently has contracts to publish several upcoming titles based on new IP from renowned industry talent, including Panache Digital Games, The Outsiders, Obsidian Entertainment, and V1 Interactive. Private Division will seek to add to its already impressive roster of development partners throughout the world and we look forward to its future announcements. Next month at E3 in Los Angeles, we will have a corporate booth on the show floor. We will not be showing any new products, but we will be holding business development, investor relations, media and sales meetings throughout the show.

Looking ahead, we have a strong development of pipeline across our labels, which includes new releases from our popular series along with groundbreaking new IP. With our unwavering commitment to delivering the highest quality entertainment experiences that keep our audiences engaged, Take-Two is better positioned than ever to provide value to our customers and generate growth and profits over the long-term.

I'll now turn the call over to Lainie.

Lainie Goldstein -- Chief Financial Officer

Thanks, Karl. Good afternoon, everyone. Today I'll discuss our fourth quarter and Fiscal Year 2018 results and then review our financial outlook for the first quarter and Fiscal Year 2019. Please note that additional details regarding our actual results and financial outlook are contained in our press release.

As mentioned by Strauss, our solid fourth quarter results mark the completion of an outstanding Fiscal 2018 for Take-Two, during which we delivered operating results that greatly surpassed the initial outlook we provided at the start of the year. These results were driven primarily by the sustained outperformance of Grand Theft Auto Online and Grand Theft Auto V coupled with record results from NBA 2K.

Starting with the fourth quarter, our operating metric total bookings grew to $411 million and net cash provided by operating activities exceeded our expectations. Digitally delivered net bookings grew 12% to $330 million and accounted for 81% of the total.

Turning to some details from our fourth quarter income statements, GAAP net revenue decreased by 21% to $450 million and cost of goods sold decreased 40% to $189 million. Operating expenses increased by 19% to $173 million due primarily to higher R&D expenses and a full quarter of expenses from Social Point, which we acquired in January 2017. GAAP net income was $91 million or $0.77 per share as compared to $99 million or $0.89 per share in the prior year period.

Turning to our Fiscal 2018 results, total net bookings grew 5% to $2 billion, driven principally by growth from Grand Theft Auto Online and NBA 2K along with a full year of results from Social Point, partially offset by our lighter release slate. Of this amount, 68% were digital-delivered net bookings, which grew 25% to a new record of $1.35 billion. Our digitally delivered net bookings were driven by record recurrent consumer spending, which was partially offset by lower full game downloads due to Fiscal 2018's lighter release slate.

Net cash provided by operating activities grew 19% to $394 million, which exceeded our most recent outlook of $300 million and was more than double our original outlook at the start of the year. And we spent $62 million on capital expenditures. At fiscal year-end, our cash and short-term investments balance was over $1.4 billion.

As a result of favorable market conditions, we were able to repurchase 1.5 million shares of our stock for $155 million during Fiscal 2018 and an addition 1.6 million shares for $153 million during fiscal first quarter 2019 to date.

Turning to some details from our Fiscal 2018 income statement, GAAP net revenue increased to $1.8 billion and cost of goods sold decreased by 12% to $898 million. Operating expenses increased by 14% to $759 million due primarily to a full-year of expenses from Social Point as well as higher R&D, stock-based compensation and reorganization costs, which are partially offset by lower marketing expense. GAAP net income increased by 158% to $174 million of $1.54 per share.

Now I will review the highlights of our Fiscal 2019 financial outlook, starting with the fiscal first quarter. We expect net bookings to range from $215 million to $265 million. The largest contributors are expected to be Grand Theft Auto Online, Grand Theft Auto V, NBA 2K18, and Social Point.

We expect GAAP net revenue to range from $345 million to $395 million and cost of goods sold to range from $83 million to $109 million. Operating expenses are expected to range from $190 to $200 million. At the midpoint, this represents a 12% increase over last year driven by higher R&D and stock compensation expense. We expect GAAP net income to range from $62 million to $74 million or $0.53 to $063 per share.

Turning to our outlook for the full fiscal year, we expect net bookings to range from $2.67 billion to $2.77 billion. At the midpoint, this represents a 37% increase over Fiscal 2018, driven primarily by the launch of Red Dead Redemption 2 and expected growth from NBA 2K, which we forecast to be partially offset by lower net bookings from Grand Theft Auto V and Grand Theft Auto Online.

We expect net bookings from recurrent consumer spending to increase modestly and digitally delivered net bookings to grow by 15% to 20%. The largest contributors to net bookings are expected to be Red Dead Redemption 2, NBA 2K, Grand Theft Auto Online, and Grand Theft Auto V, WWE 2K, Social Point.

We expect the net bookings breakdown from our label to be roughly 55% Rockstar Games, 40% 2K, and 5% Social Point and other. And we expect our geographic net bookings to be about 55% United States, and 45% international. We expect to generate approximately $710 million in net crash provided by operating activities, up 80% over the last fiscal year, and we plan to deploy approximately $60 million for capital expenditures.

We expect GAAP net revenue to range from $2.5 billion to $2.6 billion and cost of goods sold to range from $1.41 billion to $1.43 billion. Total operating expenses are expected to range from $885 million to $925 million. At the midpoint, this represents a 19% increase over the prior year, driven by high marketing, personnel, and IT expenses. We expect GAAP net income to range from $180 million to $211 million or $1.53 to $1.80 per share. For management reported purposes, we expect our tax rate to be 20%, down two percentage points from prior years due to the recent tax reform legislation.

In closing, fiscal 2018 was another great year for Take-Two, our ability to deliver growth in net bookings, earnings and cash flow despite an unusually light release slate reflects the strength of our core franchises and our ability to drive engagement with and earn consumer spending on our titles for years after launch.

We are very excited about our outlook for Fiscal 2019, which is poised to be a record year for both net bookings and net cash provided by operating activities. Over the long-term, our company has the creative assets, operational discipline, and financial foundation to generate growth in margin expansion for our shareholders.

Thank you. Now I'll turn the call back to Strauss.

Strauss Zelnick -- Chairman and Chief Executive Officer

Thanks, Karl and Lainie. On behalf of our entire management team, I'd like to thank our colleagues for delivering another successful year for our organization. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?

Questions and Answers:

Operator

At this time, we will be conducting a question and answer session. Please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * key.

Our first question is with Mike Olson with Piper Jaffray. Please proceed with your question.

Mike Olson -- Piper Jaffray -- Managing Director

Good afternoon. Did you say that GTA exceed yoyr expectations and grew year over year in the quarter or was that the full year Fiscal 18? And if you were referring to the March quarter where it was that GTA exceed your expectations, given bookings came in at the lower end of the March quarter guidance range, was there something else within the overall mix that disappointed versus your internal expectations?

Strauss Zelnick -- Chairman and Chief Executive Officer

Yes, Mike. In fact, Grand Theft Auto Online was up year over year, was up in the quarter, had another record year. We had previously expanded our guidance for the year. We got it up. In the fourth quarter, NBA 2K Online didn't do quite as well as expected when we guided up.

Mike Olson -- Piper Jaffray -- Managing Director

Got it. Okay. It sounds like there's not a new content drop for GTA Online in the June quarter. Would that explain the difference between -- obviously you're not in control of what consensus does, but the difference between your guidance and consensus. Is that the right way to look at it, that you have a tough comp off of GTA Online content that hit last year's June quarter?

Strauss Zelnick -- Chairman and Chief Executive Officer

Yeah, you asked and answered the question correctly, which is to say we had the Gun Running update in last year's fourth quarter. It isn't a direct comp. We've said over and over again it's very hard to look at this company by a quarter by quarter comping situation because we're driven by our content. Now, we're very fortunate that we have such a strong catalog and we have such strong customer recurrent spending. The company certainly looks a lot different than it used to look. Even so, we are beholden to what content we create. So, period to period is not often a good comp. That's really the reason we believe that consensus is off.

Mike Olson -- Piper Jaffray -- Managing Director

Thank you.

Operator

Our next question is with Tim O'Shea with Jefferies. Please proceed with your question.

Tim O'Shea -- Jefferies -- Analyst

Yeah. Thank you for taking my question. Looking at the recurrent consumer spending, is it possible to quantify the impact you saw this quarter from Fortnite. Strauss, you mentioned NBA 2K Online didn't do as well. I'm just curious if you attribute that to Fortnite and then if you attribute that to GTA Online specifically, if there was anything that you noticed with respect to engagement or monetization as Fortnite started to gain steam through the quarter. Thanks.

Lainie Goldstein -- Chief Financial Officer

Okay. You probably want to take the Fortnite part.

Strauss Zelnick -- Chairman and Chief Executive Officer

Tim, sorry, with regard to your question about the fourth quarter, first of all, I misspoke earlier. It was NBA 2K, not NBA 2K Online that was not quite at our revised expectations for the quarter. In terms of what the competitive landscape was, there's no doubt there are a couple of big hits in the marketplace, Fortnite and PUBG, they're big hits. That creates a lot of benefits. We think it brings new players into the market. It just shows what a robust industry that we operate in. Naturally, we would like to have all the hits. I don't think that's necessarily a realistic goal.

It's pretty hard to determine what competitive landscape effects are, however, because entertainment properties compete with each other, with themselves, and with nothing at all. Entertainment is a nice to have, not a must have good. It's impossible to determine whether a particular title had an impact, although I think we've all observed that Fortnite is going to create a lot of activity around it.

Tim O'Shea -- Jefferies -- Analyst

Thanks.

Strauss Zelnick -- Chairman and Chief Executive Officer

In terms of your question around Grand Theft Auto Online, we had a record year, we had a record quarter, and the title continues to perform extraordinarily.

Operator

Our next question is with Eric Handler with MKM Partners. Please proceed with your question.

Eric Handler -- MKM Partners -- Managing Director

Yes, I'm wondering if you can talk a little bit about Social Point. I remember in last year's guidance based on the percentage of net bookings you were sort of looking for about $100 million, I'm not sure if you ever updated it about where Social Point finished. Now, just doing back of the envelope calculations based on the midpoint of your net bookings guidance, you're looking at about $136 million of revenue. Maybe you could talk about some of the key drivers for Social Point this year. Are we getting more updates? Are we getting any new games and what you expect there?

Strauss Zelnick -- Chairman and Chief Executive Officer

Yeah. Social Point is doing just fine. Dragon City and Monster Legends are their two big hits in the market. Those will continue to drive the results. In the fourth quarter, profits were up from Social Point. The drivers will be how those games perform and potentially how some upcoming titles perform depending on their release schedule, naturally.

Lainie Goldstein -- Chief Financial Officer

Also, for Social Point and some of our mobile titles, we had some change in accounting where we need to gross up the accounting for it instead of showing it net. That's the difference you're seeing in terms of the growth number for the net bookings.

Eric Handler -- MKM Partners -- Managing Director

Okay. Lainie, just as a follow up for you, just looking at your numbers and the guidance, you're projecting a record operating cash flow number, but it doesn't seem like you're projecting a record EPS. I'm just curious -- is there any accounting reversals or when you think of the puts and takes, the difference between EPS and operating cashflow, what's sort of impacting that?

Lainie Goldstein -- Chief Financial Officer

So, since our business mix is slated toward the newer releases, we're having some higher development costs this year and then also the marketing that's associated with it. So, it depends on the timing of the marketing and then also the software development cost if cash is behind us.

Eric Handler -- MKM Partners -- Managing Director

Got it. Thank you.

Operator

Our next question comes from Justin Post with Merrill Lynch.

Justin Post -- Merrill Lynch -- Managing Director

Great. I'd like to focus on next year's guidance. That definitely seems to imply you might have some acceleration in spend the next quarter and then a big healthy number for Red Dead. Can you talk about if you think some of their recurrent spend growth is going to accelerate in your guidance? Besides the 55% of bookings from Rockstar, any other clues you can give us on your expectations for Red Dead? Thank you.

Lainie Goldstein -- Chief Financial Officer

So, for Red Dead, we don't share unit expectations, but looking at recurrent consumer spending, we usually have bigger quarters in our second or third quarters of the year. So, you would start to see that be in line with previous years.

Justin Post -- Merrill Lynch -- Managing Director

Got it. When you think of the quality of releases for Grand Theft Auto Online, the quantity of releases, do you feel like this year is going to compare well to last year? How are you thinking about how much content is coming for that?

Strauss Zelnick -- Chairman and Chief Executive Officer

As you know, our labels comment on their upcoming releases and what they're going to look like and we like it that way. That said, Rockstar Games has said they have much more content coming for Grand Theft Auto Online and they will continue to support it. Obviously, we just continue to enjoy another record year for Grand Theft Auto Online.

Justin Post -- Merrill Lynch -- Managing Director

Thank you.

Operator

Our next question is from Chris Merwin with Goldman Sachs. Please proceed with your question.

Chris Merwin -- Goldman Sachs -- Analyst

I had another one on the guidance for Fiscal 19. It looks like non-GAAP gross margin guidance was just below 50%, which I think is down pretty significantly year on year. of course, you've got Red Dead coming out in the December quarter. So, does the full year guidance reflect the higher software amortization you've got coming out or does it reflect the higher skew of physical revenue compared to last year.

Maybe as a related question, what does your guidance assume for the digital download mix for Red Dead. Just a quick second one, I'm curious if Fortnite has caused you to maybe think about the potential for cross-platform gameplay. Which of your titles do you think would be more suited for the smaller screen and how long would it take to develop a game like that for mobile? Thanks.

Lainie Goldstein -- Chief Financial Officer

So, let me take the first one first. When you're talking about next year in our margin, you are correct. It is driven by the software development cost associated with a new title or a big new release. Then also for our blockbuster titles, typically, they have had higher physical sales instead of digital. So, that's also going to move the margin as well.

Strauss Zelnick -- Chairman and Chief Executive Officer

Regarding cross-platform availability, we already make many of our titles available on multiple platforms, including over time sometimes mobile platforms -- it all depends on the title -- or VR platforms. We take it on a case by case basis. But I wouldn't say there's anything about the Fortnite experience that would change our view about platforms.

We're obviously familiar with mobile platforms. We have plenty of games available on platforms, most notably Social Point's games as long as WWE SuperCard and some of our other titles that come from other labels and Rockstar Games has made titles available on mobile platforms as well. It really depends on what the opportunity is title by title. I would say our outlook about making titles available where consumers are has changed. Our strategy is to be where the consumer is.

Chris Merwin -- Goldman Sachs -- Analyst

Okay. Thank you.

Operator

Our next question is with Brian Nowak with Morgan Stanley. Please proceed with your question.

Brian Nowak -- Morgan Stanley -- Managing Director

Thanks for taking my questions. I have two. The first one on the NBA E-League, I appreciate the color on the sponsors, the kind of steps that have been taken. I guess I'd be curious to think about how you all are thinking about the timing when you can really get a meaningful impact from monetization.

What are the biggest drivers of monetization you see? Then Strauss, how do you think about the potential for e-sports gambling given the change in legislation? Then kind of a bigger picture question around Fortnite -- Strauss, what were your biggest learnings from watching the Fortnite phenomenon pop up as far as the way you think about the potential future for gaming and the ways players come into the gaming ecosystem?

Strauss Zelnick -- Chairman and Chief Executive Officer

So, you have a number of questions there. With regards to the NBA 2K League. We're a couple weeks in. We're excited by the early experiences. There are a lot of people watching on Twitch. We think there's a great opportunity. We've said all along that our risk profile is exceedingly low. The actual exposure if things they don't work out the way we like is de minimis, certainly not material. Any upside we believe is substantial. We haven't included any upside in that outlook. That's sort of the way we tend to conduct business around here. We want to take exceedingly measured risk and we report back on them.

We don't like to over-promote in advance. In terms of where monetization can come from, I think your expectations would properly be sponsorship, which is going well. It's early days, but it's going really well. And media rights is also going well. Then eventually, depending on the level of success, of course, you can imagine event-related revenue, merchandise, and the like. But again, it's early days. We're gaining new experience as every day passes.

In terms of the recent Supreme Court decision on the potential for sports gambling, this will now be left for the states. We think it's a good decision. We think there may be an influence and a meaningfully positive influence on our business. However, it's not in our current sites. We don't have any expectations right now, simply observing that there are potential opportunities in the future. I'll be very surprised if sports gambling didn't intersect with the industry at some point in a relatively near future.

In terms of the learnings around Fortnite, as I said earlier, maybe the biggest learning is reinforcement of the fact that hits, big hits by their very nature are unexpected. What drives a big hit is innovation, not derivation. It's what we're proud of around here. We put out Red Dead Redemption. The conventional wisdom that western titles don't work in the video game business. Red Dead Redemption was a big hit and we have extremely high expectations for Red Dead Redemption 2.

I think the fact that Fortnite surprised everyone, particularly given where Fortnite came from, after what is now in the market was based on a prior release that did not perform all that well, but it's just a reflection that if you innovate and give consumers what they want, you can get an extraordinary result. While we would love to corner the market in hits -- we certainly see it as our job -- we don't have all of the hits and we shouldn't expect to.

But what I don't think one takes away from this property is that a particular approach, a particular mode has suddenly redefined the business. I don't think that's the case. I think to the contrary, I think if one changed one's business to follow other people's big hits, you'd constantly be playing catch-up. To say that you wouldn't be in second place is an understatement. You might be in last place. It's our job always to innovate and more often than not, that has driven our success.

Brian Nowak -- Morgan Stanley -- Managing Director

Very helpful. Thank you.

Operator

Our next question is with Ben Schachter with the Macquarie Group. Please proceed with your question.

Ben Schachter -- Macquarie Group -- Analyst

A few questions -- on Red Dead, should we expect that consumers will be able to access and purchase extra content immediately after release or it will take time for that to evolve? On the NBA, I think you said we should expect growth from that in 2019. What gives you the confidence that we should expect growth and what happened in the March quarter that drove the under-performance.

Just on the NBA on the league, anything else that was different or unexpected in the launch period? One more, Lainie, in terms of amortizing the capital cost of Red Dead, driven how successful GTA has been over the long-term, should we capitalize those costs for Red Dead over a long period of time than we've seen historically? Thanks.

Strauss Zelnick -- Chairman and Chief Executive Officer

So, Lainie, why don't you take the last question first and then I'll dive in.

Lainie Goldstein -- Chief Financial Officer

So, we don't usually share on a title by title case amortization, but if you think about blockbuster titles and how Grand Theft Auto has performed, it would be something we would look at in terms of how long we would amortize the title over. We usually look at what our estimated life of that title is going to be.

Strauss Zelnick -- Chairman and Chief Executive Officer

On Red Dead, obviously Rockstar will give clarity on content drops and the like in due time. We're very excited about the October 26th release. Everyone who's experienced the trailer is also excited and obviously Rockstar will make further announcements in due time. In terms of NBA and recurrent consumer spending in the fourth quarter, we think there were any number of factors that affected the level of monetization of the title and Visual Concepts has plans to address those factors in NBA 2K19.

We think Fiscal 2019 will be another year of growth for NBA 2K, including both unit sales and recurrent consumer spending. So, our view is look, we always have to get better. We pay attention to what the consumer says. We've had an amazing year for our basketball franchise, just amazing, and we expect it to get even better.

Operator

Our next question is way Ray Stochel with Consumer Edge Research. Please proceed with your question.

Ray Stochel -- Consumer Edge Research -- Analyst

Great. Thanks for taking my question. Could you talk about the nature of the 2K property delay and anything that you could say to give us some confidence in that title after this delay? Any quantification would be helpful. And then also, under the 2K label, could you talk about all the changes that are happening at Hangar 13 and what are your thoughts on that studio going forward? Thanks.

Karl Slatoff -- President

In regard to the 2K title, it's simply because it needs more time for development at this point. In terms of confidence level of when it's going to come out, we're highly confident that this title will certainly be coming out in Fiscal Year 20, which is what we said in our statements today. So, our confidence level is very high.

In terms of Hangar 13, Hangar 13 is a long-standing studio for us, a very talented group of folks. We are constantly spending time figuring out where to best put our resources on which projects. What you're seeing there is a reflection of that specifically. We're moving assets around from game to game all the time and the movement that you're seeing is a reflection of just our view on where the best place to deploy our assets are.

Operator

Our next question is with Jared Johnson with BMO Capital Markets. Please proceed with your question.

Gerrick Johnson -- BMO Capital Markets -- Managing Director

Great. Thank you. In your 2019 guidance, are you planning any marketing spend in 4Q for the 2K new title release? Then also in the NBA 2K league, is Twitch paying for streaming rights? If so, can you discuss some numbers there? Thank you.

Lainie Goldstein -- Chief Financial Officer

So, for our marketing, we do expect to have some marketing for the 2K release for Fiscal Year of 2020.

Strauss Zelnick -- Chairman and Chief Executive Officer

With regard to the e-league, our media rights are valuable, so it's appropriate to assume there's an economic cost to media rights, however, we're not talking about giving any specific media or sponsorship deals for the league.

Gerrick Johnson -- BMO Capital Markets -- Managing Director

Lainie, you cut out. I didn't hear the first part of your answer on the marketing spend.

Lainie Goldstein -- Chief Financial Officer

Oh, sorry. So, for the marketing spend for the 2K release, we do expect to have some marketing in this fiscal year for the titles released next year.

Gerrick Johnson -- BMO Capital Markets -- Managing Director

Great. Thank you.

Operator

Our next question is with Ryan Gee with Barclays. Please proceed with your question.

Ryan Gee -- Barclays -- Analyst

Good afternoon. Thanks for taking my question. Quick question for Lainie -- I think your guidance for your O-margins down a couple hundred basis points year over year, low 20s and that's down from this year. I was wondering if you could update us on what you're thinking about what potential margins are for your company.

Henry Diamond -- Senior Vice President, Investor Relations and Corporate Communications

Ryan, we can't hear you.

Lainie Goldstein -- Chief Financial Officer

You're breaking up.

Ryan Gee -- Barclays -- Analyst

Okay. Sorry. Hopefully you can hear me. Question for Lainie, specifically on the O-margins -- it looks like guidance were down a couple hundred basis points year over year. I was hoping you can give us an update on what you think for the company is the potential long-term operating margins for the timeframe or some milestones you're thinking about achieving that. Just a quick follow-up on the NBA 2K franchise. You mentioned the new NBA 2K Online too in China with Tencent. Anything you can say as to how significant the original NBA 2K Online is for you guys financially. When that does come out, what are your expectations around that? Thanks.

Lainie Goldstein -- Chief Financial Officer

Ryan, for our margins, we did talk about that would be slightly down for this fiscal year will be slightly down because we have a big release, so there's higher software development costs with marketing associated with the title. But we expect our margins to expand over the long-term and on a year by year basis, they're going to vary based on our release schedule.

Strauss Zelnick -- Chairman and Chief Executive Officer

In terms of the NBA 2K franchise, we have very high hopes for the NBA 2K Online title. We're obviously in business with Tencent. They're a phenomenal partner. It's a great market. NBA 2K Online has been the number one sports title for some time. We have 37 million registered users. We're phenomenally excited about the upcoming release. It's in closed beta now. It's planned for commercial release in the fall. So, stay tuned.

Operator

Our next question is with Andrew Uerkwitz with Oppenheimer Company. Please proceed with your question.

Andrew Uerkwitz -- Oppenheimer & Company -- Analyst

Thanks for taking my question. Strauss, I appreciate your comments around Fortnite and your strategy for developing new games. But if you look at Fortnite, it seems that there's been an expansion of the market around casual gamers and getting casual gamers to play more and potentially spend more. It seems like the Rockstar titles tend to focus more on the harder core players. Have some of these recently titles shaped the way you developed or think about developing games for a broader audience along those lines at all?

Strauss Zelnick -- Chairman and Chief Executive Officer

You know, I think the explosion of -- I'm not sure casual is the right term. I'm not sure people would call Fortnite a casual title. I do think what you're alluding to is right. The free to play revolution, whether that's been mobile or fixed has been transformative to the business. It's massively increased the size of the business. We're in the free to play business, whether it's a mobile platform or a fixed platform. We're in the business in China. We're in that business in 2K. We're in that business with Social Point.

You're right, it's a huge growth business. What we like about it is some free to play games, particularly mobile games speak more to an older demographic, some speak more to a female demographic. There are a lot of people that believe that Fortnite has welcomed people into our industry some people that didn't play video games. Some of that is anecdotal, but I think that's right. This is all good news. It is news that is not lost on us, hence the Social Point acquisition and emphasis on free to play titles as we grow our core business.

That said, what has historically been our stock and trade, the highest quality console games, deep immersive, many-hour experiences that are available at a premium price remains a terribly important business. While I think hardcore gamers are excited about both what Rockstar and 2K bring to bear, it's worth noting -- and forgive me for maybe immodest about it on behalf of our company and Rockstar Games -- but Grand Theft Auto has sold over 95 million units and according to others apart from us, it's the highest grossing, most profitable entertainment product ever made of any sort. So, it's not only exciting to a small core. It's exciting to a very, very broad audience.

I think what Rockstar Games has uniquely shown the ability to do is to make the title easy to approach and difficult to master. You can approach Grand Theft Auto and Grand Theft Auto Online in any number of ways. If you're a hardcore gamer, you can find it super-compelling and if you're a lot more casual, you can find the experience super-compelling. There's so much there now you can very much define your own experience and create that for many, many hours of wonderful entertainment. Do I think that approach to the entertainment business ever becomes antique? I do not. I think that's' the nature of the entertainment business.

So, this is sort of saying like in a multiple-choice test all of the above. That's how we view our obligations around here. We need to be where the audience is. That's' one of the reasons where we did the Social Point acquisition. That's the reason that we started the Private Division group, which will bring independent titles to bear, we hope meeting another audience need. That's why we acquired Kerbal Space Program and that's why we find ourselves in the position that we're in today with an incredibly strong balance sheet on the one hand and incredibly strong creative team on the other.

Andrew Uerkwitz -- Oppenheimer & Company -- Analyst

Got it. Thank you so much.

Operator

Our next question is with Brandon Ross with BTIG. Please proceed with your question.

Brandon Ross -- BTIG -- Analyst

Thanks for taking the questions, a couple -- another one on the margin side -- can you get a little more granular on the percent or give us any more color on the percent of amortization you expect to take on Red Dead this year on a non-GAAP basis? Then just media is undergoing a pretty massive consolidation wave right now and the video game publishers have not participated to date in that. Why do you think that is and do you expect that to change in the coming months or years? Thanks.

Lainie Goldstein -- Chief Financial Officer

So, on the margin for the amortization of Red Dead, as I said, we don't give that out on a title by title basis, but if you think about larger titles and what the lifetime potential of them are and how long they would spread out, that's the best way for you to take a look at that.

Strauss Zelnick -- Chairman and Chief Executive Officer

And on the consolidation point, I think the consolidation you're seeing or expecting in traditional, so-called traditional media businesses has been driven by a lack of growth frankly and a need to create scale, reduce cost, find cost synergies and the like. I think that just doesn't apply to such a high-growth business, the one we find ourselves in and our competitors find ourselves in.

Historically the media and entertainment businesses that have tended to consolidate are the ones where a massive portion of your revenue was driven by catalog that's already amortized and doesn't cost that much to continue to create value. In our business, because of technological change and the importance of frontline releases, catalog is still a relatively small part of the business compared to other relatively mature entertainment businesses.

I think you'll start potentially seeing consolidation if and when we reach a technological asymptote or if and when catalog creeps up well over 50% year in, year out, including big frontline release years. Now, we perform particularly well on catalog, so our numbers aren't necessarily reflective of the industry as a whole, but I think the point stands.

The other piece is in a business that is frontline-driven, that means if you do consolidate, you are potentially arguing that you're going to have much greater exposure to frontline shelf space, whether that's digital or physical, but it may be realistic to assume. And of course, the day after you close, you still have to invest in frontline production and frontline marketing, which is costly.

So, I think, as I said, I think you would look for entertainment consolidation as businesses mature and they're either not growing flatter or potentially declining and none of that describes the interactive entertainment business.

Brandon Ross -- BTIG -- Analyst

Do you think there's any merit whatsoever to putting together traditional media asset with video game publishers?

Strauss Zelnick -- Chairman and Chief Executive Officer

Potentially, although so far, we haven't seen it. I definitely would have thought so. I think years ago, I said expected such consolidation and it didn't materialize, but I think the facts force me to change my outlook. I think when you look at the quality of the intellectual property created and owned by ourselves and some of our competitors, it's hard to imagine that there wouldn't be opportunities in other forms of entertainment and indeed some of our competitors have entered other forms.

So, if it makes sense to other forms of entertainment at which some traditional media companies are already expert, you would imagine that kind of consolidation could have some industry logic, but I would observe that not only has it not occurred, but that some legacy entertainment companies have, in fact, exited interactive entertainment of late.

Brandon Ross -- BTIG -- Analyst

Thank you.

Operator

Our next question is with Doug Creutz with Cowen. Please proceed with your question.

Doug Creutz -- Cowen -- Managing Director

Thanks. You mentioned you had four major GTA Online content updates in the last fiscal year. I'm just wondering if you could talk about how you think about the content pipeline shaping up for the next fiscal year. Can you match that kind of cadence? I think in the past several years, you typically started the year assuming GTA Online would be down year over year. Did you build that conservatism into your guidance as well this year? Thanks.

Strauss Zelnick -- Chairman and Chief Executive Officer

Yeah. In terms of content updates, Rockstar Games has said that much more content is coming for Grand Theft Auto Online and obviously, they intend to continue supporting the title. Yes, our guidance does reflect an expectation that the results will moderate this year.

Doug Creutz -- Cowen -- Managing Director

Thank you.

Operator

Our next question is with Stephen June for Credit Suisse. Please proceed with your question.

Stephen Ju -- Credit Suisse -- Analyst

Thanks. Strauss, did 2K or Tencent handle the development of NBA 2K Online and consequently who will be handling the distribution of this title outside of the Chinese market? Presumably, you may have plans to release the game in non-console territories. Secondarily, there's obviously now hits from studios not affiliate with yourself or some of your publisher peers. So, it says that there are content studios and IP out there that you may think about acquiring and bringing in house, but deals seem to be few and far between. Has the M&A environment become more difficult? Thanks.

Strauss Zelnick -- Chairman and Chief Executive Officer

Thanks for your questions. With regards to development of NBA 2K Online with Tencent, that's obviously an arrangement between Tencent and 2K and both titles are actively involved in bringing that title to market. Social Point is not involved with bringing that title to market. With regard to potential acquisitions, we acquired the Kerbal Space Program intellectual property. We're continuing to develop and release around that title. We're excited that we acquired Social Point and over the years, we've made numerous other selective acquisitions, typically where we can acquire intellectual property and a team that goes along with it.

I don't think the environment is any more challenging than it's been. I think it's been challenging for quite some time because this has been a growth business for quite some time and there have been some hefty multiples paid. I think we feel that our discipline has really paid off. There are a few things that occurred that we think we missed the boat off, but pressure few and we've much more often dodged a bullet than missed the boat.

Stephen Ju -- Credit Suisse -- Analyst

Thank you.

Operator

Our next question is with Mike Hickey with Benchmark. Please proceed with your question.

Mike Hickey -- The Benchmark Company -- Analyst

Hey, guys. Thanks for taking my question. Congrats on a strong quarter. I'm curious, still a bit far away here but there's been some speculation that we may have a new console from PlayStation in 2020. Obviously, that's not something that you can talk to -- I don't think, anyway -- but I'm just curious about your perspective on what it means to have a console cycle opportunity or challenge.

I'm also wondering how you released GTA V at the end of the prior cycle and were obviously very strategic and opportunistic to release the current gen shortly thereafter. So, how you think about how that strategic opportunity potentially coming into maybe a new PlayStation box in 2020? Thanks, guys.

Strauss Zelnick -- Chairman and Chief Executive Officer

Thanks, Mike, always nice to hear from you. As you imagine, we wouldn't have an ability to comment on another company's plans. You'll have to ask them about that. I think we've navigated transitions in console releases and other platform releases pretty well around here since we showed up roughly 11 years ago. We're actually really proud of that because historically, as you know, during a transition period, the challenges can be very significant if you bet wrong in terms of what you're up to, whether that's supporting something new or supporting something old.

Again, what's driven that is less corporate cleverness and more that our labels create the highest quality properties that defy normal behavior in console transition periods. The last transition period, for example, was a lot of noise in the marketplace about how challenging it was for catalog product. This is going back some time, but you've been in the industry a long time, so you'll remember this as I do. We weren't challenged in the least. Why? Because I believe the quality of our catalog was so high and is so high. That's why, I think, our catalog sells more per SKU than I think any other company in the business.

So, I think because we have a limited number of the highest quality releases and because our titles tend to do well as catalog titles, transition periods create somewhat less risk for us. We're not dealing with a massive tonnage of SKUs that we have to make decisions about. And because our titles are typically high quality, they can continue to perform as new platforms are released.

So, obviously Grand Theft Auto V was developed for the last generation and yet, it remains the standard bearer for this generation, which is extraordinary and something that we are grateful to Rockstar for and incredibly proud of.

So, in the event that there are new platforms, we'll make decision on what to support based on our view of potential success. I would observe that the PC platform has become a very, very important part of what we do, driven by digital distribution. That was not the case for so-called console titles ten years ago and it is the case now. Does that mean the business is flattening out and everything becomes open? Not in the least. I wouldn't rule out the possibility of more generations. However, it does get us closer to a point where we truly can be platform agnostic as an industry. I would say we're not there yet, but the will come.

Mike Hickey -- The Benchmark Company -- Analyst

Thank you, Strauss. Good luck, guys.

Operator

Ladies and gentlemen, we have reached the end of our question and answer session. I now would like to turn the call back over to management for closing remarks.

Strauss Zelnick -- Chairman and Chief Executive Officer

We've kept you all long enough. We're really proud of our results. We're grateful to our creative colleagues who drive these results. We're grateful to our business colleagues who keep the trains running on time. We're grateful to our marketing and distribution colleagues who we believe are the best in the business. This company has a wonderful culture and enjoys terrific results on a consistent basis. We're proud of that and for those of you attending the call today, our shareholders and those who follow us, thanks so much for your support and interest.

Operator

This concludes today's teleconference, you may disconnect your lines at this time. Thank you for your participation.

Duration:62 minutes

Call participants:

Henry Diamond -- Senior Vice President, Investor Relations and Corporate Communications

Strauss Zelnick -- Chairman and Chief Executive Officer

Karl Slatoff -- President

Lainie Goldstein -- Chief Financial Officer

Mike Olson -- Piper Jaffray -- Managing Director

Tim O'Shea -- Jefferies -- Analyst

Eric Handler -- MKM Partners -- Managing Director

Justin Post -- Merrill Lynch -- Managing Director

Chris Merwin -- Goldman Sachs -- Analyst

Brian Nowak -- Morgan Stanley -- Managing Director

Ben Schachter -- Macquarie Group -- Analyst

Ray Stochel -- Consumer Edge Research -- Analyst

Gerrick Johnson -- BMO Capital Markets -- Managing Director

Ryan Gee -- Barclays -- Analyst

Andrew Uerkwitz -- Oppenheimer & Company -- Analyst

Brandon Ross -- BTIG -- Analyst

Doug Creutz -- Cowen -- Managing Director

Stephen Ju -- Credit Suisse -- Analyst

Mike Hickey -- The Benchmark Company -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see ourTerms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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