Greetings, and welcome to the Take 2 Q3 fiscal year 2018 earnings call. At this As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Hank Diamond, Senior VP of Investor Relations And Corporate Communications. Please go ahead.
Good afternoon. Welcome and thank you for joining K2's conference call to discuss its results for the third quarter of fiscal year 2018 18 ended December 31, 2017. Today's call will be led by Strauss Zelnick. Kate Duke's Chairman and Chief Executive Officer Carl Slayoff, our President and Lenny Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q And 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 and 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. 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. Our press release and filings with the SEC may be obtained from our website at www.kit2games.com. And now, I'll turn the call over to Strauss.
Thanks, Hank. Good afternoon, and thank you for joining us today. I'm pleased to report that during the holiday quarter, Take 2 benefited from high consumer demand for our offerings, enabling our company to deliver both strong net bookings and net cash provided by operating activities. Excuse me. Our results were highlighted by record recurrent consumer spending on Grand Theft Auto Online and NBA 2k18, robust ongoing sales of Grand Theft Auto V and the successful launch of WWE 2K18.
As a result of our outstanding third quarter performance and increased 4th quarter forecast, we've raised our fiscal 2018 outlook for net bookings. 2017 was the best year yet for Grand Theft Auto Online, capped off by an epic December that saw more players in the game than ever before. During the fiscal third quarter, Grand Theft Auto Online substantially exceeded our expectations and remained the single largest contributor to recurrent consumer spending. Rockstar Games has driven sustained engagement through the ongoing release of a rich array of free new content, led by the massive doomsday hype, which is the biggest update for Grand Theft Auto Online State as well as festive Surprise 2017, special Halloween content and additional themed content drops for smugglers run. Also, Rockstar Games released the criminal enterprise starter pack which gives players access to a wide range of the most exciting and popular additions to Grand Theft Auto Online plus $1,000,000 in GTA virtual currency.
Rockstar Games will continue to support Grand Theft Auto Online with more new content going forward. Although it was launched over 4 years ago, during 2017, Grand Theft Auto V was the number 3 selling gaming units and number 6 selling game and revenue based on combined U. S. Digital and physical sales across PC, console and portable according to the MPD group. The title remains the must have video game, especially as the installed base of current generation consoles continues to grow.
And is now sold in more than 90,000,000 units. The unparalleled longevity and success of Grand Theft Auto V and Grand Theft Auto Online testament to Rockstar Games ability to deliver entertainment experiences that set new creative benchmarks and appeal to a broad range of audiences around the world. Turning to our annual sports releases, NBA 2k18 delivered better than expected net bookings during the holiday quarter. The title is sold in over 8,000,000 units to date, up nearly 25% over the prior year's release. And digitally delivered sales have increased significantly.
NBA 2K team was the 2nd highest selling game of 2017, both in revenue and units based on combined U. S. Digital and physical sales across PC console and portable, according to the MPD group. Our NBA 2K series also continues to benefit from growth and engagement and recurrent consumer spending. To date, total users and average daily users of NBA 2k18 on current generation platforms are up more than 20% over last year.
And during the third quarter, recurrent consumer spending at NBA 2k grew 33%. We expect NBA 2k18 to become our most successful sports title ever. Both in terms of units sold and recurrent consumer spending. Even with its tremendous success, we believe there remains a substantial worldwide growth opportunity for NBA 2K. In October, 2K successfully launched WWE 2K18, the latest installment of our popular WWE simulation based series.
The title has been supported with an array of post launch downloadable content, including a season pass. The WWE brand is as popular as ever. And we believe there's a substantial long term opportunity to grow our WWE 2K series by leveraging further the development and marketing expertise 2K and visual concepts. Our results also benefited from a number of other titles led by new versions of Rockstar Games Block detective thriller LA noir for Nintendo Switch, PS4, and Xbox 1, as well as mobile games from our Social Point studio. In addition, Rockstar Games released Eleonore, the VR case files for the HTC Vive system, which is now one of the industry's top rated virtual reality experiences in Winter upload VR's best 5 game award for 2017.
Today, the highest quality entertainment experiences must provide new and innovative ways for audiences to stay captivated and engaged for longer periods of time. We're committed to this strategy and its successful execution has enabled us to deliver better than expected net bookings from recurrent consumer spending which grew 44% to a new record and accounted for 40% of total net bookings in the 3rd quarter. In addition to Grand Theft Title 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 continued to be a meaningful contributor to net bookings through its 2 biggest titles: Dragon City and Monster Legends. We view Social Point as an important long term growth opportunity for Take 2.
Recurrent consumer spending at WWE SuperCard grew 25% and the game has now been downloaded more than 16,500,000 times. 2K released the season 4 update, which features 250 new cards additional tiers, and more. And NBA 2k Online remains the number one PC online sports game in China with over 36,000,000 registered users. Also, net bookings from add on content grew more than 20% led by WWE 2K18, Sid Meier's Civilization, and XCOM 2. Rockstar Games has announced that Red Dead Redemption 2 will launch on October 26, 2018, We continue to expect to deliver both record net bookings and record net cash provided by operating activities in $2,500,000,000 $700,000,000, respectively, led by the launches of Red Dead Redemption 2 and a highly anticipated new title from 1 of 2K's biggest franchises.
Interactive entertainment has captured the imagination of audiences for decades and is one of today's most exciting and popular art forms advances in technology as well as new platforms and business models continue to enhance our team's ability to express their creative visions and to provide connected experiences that drive vast consumer engagement. Whether AAA titles from Rockstar Games in 2K, exciting new IP from independent developers or offerings within emerging areas such as mobile and e Sports. Take 2 is incredibly well positioned to provide value to customers and returns for shareholders over the long term. I'll now turn the call over to Carl.
Thanks, Strauss. In December, Take 2 announced an important initiative, the formation of private division a new publishing label that is dedicated to bringing titles from top independent developers to market. Our groundwork for private division began over 2 years ago and its mission is to empower independent studios to develop games about which they are passionate, while providing the support they need to make their titles critically and commercially successful on a global scale. There are a growing number of independent studios in our industry that have top talent our focus on creating high quality new IP. Private Division was formed to enable our company to benefit from this trend, partnering with the best independent developers to bring incredible experiences to publish several upcoming titles based on new IP from renowned industry talent, including the previously announced Ancestors, the humankind Odyssey from Panache Digital Games, led by Assassin's Creek creator, Patrice Esselade, an unannounced RPG currently code named Project White from the outsider led by David Goldfarb, who was formerly a senior game designer at Dice And Starbury Studios, an unannounced RPG from Obsidian Entertainment led by Tim Kane and Leonard Boierski, co creators of Fallout and an unannounced sci fi first person shooter from V1 Interactive studio founded by halo co creator, Marcus Lato.
In addition, Private Division is the publisher of Kerbal Space Program, which we acquired in May 2017. We are very excited about the long term potential for Private Division to be a meaningful contributor to revenues and profits. Now I'll discuss our recent releases and development pipeline. On January 16, private division, squad and Blitz Works released Kerbal Space Program Enhanced Edition, a new console version of the beloved space simulation game for digital download on PlayStation 4 and Xbox 1. Kerbal Space Program in Enhance Edition was built from the ground up to include reworked and console optimized UI, a new control scheme exclusively for consoles and more ways to enjoy launching spaceships into orbit.
Sales of the title are outperforming our expectations. Later this quarter, on March 13, private division will release Kerbal Space Program making history expansion for PC, adding rich new content to the series, including the mission builder and history pack. We view Kerbal Space Program as a long term franchise that complements our portfolio of owned intellectual property. Tomorrow, 2K and Firaxis games will release Sid Meier's Civilization VI, Rise And Fall. The expansion pack for the an award winning strategy title for PC.
Civilization 6, Rise And Fall, brings new choices and strategies for players as they guide a civilization through dark ages and golden ages with the help of governors and a new loyalty system. With this expansions array of new features, players will be both challenged and rewarded in ways never before seen during the 26 year history of the Civilization franchise. This quarter, Social Point will release significant updates for its 2 biggest games: Dragon City and Monster Legends, and is also working on a number of exciting new titles plan for launch over the next 2 years. Turning to esports, both our team and the NBA continue to prepare for the May 2018 launch of the NBA 2K League. Last month, 72,000 players from around the world participated in the league's qualifying round, and fulfill the 50 Pro Am game requirement.
This month, the league will complete its registration process and then we'll host a series of in game events during February's combine. This will be determined the best NBA 2 K players in the world who will be available in the March draft for 17 teams participating in the inaugural season. We are very pleased with the progress of the NBA 2K Week and look forward to expanding our presence in competitive gaming, which has a long term potential to enhance engagement and to be a meaningful driver of profits for our company. Looking ahead, we have a strong development pipeline across our labels, including both new releases from our industry leading portfolio and groundbreaking original intellectual property. We remain committed to delivering the highest quality entertainment experiences and supporting them with innovative offerings designed to drive audience engagement.
These are incredibly exciting times for both our company and our industry. Take 2 is better positioned than ever to capitalize on our many opportunities to generate growth and profits over the long term. I'll now turn the call over to Lainie.
Thanks, Carl, and good afternoon, everyone. Today I'll discuss our 3rd quarter results and then review our financial outlook for the fourth quarter fiscal year 2018. Please note that 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 our GAAP financial results in order to evaluate our operating performance. As Strauss mentioned, we delivered outstanding results driven by the better than expected performance of Grand Theft Auto Online and NBA 2K, continued robust sales of Grand Theft Auto5 and the successful launch of WWE 2K Total net bookings were $654,000,000 near the high end of our outlook range. Of this amount, 58% were digitally delivered net bookings, which grew 6% to $380,000,000.
Our digitally delivered net bookings were driven by record recurrent consumer spending, which is partially offset by lower full game downloads due to this year's lighter holiday release slate. We generated strong cash provided by operating activities conditions, we were able to spend $110,000,000 to repurchase 1,060,000 shares of our stock at an average price of $103.54. As of December 31, we had more than $1,300,000,000 in cash and short term investments. Turning to some details from our 3rd quarter income statement. GAAP net revenue exceeded our outlook and grew to $481,000,000.
Cost of results decreased by 14% to 2 $68,000,000. Operating expenses increased by 5 percent to $204,000,000 due primarily to the inclusion of Social Point, as well as higher stock based compensation and headcount expenses, which were partially offset by lower marketing expense. Operating expenses were lower than our expectations due primarily to the timing of marketing campaigns. And GAAP net income exceeded our outlook increasing to $25,000,000 or $0.21 per share. Our GAAP results reflect a $30,000,000 net tax benefit, which was driven primarily by changes in valuation allowance, release of unrecognized tax benefits due to statute expiration and the net effect of changes resulting from the Tax Cuts and Jobs Act.
Tax benefit had no effect on our management reporting tax legislation will reduce our management reporting tax rate in fiscal 2019. We expect to provide more clarity on our 4th quarter earnings call. Now I will review the highlights of our fiscal 2018 financial outlook, starting with the fiscal 4th quarter. We expect net bookings to range from $410,000,000 to $460,000,000. At the midpoint, this represents 7% growth over the prior year period.
The largest contributors to the net bookings outlook are Grand Theft Auto Online and Grand Theft Auto 5, NBA 2K18 and WWE 2K18. Expect GAAP net revenue to range from $460,000,000 to $510,000,000 and cost of goods sold to range from $196,000,000 to $225,000,000. Our operating expenses are forecasted to range from $190,000,000 to $200,000,000. At the midpoint, this represents a 34% increase over last year. Driven by the inclusion of Social Point as well as higher marketing and R and D expense.
And we expect GAAP net income to range from $87,000,000 to $99,000,000, or $0.73 to $0.83 per share. Turning to our outlook for the full fiscal year. As a result of our strong third quarter results and improved forecast for the remainder of the year, are increasing our outlook for net bookings. We now forecast net bookings to range from $1,990,000,000 to $2,040,000,000, up from our prior outlook of $1,930,000,000 to $2,030,000,000. At the midpoint, this represents 6% growth over the prior year.
The better lighter release slate driven primarily by growth from NBA 2K and Grand Theft Auto as well as the inclusion of a full year of net bookings from Social Point. We continue to expect net bookings from recurrent consumer spending to increase approximately 50% and digitally delivered net bookings to grow around 25%. The largest contributors to our net bookings outlook are Grand Theft Auto Online and Grand Theft Auto Five, NBA 2K and WWE 2K. We expect the net booking breakdown from our labels to be roughly 50% 2K, 45% Rockstar Games, and 5% Social Point and other. And we forecast our geographic net booking splits to be about 60% United States and 40% international.
We continue to expect to generate approximately $300,000,000 in net cash provided by operating activities, and we plan to deploy approximately $60,000,000 the capital expenditures. Turning to our income statement, we are increasing our outlook for both GAAP net revenue and GAAP net income. We expect GAAP net revenue to grow to a range of $1,800,000,000 $34,000,000. Total operating expenses are forecasted to range from 776,000,000 dollars. At the midpoint, this represents 17% increase over the prior year, driven by the inclusion of Social Point, higher R and D expense, higher stock based compensation expense.
And we expect GAAP net income to range increase to a range of $170,000,000 to $181,000,000 of $1.50 to $1.60 per share. In closing, the continued positive momentum of our business reflects TAKE's ability succeeded schools through a firm commitment to creative leadership, innovation, and operational excellence. As we near the close of fiscal 2018, which will be another year of net bookings revenue and earnings growth for our organization, we remain focused on our many opportunities to expand our business and increase profit. To that end, we expect fiscal 2019 to be a record year for both net bookings and net cash provided by operating activities and the long term future of our company has never been more promising. Thank you.
Our entire management team, I'd like to thank our colleagues for delivering another strong quarter for organization. And to our shareholders, I want to press our appreciation for your continued
At this time, we will be for questions. Our first question comes from the line of Eric Handler MKM Partners. Please proceed with your question.
Yes, thank you very much. Actually two questions for you. Strauss, just as you look into fiscal 'nineteen and using your guys' words, I mean, you have a highly anticipated game from the 2 K studio. You know, one would presume that is, again, that's well known either bioshock or borderlands, a new borderlands title, many people are thinking borderlands, given that you have decent lead times for these games from a marketing perspective, that would seem to suggest it's a back half of the year title. Then it becomes a question of would you want it to compete in the December quarter against, Red Dead, and assuming probably not, then it becomes a March quarter title.
And you think about the March quarter versus on October quarter, which would be fiscal or December quarter, sorry, which would be fiscal 2020. Can you talk about how you feel about some of these games coming into March quarter versus coming in the holiday quarter and how you think about that with some of the big 2K games. And then secondly, it was good to see, capital being returned to shareholders a $1,000,000, a $100,000,000 and the share buyback. Just curious why you think that this quarter was a good use of that capital versus prior quarters when the share price was lower?
Hi, thanks, Eric. We've released titles all over the calendar year. The only period of time that we tend to avoid a big frontline release would be sort of the dog days of July. And, so otherwise, our release dates are by when a title is ready. And when a title is ready to us is when we, our studios believe they've optimized the quality of what we can do.
That's how we'll continue to look at it going forward. More specific information will come from our labels as always. And in terms of a buyback, we've always said that We're we would look to do a buyback at Deep Value. And that is in the eye of the beholder. The management team voted by buying back over $100,000,000 stock at $103 a share.
And in terms of why we might have or might not have done it earlier, we have done buybacks earlier We bought back about $300,000,000, little less than $300,000,000 worth of stock in the past several years, admittedly at lower prices. With the benefit of hindsight, we should have bought as much as we possibly could buy when the stock was lower. Naturally, we didn't have that benefit prospectively. We're always balancing our perception of the value of the enterprise with the solidity of our balance sheet. And we do have other uses for cash supporting organic growth, which has really been the story around here, supporting inorganic growth when we did a meaningful acquisition last year, and of course, returning capital to the shareholders appropriately.
So I wouldn't say that we've, optimized perfectly. I think that's very hard to do. Say that we see ourselves as stock pickers or even stock price pickers, even with regard to our own security, and our focus is heads down building this business. We do run a very, very disciplined operation, particularly on the financial side. Thanks to Lainie and the team.
As you know, we do everything we can to mitigate risk and that includes the nature of our balance sheet.
And just as a quick follow-up to that given that you're buying you were buying back some stock, is that a reflection at all that there's just not a lot to buy right now in the M and A market?
No, we still think there's plenty of opportunity. We're very selective about those opportunities. And we've talked about this in the past. And I think we have a terrific corporate development team. We look at everything that's potentially available.
And, one of the things you ask yourself as of this. I look back and we've been around here for a better part of 10 years. As I look back, are the things I wish I would have done at the price at which they got done. And, I suppose there are a couple of transactions that would fall into that category, but precious few.
Thank you.
Our next question comes from the line of Chris Merwin with Goldman Sachs. Please proceed with your question.
All right, great. Thank you. I just had a couple. So, I was wondering if you could talk a little bit about the growth in recurrent consumer spend is still a very impressive number on an absolute basis, but it did slow pretty significantly from the from fiscal 2Q. So just wondering if you could talk about what the main cause of that was.
Maybe it's just law of large numbers, but any color there would be appreciated. And just a second question on Social Point, I think you mentioned that continue to perform really well. I just was wondering if you could update us on its contribution to total revenue or growth rate there? And then just as a related question, if you see an opportunity to take any of your IP from Rockstar take 2 and leverage Social Point developers to release that on mobile. Thank you.
In terms of recurrent consumer spending, it is continuing to grow for us. It is a big focus for us in all of our games. For instance, for DTM line. Q3 was our biggest quarter ever. And it's up significantly over last year.
So we're still very focused on it. We think there's a lot more opportunity there and we're focused on our MBA game as well for recurrent consumer spending.
Right. But changes in between quarters, we're not It's a very hard to comp quarter to quarter because titles expand and certain times contract even in the context of continued growth. And there is seasonality, little bits of seasonality in our business. So you wouldn't you can't really comp quarter to quarter or even quarter same quarter over prior year quarter. Those comps just don't make sense.
For example, our third quarter was quite different this year, this fiscal than the prior fiscal because we had a different release schedule. On your question about Social Point, Social Point and the private division games, I think, represent around 5% of our revenue. It's still relatively small percent of our revenue. We're excited about the potential growth in that area. In terms of intellectual property, Social Point's mission is to create and build, endemic made for mobile properties.
And those are the properties that tend to do best in the mobile space. Now it is true QK has done really well with WWE SuperCard. We've done well with our NDA, app and we expect to continue to support titles like that through the 2K division. Social point certainly has the ability to work with both internal labels and external labels on licensed properties. But generally speaking, we think the best way to go is to make titles that are meant for the business channel, the consumer channel at hand and to own that intellectual property.
Okay. Thank you.
Our next question comes
Thank you. A couple of questions. First, looks like your recurrent consumer spend in your prepared remarks was better than expected, but you're kind of in the in the range this quarter versus the last few quarters beat. So I was just wondering if anything kind of missed your expectations or was below forecast on that package goods or other revenue side. And then, Lania, I just want to convert, it looks like the balance sheet, the convertible is off the balance sheet.
Just want to confirm that. And what's a good share count to use? Is the 118 non GAAP reported in the quarter a good fully diluted share count to use Thank you.
Thanks, Justin. Yeah, no, everything is going better than expected. We obviously did much better than expected in the quarter pretty much across the board, where accounts And we were at the very high end of our range in terms of net bookings. And obviously, the the cash flow provided by operating activities meaningfully better than expectations, and we have guided up for the year. So we're excited about how things continued to unfold.
MBA 2K is up 25% year over year and was the number 2 selling title in 2017. And Grant Theft Auto 5, 4 years after its initial release was actually the number 3 selling title according to the NPD group in terms of units. In 2017. We had more users than ever playing Grand Theft Auto Online in the third quarter. We're expecting another record year for Grand Theft Auto online.
So everything is going better than expected. And we do have pretty high expectations around here. And Glenn, you'll talk about the share count.
So for the convert that's left on the balance sheet, so we still have debt of about $13,800,000 and it represents about a little bit approximately 500,000 shares that are left. So all the shares have been moved into the share count. So for Q4, we see our press release, we have 118,500,000 shares in the count. And for the full year, 119,500,000 shares. Sorry, it's 118 for the full year.
And Justin, that's all laid out in our press release.
Our next question comes from
Hi, good afternoon, everyone. Thanks for taking my question. Appreciate the color on GT Online players. I just wanted to ask about, revenue. Did you say in your prepared remarks that GTA online spent also a record for this quarter?
And then when you think about the doomsday highs that obviously launched, late in December. So could we expect that content to be in an even larger tailwind for RCS as we move into fiscal 4Q and, into fiscal 2019. And then I have just one follow-up.
Yes, I, yes, you're right that, things have gone really well for Grand Theft Auto Online in the third quarter. It performed better than expected. We think a big part of that performance is Rockstar's ongoing content drops, which have been nothing short of phenomenal. And Rockstar Games has said they intend support grants at auto online with more contact going forward. And we did have a record number of users.
We had a record quarter in Q3. Yes.
And then is there any new content updates for GT into the guidance for fiscal 4Q at all?
So in fiscal in Q4, we included higher GTI line revenues over last year, but not as high as Q3, because that was a record quarter for us.
Great. Thank you guys. Congratulations.
Our next question comes from
Hey, good afternoon. I had a couple of questions on NBA 2K. I'm wondering if you could talk about what kinds of tactics you're using in NBA 2k18 to drive the significant growth in recurrent consumer spend? And then secondly, on esports, you view the NBA 2k League as more of a potential revenue driver or more of a marketing halo for increased engagement in the game? Thanks.
Yeah. Remember, our strategy is always to captivate and engage consumers. And, you know, the revenues are a function of that strategy. It's not the other way around. And however, we can keep consumers excited and make them happier.
That's how we do it. And it is true that the effect of doing that has been that we've had really great results. But we don't our strategy is driven by the goal of making great entertainment. And the world has changed. Used to be that once upon a time we put out a title, people engaged and that was over, you went out to the next title.
Now if you do it right, there's an opportunity to keep people engaged. And having an online, cohort does exactly that and basketball has been succeeding mightily, with recurrent consumer spending up, I think, 30% year over year. And obviously, Grand Theft Auto Online also reflects extraordinary engagement. We know economic impact as we talked about our economic results. But the most exciting thing is that we had a record number of people playing in the third quarter.
That's really exciting. Turning to the NBA 2K league, the goal is to build the 1st professional sports league that's built on a professional sport. And we know that people love basketball. We know the MBA itself is incredibly successful. And we think it's just a natural to build, a league around video gaming that in and of itself will be a successful sport, a successful occupation for consumers.
So we expect it to stand alone and to be successful on its own and profitable on its own. We do think we do it right, and it will also help the NBA brand overall, and it'll help the NBA 2K brand.
Thank you. Our next question comes from the line of Brian
Nowak with Morgan Stanley.
One on GTA Online, you mentioned the record number of players and the strong monetization. I'd be curious to hear about how you're driving new payers to come into the ecosystem? Are you still seeing growth in the number of people who are paying digitally? What do you think is driving that? And just talk about some of the digital mechanics that you've used to kind of bring new payers into the ecosystem, if that is the case.
And then just going back to NBA 2K Esports, Can you just walk us through some of the business side signposts that we should look for, whether it is the potential to sign streaming rights deals, sign affiliates, understanding the draft is coming, the combines coming, but talk us through some of the business steps to happen as we get to the launch.
Yes, I appreciate it. Look, we're focused on players, not payers. We're focused on captivation and engagement. And if we get that right, everything else will follow. And the way we get it right is continuing to give people what they want, which is great free content.
And that's the strategy of Rockstar Games. They've done it just remarkably well, which is why the game remains so successful, and is in such an important part of consumer culture. So the focus is on the players and on the player experience. And the monetization will take care of itself if we do that right. On the NBA 2K league, some of the business drivers that you will be interested in here about naturally are sort of how the draft turns out?
What do those teams look like? How does the 1st season go? How do the games actually look, how do people feel about the experiences? And naturally and purely in the business side, what are the, what are the media rights look like and what does sponsorship look like? And all of that is information to come.
Great. Thanks.
Our next question comes from the line Please proceed with your question.
We got a few questions. 1 for Lainie and then 2 for Sarah's. Lainie, when we're modeling from year, how do we how should we be thinking about the potential cannibalization of GTA Online and Red Dead, anything in particular we should be thinking about there? And then Strauss, two things. One is reported today that Google is exploring some type of streaming service.
And I understand you guys are largely platform agnostic, but how would the entry of new stream platforms impact how you think about the business? And then secondly, when you think about the scale of the business versus some of your larger competitors, do you think you can optimize margins at your current scale or do you think you need an acquisition or potentially merge with someone else? Thanks.
Thanks, Ben. Let me, I'm actually going to take the point on cannibalization I've addressed it before. We think every game, and every entertainment experience stands on its own. An entertainment experience competes internally. It competes externally and it competes with unrelated experiences because entertainment is a want to have activity, not a must have activity.
To the extent that there were a competitive threat, one would assume that competitive threat is realized by properties outside of our company, 1st and foremost. And, so far, Grand Theft Auto Online is just doing phenomenally well. We're having another record year. So we think each title stands alone and, Rockstar Games is continuing to support Grand Theft Auto Online and the results reflect that I'm not going to comment on any particular news or potential launch except to say that our policy is to support broad distribution because we want to be where the consumer is. That said, it is important that everything we support is consistent with our creative approach and with margins grow.
They grow with success. The more hits we have, you know this. Of course, the higher our margins are. If we have fewer hits, lower our margins are And of course, as we grow scale, as long as we grow that scale and maintain the same profitability levels, you're going to see our operating profits go up. So Could gross margins go up?
Yes, they can as we shift more to digital distribution, which I think we're all seeing and externally occur, our gross margins go up. And our operating margins will also go up, scale will help us achieve that. We have shown an ability to grow scale meaningfully organically, We see it as a challenge to continue doing so and we're bound and determined to meet that challenge, equally accretive acquisitions that build scale will naturally act in service of higher operating margins as well.
Our next question comes from the line of Ray Stochel with Consumer Edge Research. Please proceed with your question. Big picture question. How should we be thinking about companion apps within your business for your 2 major labels? And do you view companion apps as a standalone revenue generator or more as something that is just a way to drive engagement back into the base game?
Thanks.
I think what we're seeing with WWE SuperCard and with the NBA is that mobile games have standalone as great experiences. And, and that's how our folks on them. I think the days of companion apps for marketing purposes or even engagement purposes perhaps are gone. And every offering consumer has to stand alone as a powerful offering.
Great. Thanks so much.
Our next question comes Mark Company. Please proceed with your question.
Hey guys, congrats on another strong quarter. Thanks for taking my questions. 2, Let's see if I can ask this correctly, Strauss, but thinking about the Battle Royale genre, obviously, 2 major incumbents here at PUBG. Fortnite and, similar mode, I guess, within GT online that I think gotten some success. But I'm just curious how you see the market opportunity there overall for new entrants And also, if you feel that that sort of mode could offer your IP a bridge to Asia, assuming you had a PC based view, that's follow-up?
I think more detail on game mechanic specifics really comes at the label level. But I would just observe that someone else is success is really interesting. And we're obviously informed by what our competitors do. But our goal is to be as innovative as possible. And titles, even really good titles that are derivative never seem to do as well as innovations that are on So when we came out with the 1st Red Dead Redemption, the conventional wisdom was that Western's don't work and have been an awfully long time since the West earned theme video game and come out.
And Rockstar took a massive creative risk and the result was extraordinary so I don't see our labels being super excited about being derivative. That said, of course, we play in the world we're informed by what's going on. And it is our job to bring consumers what they want. And because you alluded to Asia, Asia remains an enormous area of focus, we built a great business in Asia and we continue to be very interested in growing that business in and outside of China.
Good. All right.
Thank you. The last question, obviously, you have a it appears to be a strong working relationship with, thanks McMahon and WW also appears to be, some mutual respect there for what it's worth. But when I'm sure you saw one Vince announced, the relaunch, I guess, at the XFL, the there appeared to be sort of a new sports theme, at least that was my impression on on the watch and the, the video stream. And, of course, you guys have a history of long, one time ago. Now I guess history of making a very respected football games.
So I'm just sort of curious how you think about possibilities of, creating a football game. You sports angled into the launch of the XFL?
Well, we have enormous respect for the entire WWE organization, we're thrilled to be in business with them. And, if Mr. McMahon is gonna Sue a new venture, we're rooting for his success enthusiastically, whether we'd be fortunate enough to gain an opportunity from that remains very much to be seen.
Our next question comes from Please proceed with your question.
Thank you. Just two quick ones. Just to clarify on the buyback, reviewing that as more opportunistic or is that something that we should assume, as more of a regular contributor in terms of the go forward, just given the visibility you have into next year? And then the second question, just with the additional time for Red Dead, does that potentially change your perspective in the near term about potentially porting the game to additional platforms or was the move perhaps not related to that at all? Thank you.
We've said that there are 3 potential uses for our cash balance, supporting organic growth, which is really our bread and butter, supporting in organic growth, which has been necessary lately as we acquired Social Point and we are interested in potentially, broadening the enterprise in that way and returning capital shareholders, which obviously, we've just done with a meaningful buyback. We'll continue to pursue all three as and when they make sense So there's no change in our strategy. And in terms of Red Dead, any announcements about platform support will properly come from Star Games.
Our next question comes from the line of Tim O'Shea with Jefferies.
Yes, thank you for taking my question and congrats on another great quarter. So on Red Dead, can you walk us through the the decision to delay Red Dead for a second time? Is this a case of wanting to add some final polish to the game? Are you reworking gameplay? Just love to hear your thoughts and And what's the level of confidence in the October 26 release date?
And then, just curious how the holiday launch window compares bring, how you think about the competitive environment or how are they spending? Again, love to hear your thoughts guys. Thanks.
We've said repeatedly, and we've, we put our money where our mouth is the entire focus of this organization is on delivering highest quality entertainment experiences of any kind. And, more often than not, we so proud that we're able to do that. All of our labels are focused on releasing a title when they've reached that APAC of, effort and perfection. And in this instance, Rockstar Games fell more polish was required and naturally, we're in favor of that decision. The date of October, 26 is set, and I'm confident that that will be the release date and incredibly excited about it.
We've released titles all over the calendar. The only time we tend not to would be when it's super hot in July. That's, but otherwise, we've been in every other quarter. Holidays, heading into the holiday season can be a particularly powerful time. And I'd observe that even though there are some competitive releases, it's a lot more of an open field today than it was, say, 10 years ago.
And there's plenty of opportunity to go around. So we're really excited about both the launch and the timing related to the
Thanks. And then just one more, if I may. You guys have now raised your full year outlook every quarter all year and you're guiding to over 2,000,000,000 revenue, $3.23 of EPS at the midpoint. And my question is just at a high level, how much of this is truly recurring? I mean, how much might we expect to get back next year?
And I know you've previously said and you reiterated, in this release that the fiscal 2019 revenue could exceed $2,500,000,000, but we're already at $2,000,000,000 this year, with a very light release slate. And next year, we have 2 major game launches that weren't in this year's plan. So just love to hear your thoughts on how much you think is truly recurring.
It's a great question. We haven't given any color on, fiscal 2019 apart from what we've said already. Naturally, in the coming months, we will do so and we'll get a bit more granular about it. You're absolutely right that we use the phrase current consumer spending, but nothing is forever, or typically nothing is forever. And, we, you know, we have to show up and create new content for consumers for We are having a great year.
We've had a great number of years. We're immensely grateful for that. That is all driven by the creative quality the work done by our labels. And while we hope that that will continue, and so far we've been very fortunate, you're absolutely right to imply this is not recurrent in the way, say, interest payments on the AAA rate of municipal bond recurring.
Our next question comes from
Hey, thank you. It looks like you lowered your operating expense guidance for the year by a few tens of 1,000,000 of dollars. I was just wondering if how much of that might have been due to the Red Dead 2 delay in the potentially less of a marketing campaign for that in this fiscal year? Thanks.
The majority of the lowering of the OpEx is due to the timing of marketing campaigns and it is, for Red Dead Redemption, but also some of our other titles.
Okay. Thank you.
Our next question comes from
Good afternoon. So Carl, just want to point a clarification. Did you say the NBAE league will launch in May? And if so, my understanding was that this was originally supposed to start in the fall. So if that's true, why the change?
And then separately, LA noir is a test case on the switch. Can you talk about the prospects or opportunities to put other games on the switch such as Grant Theft Auto, where you've got a 90,000,000 base of players at this point?
So, yeah, just to take the NDA, the NDA week, the, there was, it was never intended for launch. There was no change. May is our launch date and that's that's when we plan to do it. So that actually, just to clarify, that was not a change. In terms of bringing other titles to Switch, obviously, we've done a few titles already we've done MBA, W.
W. W. E. R. We look at this like any other platform opportunity.
To the extent that we look at our development cost, there's a game right for the platform, what does the audience look like the installed base. So when we do believe that there's an opportunity to do something on switch, then you'll hear it from the labels, we do we are impressed with the growth. We're impressed with the units that have been sold into the market so far. So we're very sanguine at this point, but we have nothing more to announce specifically at this Okay. Thanks guys.
Our next question comes from the line of Brandon Ross with BTIG. Please proceed with your question.
Hi, thanks for taking the questions. 2 questions. First, on GTA Online, how should we think of the pacing of content releases this year? Should we expect it to be similar what it was last year? And will that at all be affected by the coming release of Red Dead?
And how if all do you intend to use that GTA Online funnel to drive, Red Dead sales and, players in Red Dead Online? And then another Fortnite related question. Fortnite has been pretty successful with a free to play strategy. Especially with recurrent consumer spending, being what it is, do you see a big opportunity in free to play on console? Thanks.
We don't really talk about pacing of content. And I'm not even sure we really think about it that way. We create great entertainment experiences. And when they're ready, we've delivered them to consumers. And so we don't have any kind of metronome quality to the creation of any of our entertainment experiences here.
Rockstar Games has said they intend to continue to support Grand Theft Auto Online. And that support of Grand Theft Auto Online has nothing to do with the launch of Red Dead Redemption 2. These are different projects and they stand, they stand independent of one another. In terms of my own views on free to play console, I think there are potentially opportunities there. We have a free to play experience in China and And naturally, when people are involved with our online games, in many ways, those look like free to play experiences, yes, you had to purchase title become involved, but if you're involved the years later, it's hard to imagine that there's much difference between sort of the emotional caliber of that experience and a free to play experience.
If your question is whether the business model moves in that direction, I would say it probably can't because in a free to play true, free to play environment, 10 ish percent of your consumers maximum are that a AAA title requires here and in our competitors' shops. And we think consumers understand that. And I think to the extent people want to continue to have big AAA experiences and they do. They are prepared to pay what ultimately is a very low price given the massive number of hours that one can spend enjoying the titles.
Our final question comes from the line of Andrew Berkowitz with Oppenheimer.
Hey, gentlemen, I just have 2 quick ones here. Strauss, when you look back, at GTA, I doubt that anybody internally thought I'd have quite the success it's having now with record quarters now 4 years later. Is there 1 or 2 things that you guys look at as you play Monday morning quarterback that you think has really been the difference that's made this title, what it is? And then if so, how do you guys think about translating that to future titles across the portfolio?
Thank you. And, it's the last question of the day, so I particularly like ending on a high note. I don't think there's much of a magical answer to the question. Of course, we ask ourselves that. And it's just further recognition that, the best quality wins.
And in the case of Grand Theft Auto V and Grand Theft Auto Online, and I have to hold myself back from over promoting because it's not our style. But I do think that the title became the standard bearer for not just the generation, but in many ways for the modern video game business. And In other past iterations of the franchise, I think there were potentially a couple of other extraordinary titles that clustered around competitively. And that hasn't seemed to have been the case here, with 90,000,000 units sold and record results for Grand Theft Auto Online 4 years after its release. Is there a secret sauce, yeah, the secret sauce is it's a really extraordinary experience that people love.
And, it was created and delivered and now supported by a label that never ever rests on the past. And is utterly focused on innovation and breaking barriers, with an eye towards an amazing entertainment experience. And that's easy for me to say those words exceedingly hard to do and I would argue impossible for others to replicate. But what we mostly feel around here is a sense of enormous gratitude to our colleagues. At Rockstar Games for creating, supporting, and delivering this experience over or now what is very many years And I suppose it is, it is that experience that leads us to be so enthusiastic about the future when your strategy is guided by a true genuine appreciation for our mission, which is to entertain people.
And a genuine, not financially driven commitment to quality. Comes first. It just comes first. And then thankfully, we run what we believe is a highly rational, exceedingly disciplined business environment which gives people, who are creative, a very safe place to do the very best work. Anyway, that's our goal, and we think that's why things are going pretty well.
Great. Thank you. I appreciate that color.
Question and answer
Thanks so much for joining us today. We're really thrilled with the results of the quarter. Incredibly pleased for the outlook for the remainder of the year and the early out outlook for fiscal 2019. We want to thank you for joining us today and for your continued support.
Today's conference. You may disconnect your lines at this time. Thank you for your participation.