Greetings, welcome to the Take-Two Q3 fiscal year 2018 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 star zero 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, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead.
Good afternoon. Welcome, thank you for joining Take-Two's conference call to discuss its results for the third quarter of fiscal year 2018, ending December 31st, 2017. 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 belief 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.taketwogames.com. Now I'll turn the call over to Strauss.
Thanks, Hank. Good afternoon, thank you for joining us today. I'm pleased to report that during the holiday quarter, Take-Two 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 fourth 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 Heist, which is the biggest update for Grand Theft Auto Online to date, as well as Festive Surprise 2017, special Halloween content, and additional themed content drops for Smuggler's 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 million 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 four years ago, during 2017, Grand Theft Auto V was the number 3 selling game in units and number 6 selling game in revenue based on combined U.S. digital and physical sales across PC, console, and portable, according to the NPD Group. The title remains the must-have video game, especially as the install base of current generation consoles continues to grow and is now sold in more than 90 million units. The unparalleled longevity and success of Grand Theft Auto V and Grand Theft Auto Online is a 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 has sold in over 8 million units to date, up nearly 25% over the prior year's release, and digitally delivered sales have increased significantly. NBA 2K18 was the second 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 NPD Group. Our NBA 2K series also continues to benefit from growth in 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. 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, that the WWE brand is as popular as ever. We believe there's a substantial long-term opportunity to grow our WWE 2K series by leveraging further the development and marketing expertise of 2K and Visual Concepts. Our results also benefited from a number of other titles led by new versions of Rockstar Games' blockbuster detective thriller, L.A. Noire for Nintendo Switch, PS4, and Xbox One, as well as mobile games from our Social Point studio. In addition, Rockstar Games released L.A. Noire: The VR Case Files for the HTC VIVE system, which is now one of the industry's top-rated virtual reality experiences and winner of UploadVR's Best VIVE 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 our recurrent consumer spending, which grew 44% to a new record and accounted for 40% of total net bookings in the third quarter. In addition to 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 continue to be a meaningful contributor to net bookings through its two biggest titles, Dragon City and Monster Legends. We view Social Point as an important long-term growth opportunity for Take-Two. Recurrent consumer spending on WWE SuperCard grew 25%, and the game has now been downloaded more than 16.5 million times.
2K released the Season 4 update, which features 250 new cards, additional tiers, and more. NBA 2K Online remains the number 1 PC online sports game in China with over 36 million registered users. 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 fiscal 2019 in excess of $2.5 billion and $700 million respectively, led by the launches of Red Dead Redemption 2 and a highly anticipated new title from one 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 and 2K, exciting new IP from independent developers, or offerings within emerging areas such as mobile and esports, Take-Two 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 Karl.
Thanks, Strauss. In December, Take-Two 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 two 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 and are focused on creating high-quality new IP. Private Division was formed to enable our company to benefit from this trend by partnering with the best independent developers to bring incredible experiences to gamers around the world.
Private Division currently has contracts 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 Creed" creator Patrice Désilets, an unannounced RPG currently codenamed Project Wight from The Outsiders, led by David Goldfarb, who was formerly a senior game designer at DICE and Starbreeze Studios, an unannounced RPG from Obsidian Entertainment led by Tim Cain and Leonard Boyarsky, co-creators of "Fallout," and an unannounced sci-fi first-person shooter from V1 Interactive, a studio founded by "Halo" co-creator Marcus Lehto. 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 16th, Private Division, Squad, and BlitWorks released "Kerbal Space Program Enhanced Edition," a new console version of the beloved space simulation game for digital download on PlayStation 4 and Xbox One. "Kerbal Space Program Enhanced 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 13th, 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 critically acclaimed and award-winning strategy title for PC.
Civilization VI: 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 expansion's 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 two biggest games, Dragon City and Monster Legends, and is also working on a number of exciting new titles planned for launch over the next two 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 fulfilled a 50 pro-am game requirement.
This month, the league will complete its registration process and then will host a series of in-game events during February's combine. This will determine the best NBA 2K 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 League and look forward to expanding our presence in competitive gaming, which has the 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-Two 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, Karl, good afternoon, everyone. Today, I'll discuss our third quarter results review our financial outlook for the fourth quarter and 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 in the third quarter, driven by the better-than-expected performance of Grand Theft Auto Online and NBA 2K, continued robust sales of Grand Theft Auto V, and the successful launch of WWE 2K18. Total net bookings were $654 million, near the high end of our outlook range. Of this amount, 58% were digitally delivered net bookings, which grew 6% to $380 million.
Our digitally delivered net bookings were driven by record recurrent consumer spending, which was partially offset by lower full game downloads due to this year's lighter holiday release slate. We generated strong cash provided by operating activities of $203 million, we deployed $15 million for capital expenditures. As a result of favorable market conditions, we were able to spend $110 million to repurchase 1.06 million shares of our stock at an average price of $103.54. As of December 31st, we had more than $1.3 billion in cash and short-term investments. Turning to some details from our third quarter income statement. GAAP net revenue exceeded our outlook and grew to $481 million. Cost of goods sold decreased by 14% to $268 million.
Operating expenses increased by 5% to $204 million, 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, GAAP net income exceeded our outlook, increasing to $25 million, or $0.21 per share. Our GAAP results reflect a $13 million net tax benefit, which was driven primarily by changes in valuation allowance, release of unrecognized tax benefits due to statute expirations, and the net effect of changes resulting from the Tax Cuts and Jobs Act. The tax benefit had no effect on our management reporting tax rate, which is 22% for fiscal 2018. We are in the process of evaluating whether the recent tax legislation will reduce our management reporting tax rate in fiscal 2019.
We expect to provide more clarity on our fourth quarter earnings call. I will review the highlights of our fiscal 2018 financial outlook, starting with the fiscal fourth quarter. We expect net bookings to range from $410 million-$460 million. 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 V, NBA 2K18, and WWE 2K18. We expect GAAP net revenue to range from $460 million-$510 million and cost of goods sold to range from $196 million-$225 million. Operating expenses are forecasted to range from $190 million-$200 million. 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&D expense.
We expect GAAP net income to range from $87 million-$99 million, or $0.73-$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, we are increasing our outlook for net bookings. We now forecast net bookings to range from $1.99 billion-$2.04 billion, up from our prior outlook of $1.93 billion-$2.03 billion. At the midpoint, this represents 6% growth over the prior year, despite a 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 V, NBA 2K, and WWE 2K. We expect the net bookings breakdown from our labels to be roughly 50% 2K, 45% Rockstar Games, and 5% Social Point and other. We forecast our geographic net booking split to be about 60% U.S. and 40% international. We continue to expect to generate approximately $300 million in net cash provided by operating activities, and we plan to deploy approximately $60 million for 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 $1.8 billion-$1.85 billion and cost of goods sold to range from $905 million-$934 million. Total operating expenses are forecasted to range from $776 million-$786 million.
At the midpoint, this represents a 17% increase over the prior year, driven by the inclusion of Social Point, higher R&D expense, and higher stock-based compensation expense. We expect GAAP net income to increase to a range of $170 million-$181 million, or $1.50-$1.60 per share. In closing, the continued positive momentum of our business reflects Take-Two's ability to exceed its goals 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.
I'll turn the call back to Strauss.
Thanks, Karl and Lainie. On behalf of our entire management team, I'd like to thank our colleagues for delivering another strong quarter for our organization. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 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 star keys. One moment, please, while we pull for questions. Our first question comes from the line of Eric Handler with MKM Partners. Please proceed with your question.
Yes, thank you very much. Actually, two questions for you. Strauss, just as you look into fiscal 2019 and using your guys' words when you have a highly anticipated game from the 2K. One would presume that is a game that's well-known, either BioShock or 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? Assuming probably not, then it becomes a March quarter title. You think about the March quarter versus an October quarter, which would be December quarter, sorry, which would be fiscal 2020.
Can you talk about how you feel about some of these games coming in a March quarter versus coming in the holiday quarter, and how you think about that with some of the big 2K games? Secondly, it was good to see capital being returned to shareholders, $100 million in 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.
Thanks, Eric. We've released titles all over the calendar year, and the only period of time that we tend to avoid a big frontline release would be sort of the dog days of July. Otherwise, our release dates are driven by when a title is ready, and when a title is ready to us is when 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. In terms of a buyback, we've always said that 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 million of stock at $103 a share.
In terms of why we might have or might not have done it earlier, we have done buybacks earlier. We bought back a little less than $300 million 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. We do have other uses for cash supporting organic growth, which has really been the story around here, supporting inorganic growth, and we did a meaningful acquisition last year. Of course, returning capital to the shareholders appropriately. I wouldn't say that we've optimized perfectly. I think that's very hard to do.
I wouldn't say that we see ourselves as stock pickers or even stock price pickers, even with regard to our own security. Now our focus is heads down building this business. We do run a 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.
Just as a quick follow-up to that, given that 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&A market?
We still think there's plenty of opportunity. We're very selective about those opportunities, we've talked about this in the past, I think we have a terrific corporate development team. We look at everything that's potentially available. One of the things you ask yourself is, if I look back and we've been around here for the better part of 10 years, as I look back, are there things I wish I would have done at the price at which they got done? 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. I was wondering if you could talk a little bit about the growth in recurrent consumer spending. It was still obviously a very impressive number on an absolute basis, but it did slow pretty significantly from fiscal 2Q. Just was 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. Just a second question on Social Point. I think you mentioned that as they continue to perform really well, I just was wondering if you could update us on its contribution to total revenue or growth rate there. Just as a related question, if you see an opportunity to take any of your IP from Rockstar or Take-Two 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 GTA Online, Q3 was our biggest quarter ever. It's up significantly over last year. We're still very focused on it. We think there's a lot more opportunity there, and we're focused on our NBA game as well for recurrent consumer spending.
Right. Changes in between quarters, it's very hard to comp quarter to quarter because titles expand and certain times contract even in the context of continued growth. There is seasonality, little bits of seasonality in our business. You can't really comp quarter to quarter or 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 a 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. It is true, 2K has done really well with WWE SuperCard. We've done well with our NBA 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, 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 from the line of Justin Post with Merrill Lynch. Please proceed with your question.
Thank you. A couple questions. First, looks like your recurrent consumer spending in your prepared remarks was better than expected, you're kind of in the range this quarter versus the last few quarters beat. I was just wondering if anything kind of missed your expectations or was below forecast on the packaged goods or other revenue side. Then, Lainie, it looks like the balance sheet, the convertible's 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. Everything is going better than expected. We obviously did much better than expected in the quarter, pretty much across the board where it counts. We were at the very high end of our range in terms of net bookings and obviously the cash flow provided by operating activities is meaningfully better than expectations, and we have guided up for the year. We're excited about how things continued to unfold. NBA 2K is up 25% year-over-year and was the number two selling title in 2017. Grand Theft Auto V, four years after its initial release, was actually the number three 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.
Everything is going better than expected, and we do have pretty high expectations around here. Lainie will talk about the share count.
For the convert that's left on the balance sheet. We still have debt of about $13.8 million, and it represents about approximately 500,000 shares that are left. All the shares have been moved into the share count. For Q4, if you see our press release, we have 118.5 million shares in the count, and for the full year, 119.5 million shares.
Thank you.
Sorry, it's 118 for the full year.
Justin, that's all laid out in our press release.
Our next question comes from the line of Ryan Yi with Barclays. Please proceed with your question.
Hi, good afternoon, everyone. Thanks for taking my question. Appreciate the color on GTA Online players. I just wanted to ask about revenue. Did you say in your prepared remarks that GTA Online spend was also a record for this quarter? When you think about The Doomsday Heist, that obviously launched late in December. Could we expect that content to be in an even larger tailwind for RCS as we move into fiscal 4Q and in fiscal 2019? I have just one follow-up.
Yes, you're right that things have gone really well for Grand Theft Auto Online in the third quarter. It performed better than expected, and we think a big part of that performance is Rockstar's ongoing content drops, which have been nothing short of phenomenal. Rockstar Games has said they intend to support Grand Theft Auto Online with more content going forward. We did have a record number of users.
We had a record quarter in Q3.
Is there any new content updates for GTA Online implied into the guidance for fiscal 4Q at all?
In Q4, we included higher GTA Online 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 the line of Mike Olson with Piper Jaffray. Please proceed with your question.
Hey, good afternoon. I had a couple questions on NBA 2K. Wondering if you could talk about what kinds of tactics you're using in NBA 2K18 to drive the significant growth in recurrent consumer spending. Then secondly, on esports, do 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. The revenues are a function of that strategy. It's not the other way around. However we can keep consumers excited and make them happier, that's how we do it. It is true that the effect of doing that has been that we've had really great results. Our strategy is driven by the goal of making great entertainment, the world has changed. It used to be that once upon a time, we put out a title, people engaged, it was over, you went on to the next title. Now, if you do it right, there's an opportunity to keep people engaged. Having an online cohort does exactly that. Basketball has been succeeding mightily with recurrent consumer spending up, I think 30% year-over-year.
Obviously, Grand Theft Auto Online also reflects extraordinary engagement. We know the economic impact as we talk about our economic results. The most exciting thing is we had a record number of people playing in the third quarter. That's what's really exciting. Turning to the NBA 2K League, the goal is to build the first professional sports league that's built on a professional sport. We know that people love basketball. We know the NBA itself is incredibly successful, and we think it's just natural to build a league around video gaming that in and of itself will be a successful sport, a successful occupation for consumers. We expect it to stand alone and to be successful on its own and to be profitable on its own.
We do think if we do it right, 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. Please proceed with your question.
The first 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? 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. 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 combine's coming.
Talk us through some of the business steps to happen as we get to the launch. Thanks.
Yeah, I appreciate it. Look, we're focused on players, not payers. We're focused on captivation and engagement. If we get that right, everything else will follow. The way we get it right is continuing to give people what they want, which is great free content. That's the strategy of Rockstar Games. They've done it just remarkably well, which is why the game remains so successful and is such an important part of consumer culture. 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 to hear about naturally are sort of how the draft turns out, what do those teams look like? How does the first season go? How do the games actually look?
How do people feel about the experiences? Naturally and purely in the business side, what do the media rights look like, and what does sponsorship look like? All of that is information to come
Our next question comes from the line of Ben Schachter with the Macquarie Group. Please proceed with your question.
Hey, guys. A few questions. One for Lainie, and then two for Strauss. Lainie, when we're modeling for next year, how should we be thinking about the potential cannibalization of GTA Online and Red Dead? Anything in particular we should be thinking about there? Strauss, two things. One, it was reported today that Google is exploring some type of streaming service. I understand you guys are largely platform agnostic, but how would the entry of new streaming platforms impact how you think about the business? 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. I'm actually going to take the point on cannibalization because 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 first and foremost. So far, Grand Theft Auto Online is just doing phenomenally well. We're having another record year. 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 our business model, and we'll look at it through that lens. Finally, in terms of margins, we have seen our 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, the lower our margins are. 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. Could gross margins go up? Yes, they can, as we shift more to digital distribution, which I think we're all seeing inexorably 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. 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.
Good afternoon. Thanks for taking the call. Big picture question. How should we be thinking about companion apps within your business for your two major labels? 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. That's how we're focused on them. I think the days of companion apps for marketing purposes or even engagement purposes perhaps are gone. Every offering to a consumer has to stand alone as a powerful offering.
Great. Thanks so much.
Our next question comes from the line of Mike Hickey with The Benchmark Company. Please proceed with your question.
Hey, guys. Congrats on another strong quarter. Thanks for taking my questions. Two, let's see if I can ask this correctly, Strauss. Thinking about the battle royale genre, obviously two major incumbents here, PUBG, Fortnite, and similar mode, I guess, within GTA Online that I think has gotten some success. 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 SKU. I have a follow-up.
I think more detail on game mechanic specifics really comes at the label level. I would just observe that someone else's success is really interesting, and we're obviously informed by what our competitors do. Our goal is to be as innovative as possible. Titles, even really good titles that are derivative, never seem to do as well as innovations that are unexpected. When we came out with the first Red Dead Redemption, the conventional wisdom was that Westerns don't work, and it'd been an awfully long time since a Western-themed video game had come out. Rockstar took a massive creative risk, and the result was extraordinary. I don't see our labels being super excited about being derivative. That said, of course, we play in the world, and we're informed by what's going on. It is our job to bring consumers what they want.
Because you alluded to 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 what appears to be a strong working relationship with Vince McMahon and WWE. Also appears to be some mutual respect there, for what it's worth. I'm sure you saw when Vince announced the relaunch, I guess, of the XFL, there appeared to be sort of an esports theme. At least that was my impression on watching the video stream. Of course, you guys have a history of, long time ago now, I guess, history of making a very respected football game. I'm just sort of curious how you think about the possibilities of creating a football game esports angle 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. If Mr. McMahon is going to pursue 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.
Okay. Thanks, guys. Good luck.
Our next question comes from the line of Evan Wingren with KeyBanc. Please proceed with your question.
Thank you. Just two quick ones. Just to clarify on the buyback, were you viewing that as more opportunistic, or is that something that we should assume is more of a regular contributor in terms of the go forward, just given the visibility you have into next year? 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 three potential uses for our cash balance. Supporting organic growth, which is really our bread and butter. Supporting inorganic growth, which has been necessary lately as we acquired Social Point, and we are interested in potentially broadening the enterprise in that way. Returning capital to shareholders which obviously we've just done with a meaningful buyback. We'll continue to pursue all three as and when they make sense. There's no change in our strategy. In terms of "Red Dead," any announcements about platform support will properly come from Rockstar Games.
Our next question comes from the line of Tim O'Shea with Jefferies. Please proceed with your question.
Yes, thank you for taking my question, and congrats on another great quarter. On "Red Dead," can you walk us through 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. What's the level of confidence in the October 26th release date? Just curious how the holiday launch window compares to spring, how you think about the competitive environment or holiday spending. Again, love to hear your thoughts, guys. Thanks.
We've said repeatedly, we've put our money where our mouth is, that the entire focus of this organization is on delivering the highest quality entertainment experiences of any kind. More often than not, we feel proud that we're able to do that. All of our labels are focused on releasing a title when they've reached that apex of effort and perfection. In this instance, Rockstar Games felt more polish was required, naturally, we're in favor of that decision. The date of October 26th is set, I'm confident 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. Otherwise, we've been in every other quarter.
Heading into the holiday season can be a particularly powerful time, 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. There's plenty of opportunity to go around. We're really excited about both the launch and the timing related to the launch.
Thanks. Just one more, if I may. You guys have now raised your full-year outlook every quarter all year, you're guiding to over $2 billion of revenue, $3.23 of EPS at the midpoint. 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? I know you've previously said, you reiterated in this release that the fiscal 2019 revenue could exceed $2.5 billion, we're already at $2 billion this year with a very light release slate. Next year we have two major game launches that weren't in this year's plan. Just love to hear your thoughts on how much you think is truly recurring. Thanks.
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 recurrent consumer spending, but nothing is forever. Typically, nothing is forever. We have to show up and create new content for consumers for every experience that we offer them, and not everything always goes perfectly. 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 of the work done by our labels.
While we hope 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 a AAA rate of municipal bonds is recurrent.
Thank you. I appreciate the color.
Our next question comes from the line of Doug Creutz with Cowen and Company. Please proceed with your question.
Hey, thank you. It looks like you lowered your operating expense guidance for the year by a few tens of millions of dollars. Just wondering how much of that might have been due to the Red Dead 2 delay and 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 the line of Drew Crum with Stifel. Please proceed with your question.
Okay, thanks, guys. Good afternoon. Karl, just want a point of clarification. Did you say the NBA 2K League will launch in May? If so, my understanding was that this was originally supposed to start in the fall. If that's true, why the change? Separately, L.A. Noire is a test case on the Switch. Can you talk about the prospects or opportunities to put other games on the Switch, such as Grand Theft Auto, where you've got a 90 million base of players at this point? Thanks.
Yeah, just to take the NBA 2K League, it was never intended for launch. There was no change. May is our launch date, and that's when we plan to do it. 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 NBA 2K, WWE 2K, L.A. Noire. We look at this like any other platform opportunity to the extent that we look at our development cost. Is this a game right for the platform? What does the audience look like? What's the installed base? When we do believe that there's an opportunity to do something on Switch, then you'll hear from the labels. We are impressed with the growth, we're impressed with the units that have been sold into the market so far.
We're very sanguine at this point, but we have nothing more to announce specifically at this point.
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. Two questions. First, on GTA Online, how should we think of the pacing of content releases this year? Should we expect it to be similar to what it was last year? Will that at all be affected by the coming release of Red Dead? How, if all, do you intend to use that GTA Online funnel to drive Red Dead sales and players in Red Dead Online? 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.
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 deliver them to consumers. 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 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. NBA 2K Online in China is a PC experience. Could certainly be a console experience.
Naturally, when people are involved with our online games, in many ways, those look like free-to-play experiences. Yes, you had to purchase a title to become involved, but if you're involved 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 true free-to-play environment, 10-ish% of your consumers maximum are paying you, and that's not going to support the very significant investment that a AAA title requires here and in our competitors' shops. We think consumers understand that.
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.
Thank you.
Our final question comes from the line of Andrew Uerkwitz with Oppenheimer. Please proceed with your question.
Hey, gentlemen. I just have two quick ones here. Strauss, when you look back at GTA, I doubt that anybody internally thought it'd have quite the success it's having now with record quarters now, four years later. Is there one or two 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? Then if so, how do you guys think about translating that to future titles across the portfolio?
Thank you. 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, it's just further recognition that the best quality wins. In the case of Grand Theft Auto V and Grand Theft Auto Online, I have to hold myself back from over-promoting because it's not our style. 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.
In other past iterations of the franchise, I think there were potentially a couple of other extraordinary titles that clustered around it competitively. That hasn't seemed to have been the case here, with 90 million units sold and record results for Grand Theft Auto Online four years after its release. Is there a secret sauce? Yeah, the secret sauce is it's a really extraordinary experience that people love. 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. That's easy for me to say those words, exceedingly hard to do, and I would argue, impossible for others to replicate.
What we mostly feel around here is a sense of enormous gratitude to our colleagues at Rockstar Games for creating and supporting and delivering this experience over now what is very many years. I suppose 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. A genuine, not financially driven commitment to quality comes first. It just comes first. 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 their very best work. Anyway, that's our goal. We think that's why things are going pretty well.
Great. Thank you. I appreciate that, color. Thanks.
Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to management for closing remarks.
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 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.