Take-Two CEO Says Margins Are Improving as Game Downloads Near 90% of Sales

Adam Jeffery | CNBC
  • Digital downloads of video games are taking a larger share of sales at Take-Two Interactive, the video game publisher behind the Grand Theft Auto and NBA 2K franchises.
  • CEO Strauss Zelnick expects the growth to continue, but sees physical stores playing a key part of its strategy.
  • "We need to be where the consumer is," he said.

Digital downloads took a major share of Take-Two Interactive's sales last year, but the video game publisher remains committed to selling physical products in stores, CEO Strauss Zelnick told CNBC's Jim Cramer Wednesday.

The company behind the Grand Theft Auto and NBA 2K franchises on Tuesday reported $3.4 billion in total sales during its 2021 fiscal year, with nearly 87% coming via digital distribution. That's an increase from 77% the year prior.

"Our margins are higher with digital distribution than they are with physical distribution and to the extent that the business moves towards digital distribution, which I believe it will continue to do, that is a significant benefit from a margin perspective," Zelnick said in a "Mad Money" interview.

The surge in digital sales is part of a years-long shift to digital gaming distribution to the chagrin of physical retailers. Sales at brick-and-mortar channels made up 13% of business, down from 23% and 37% in prior years.

Meanwhile, the gaming software maker's cost of goods sold was 45.5% of its revenues, a year-over-year improvement from nearly 50%, according to its annual report. Almost all of Take-Two's game titles are available through direct digital download, the company said.

"We need to be where the consumer is," said Zelnick. "If the consumer wants to buy a physical good, we'll be there. If the consumer wants to go direct to our company we have a direct-to-consumer platform. If a consumer wants to go to Amazon or Walmart, you name it, we're there. It's our job to be there."

Shares of Take-Two rallied 7% to $179.35 Wednesday one day after the company reported fiscal fourth-quarter results that topped Wall Street's estimates.

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