Q3 2019 Earnings Call

Please standby.

Good day and welcome to the Activision Blizzard Q3, 2019 earnings conference call at this time I'd like turn the conference which of course Hickey Senior Vice President of Investor Relations. Please go ahead Sir.

Good afternoon, and thank you for joining us today for Activision Blizzard third quarter 2019 conference calls.

That's all Bobby Kotick, CEO , Coty, Johnson, CEO , and President and Dennis Durkin companies, CFO and precedence of emerging businesses.

You any well cost much precedence of Activision say, Alan Black President of business segments. Hamas any persistence is king will also join us I'd like to remind everyone that during the school, we will be making statements that are not historical facts. The forward looking statements. In this presentation that based on information available to the company as of the dates this presentation.

Well, we believed to be true. They ultimately may prove to be in correct number factors could cause the company's actual future results and other teachers circumstances. So different maturity from those expressed in any forward looking statements. These include the risk factors discussed and now I see see filings, including 2018 annual reports on Form 10-K on those on the slide that shows the.

Company undertakes no obligation to reach publicly any revisions to any forward looking statements to reflect eventual circumstances often today November seven switching 19, we will present, both GAAP and non-GAAP financial measures. During the school, we provide nongaap financial measures, which excludes the impact of expenses related stock based compensation demonstration of intangible assets.

And just related to acquisitions, including legal fees costs expenses, and accruals expenses related to debt financings and refinancings restructuring and related charges. The associated tax benefits of aegis cruises items and cigarettes can discreet tax related items, including amounts related to changes in tax rules amounts related to the potential final resolution.

Tax positions and other unusual or unique tax related items activities. These non-GAAP measures and not intended to be considered in isolation from as a substitute for superior to our GAAP results. We encourage investors to consider all measures before making an investment decision <unk> earnings release, which is posted on www Dot Activision Blizzard don't called for a full.

non-GAAP reconciliation and further explanation with respect to on non-GAAP measures. There's also an earnings presentation, which you can access with the webcast, which will be posted to the website. Following the cool. In addition, we will also be posting a financial overview, highlighting both GAAP and non-GAAP results.

Now I'd like to see yourselves CEO Bobby Kotick.

Thank you, Chris and thank you all for joining us today.

Our third quarter results exceeded our prior outlook for both revenue and earnings per share as we made continued progress on our growth initiatives for 2020 and beyond.

For the fourth quarter, we've decided to increase investment in consumer marketing and user acquisition as we aspire to reach more players in more countries on more platforms than ever before.

Our recent success would call of duty highlights the potential for our portfolio fully owned intellectual property.

Call of duty mobile is experiencing more of the industry's most successful launches ever.

In extending call of duty to the largest and fastest growing platform, we more than tripled the franchises reach with over 100 million downloads in the first month alone.

The game reached the top the installed charts in over 150 countries and regions, reflecting called duties global stature and monetization is off to a strong start with the game entering the top 10 grossing charts, you know over 100 countries and regions.

Console and PC used to modern warfare is off to an exceptional starts we have more surprises in store, we think we'll delight existing and new players in the coming months.

We plan to take calls duty send them to new levels, the launch and the calls duty League in late January .

So far we have secured 12 fantastic team owners, who bring deep operational and entrepreneurial expertise.

They prepare for games in cities around the World next year.

He's ownership groups include some of the biggest stains and professional sports intended and have already enjoyed success with us on the Overwatch League in fact Yo Kai watch the recently completed a remarkable second season, it's all over 30% growth in U.S. average minute audience.

We couldn't be better position as we continue to execute on our vision and strategy for amateur in professional sports.

A phenomenal response to world workers plastic in the quarter also illustrates the vast potential injuring appeal of our fully owned franchises across the company.

Celebrating the Fiftyth anniversary of World of Warcraft, and the 25th anniversary of the work a franchise well plastic brought millions of players back to the game.

She has the resources college and pipeline to continue delivering great content for world of Warcraft players into 2020 and beyond.

At Blizzcon last week, we gave blizzard players a preview of some of the superb content in our pipeline.

We expect innovations on display cross world of Warcraft, Archstone, Overwatch, India blow to inspire blizzard players and expand Blizzard communities and we expect lizards to deliver the consistent business growth that we know it's possible in an industry with so many opportunities.

Gene continued to lead the way in mobile gaming Candy crush was again the number one grossing game on the U.S. mobile App stores in third quarter and the team is hard at work on new features in content that we expect to drive further growth for the franchise in coming years.

Our in game advertising initiatives delivered exceptional results again advertising net bookings within king almost double year over year, and we're now starting to apply our capabilities in this area to call of duty mobile and certain other properties across the company.

Of course grateful for the continued focus and extraordinary efforts of our employees around the world.

We appreciate your ongoing support of our shareholders and we have deep gratitude for our players and spectators drive an incredible sense of purpose, meaning and belonging being a part of the communities created through our franchises.

Our mission written world together to epic Entertainment, the driving force behind our ambitions and we remain steadfast in our commitment to this ideal.

Thank you for joining us today and now Kati will review the highlights of our operations for this quarter.

Thank you body Activision Blizzard exceeded our third quarter outlook, given by better than expected performance from call of duty in game and world of Warcraft as most favorable cost timing.

And we started Q4 with successful launches for call of duty mobile and call of duty modern warfare achieved important milestones in several other franchises you plan to build on this momentum, England best this quarter to maximize the potential of our franchises in 2020 and beyond.

So far this year, we increased investment and development resources in our key franchises to drive innovation and improved performance across our four strategic growth pillars.

Made clear progress against each in our first pillar delivering a strong consistent cadence and major new content leases the world of Warcraft Classic launch in August .

Record quarterly increase in subscription plans.

The player base remain elevated into Q4.

Unless you can up Wisconsin is your announced the next would've worked expansion and sequels to but Overwatch Andy out, though he didn't fans hands on game play for the next nature installments some of our biggest franchises.

In two weeks ago, Activision launched modern warfare with exceptional early sales.

In our second pillar, which is driving live operations ongoing Indian content services features and events.

<unk> encouraging results from our increased focus as we continue to invest in growing our capabilities in this area.

The expanded development team on what are the World class has sustained strong engagement within while classic into Q4 as delivered the first in a wave of substantial content updates backups for Leach and in game performance continued to benefit from our focus on delivering more compelling game experiences.

And we saw positive committee response to our plans for metamorphose endgame system.

Our third pillar is to build on kings leadership position and extend our clean console and PC franchises to mobile.

To that end called the mobile has had a very strong start shattering records. Following its launch begins early success points to the significant potential of our franchises on mobile given the powerful combination of globally blood IP increasingly compute in graphics capable mobile devices and strong execution.

Lastly, our fourth pillar as we add new engagement models to our franchises. We continue to have a strong ramp in advertising and an industry leading position in east sports.

We're pleased with this progress on our growth pillars, there are more milestones to come and driving the business to its full potential but we see these results as a clear indication that our increased investments are positioning us for significant future growth.

I'll now provide more detailed in our Q3 results and recent developments for our franchises.

Activision monthly active users was 36 nine in Q3.

Lower year over year duty exclusion of Destiny and a decline in call of duty catalog Activision reach was better than expected. This reflected the strength of black ops sporting game content that drove a sharp you over your growth in both reach and purchases of Inking items first last year's title.

And call of duty sys urging reach with the launch of call. It Didnt Mobile October Onest over 100 million people download the game in its first month. It's had reached the top of the mobile app download charts and over 150 countries and regions.

Driven by the global recognition the franchise strong publishing execution by the Activision team and exceptional work by 10 cents teeny studio in creating an authentic call of duty experience.

The game has tremendous quality and polished and a 4.9 star rating in the U.S. iOS store monetization trends for the battle Pes and the for seasonal event had been strong and retention is outperforming too.

Our publishing team is capitalizing on this momentum significantly increasing our user acquisition budget to continue to grow the player base.

No the disinvestment doesn't limit the titles Q4 profitability, but also sets up healthy contribution for the title in 2020.

It's 15 years of call of duty content and experience to draw. Upon we have erastus features content and advanced lined up for the future of called deductible.

In October 25th our World Class development team and if any word lunch call of duty modern warfare.

Quality the campaign to the breadth and depth and multiplayer universe, we didn't want to work for stands apart from any other title.

We're confident that will once again had the number one console franchise globally for upfront sales this year.

Titles off to a great start first week unit sell through is up high teens versus the prior year title with strong console growth and PC units on bottleneck going over 50% year over year.

We've taken significant steps to create a single had engaged player base with cross plate and cross progression between platforms in their move up the season pass and we intend to keep the community engaged with the substantial pipeline that end game content, which we expect will in turn create greater opportunities for player investment.

Building also momentum as Bobby discussed we plan to launch the new city based call of duty leak in January .

And we have more surprises and initiatives planned to further enhance the scale and value of the overall called duty franchise in the coming quarters.

Turning to Blizzard monthly active users were 33 million in third quarter modestly higher sequentially.

Would've Warcraft reach almost doubled sequentially in Q3 is both existing and prior players embraced the rival of allow classic lizards recreation of world of Warcraft as it all began 15 years ago.

In Q3, Blizzard added more monthly and longer term subscription plans than in any prior quarter, both in the west and east and reach remained well above prior levels in October with deep engagement across those classic and modern world of Warcraft.

And with increased resources. The team has already started to deliver and externally to cadence of endgame classic content.

And then for modern World of Warcraft Blizzard last week and build shadowlands. The next major expansion for the franchise launching 2020.

The depth and breadth of what a world class appeal is clear than ever with a franchise set for growth in 2020.

Turning to Hearthstone as we highlighted on our last call in August we saw a more challenging competitive landscape for the franchise in the third quarter, which drove lower beach and player investment both sequentially and year over year.

But as discussed the expanded Huston team has a substantial innovation pipeline planned for the franchise last week <unk> unveiled the latest expansion descent. Dragon's Inn also announced battlegrounds unique hearthstone take on the auto dialers genre.

Got it sounds as planned and its significant engagement driver.

Hearthstone team innovating at a rapid pace, we that's four inch announcing additional content initiatives in the coming months.

On Overwatch, while player investment remained relatively low at this stage of the games lifecycle engagement benefited from the introduction of new hero and well received gameplay adjustments Overwatch League cooling season to do they sell a crowd of fans are watching that San Francisco shock. If he didn't Cooper tightens in a grant funding at the Wells Fargo Center in Philadelphia.

Yeah and season, two viewership overall grew with average minute audience up 18% year over year.

What's your last week also revealed Overwatch to a major sequel for the franchise with new heroes maps and game play this franchise its world class multi player experience will take a big step forward.

Overwatch too will also introduced a significant set of new co-operative experiences taking players deep into the narrative Overwatch with the story based game plays which players have long been asking as lives a huge Friday repayable hero missions in which players can level up and customize their favorite curious.

The response to reveal and a hands on can't play from fans with excellent.

Teams looking forward to sharing further details.

That's development progressive.

And of course Blizzard also recently revealed the outlook for the highly anticipated sequel to the genre defining franchise. It's a quintessential action role playing game, reflecting blizzards PC gaming routes for fans on PC as was for players on X. box and Playstation.

And it features an expansive open world in which players can explore independently group up to play together or battle. Each other it's kinda attendees were able to play a hands on demo and the feedback was great.

Blizzard continues to work.

Well immortal.

Collaboration with its partner that easy that will deliver an authentic diablo experience on mobile and development is progressing well.

As Bobby said this year's lives can featured the most robust content pipeline and Blizzard history and the team is working on more projects behind the scenes, including new IP.

40, showing more with you when the time is right.

Now turning to King monthly active users were 247 million lower year over year, driven by declines in keeps web and smaller mobile titles.

But importantly on Candy crush Kings key franchise mobile each grew year over year driven by the addition of Candy crush friends last October .

And the team continued to expand on life services features in content for the Candy franchise, driving beach and engagement across current returning and new players.

We also launched in number of initiatives in the quarter aimed at broadening payer engagement and longer term monetization, which delivered an encouraging uptick here conversion in Q3.

But which did come at some extends to end game that bookings in the quarter. All that said candy crush it was still and once again, a top grossing franchise in U.S. app stores.

<unk> advertising business also continues to grow profitably with net bookings almost doubling year over year, it's advertisers embraced the value proposition of a native video AD product in a safe environment.

The business remains well on track to exceed 100 million in that bookings this fiscal year.

So in summary, we are excited by the momentum we're seeing in many of our franchise and the growth opportunities. They present, our Q3 results reinforce the durability and potential of our franchises and our business and our confidence that our increased investment and focus this year sets us up for meaningful growth in the future.

I'll now hand, the call have a dennis to discuss our financial performance and our outlook Dennis.

Thanks Gotti.

Today I will review, our Q3 2019 results and our outlook for Q4.

Q3, GAAP and non-GAAP EPS were ahead of our prior outlook key factors included business Overperformance favorable cost timing at a lower tax rate.

To review the quarter I'll start with our segment results.

Activision revenue was $209 million down year over year against a comparable that included the release of Destiny Forsaken.

<unk> quarterly contributors were call of duty Black ops for in game and upfront revenues and ongoing sales of crash team racing.

Operating income was 26 million with an operating margin of 12%.

Blizzard revenue was $394 million lower year over year against a comparable that included the release of world of Warcraft Battle Fraser off.

Operating income was $74 million with an operating margin of 19%.

King revenue of $500 million was roughly flat year over year in sequentially.

Candy crush revenues grew modestly year over year with the ads business almost doubling over the same period.

Operating income was 194 million with an operating margin of 39% three points higher year over year.

Across our segments in game that bookings were $709 billion lower year over year with the biggest drivers being the battle for ads Roth and forsaken expansions in the year ago corridor.

We're continuing to improve our execution in this area. We're pleased with the progress we saw in Q3 for certain franchises, most notably call of duty.

Now, let's turn to our overall consolidated results unless otherwise indicated I'll be referencing non-GAAP figures.

Please refer to our earnings release for full GAAP to non-GAAP reconciliations.

For the quarter, we generated Q3, GAAP revenues of $1.28 billion $177 million above our August guidance. This included the net recognition of deferrals of $68 million net bookings of $1.21 billion were $114 million above our August outlook.

We incurred GAAP only restructuring and related charges of $28 million and we generated Q3, GAAP EPS of 26 cents and Q3 non-GAAP EPS of 38 cents, which was 18 cents above guidance. These figures include the net recognition of deferrals of six cents.

From a cash flow and capital structure perspective, Q3, operating cash flow was $309 million and our cash and investments at the end of September was approximately $4.9 billion.

We ended the quarter with a net cash position of approximately $2.2 billion.

Now, let's turn to our fourth quarter and full year outlook.

Looking at the release slate in addition to Activations launches of call of duty Mobile October Onest and modern warfare October 20, Fiveth Blizzard released Overwatch on the Nintendo switch on October 15th and plans to release Warcraft Three report in December .

Q4 will also see the release of the sense of Dragons expansion and the open beta for the battlegrounds mode for Hearthstone, and we will support other key franchises with a stream of content services events and features.

This includes our new endgame system for modern warfare, which begins in December slightly later than originally planned.

Before I provide our financial guidance I'd like to provide some context.

Firstly, we're more than delighted with the early results for World of Warcraft Classic call of duty mobile and modern warfare.

We are entering the holiday season with strong momentum, but at the same time, we wish to remain prudent as we focus on execution for the rest the quarter.

Secondly, as we think about positioning our franchise for growth into 2020 in some cases, such as Hearthstone candy crush and call of duty mobile, we're prioritizing reach and engagement over short term financial results in the fourth quarter.

Consistent with this a significant proportion of the Q3 earnings upside was driven by cost timing and we intend to invest these amounts in Q4, given the abundance of potential for our franchises thirdly I would also note that the ongoing shift to digital represents a timing risk factor for sell in versus retail sell through dynamics and FX headwinds a modest increase since we last provider.

Guidance.

All that said, we're raising our net bookings and EPS guidance for the full year and feel great about how the business that position for a return to growth in 2020.

Now onto the numbers for Q4 on a GAAP basis, we expect net revenues of $1.81 billion, including gap deferrals of $834 million. We expect net bookings of $2.65 billion, we expect product cost came operations and distribution expenses of 25%.

Operating expenses, including software amortization of 56%.

GAAP only restructuring related charges of 42 million, we expect GAAP tax rate of 33% GAAP and non-GAAP share count of 774 million and EPS of 29 cents.

For Q4 on a non-GAAP basis, we expect product cost game operations and distribution expenses of 25% and operating expenses, including software amortization of 48%.

We expect to non-GAAP tax rate of 30% and non-GAAP , Yes, a 43 cents, which includes cap deferrals of 72 cents.

On a GAAP basis for 2019, we expect net bookings of $6.32 billion, including GAAP deferrals of $10 million, we expect net bookings of $6.33 billion.

Product cost game operations and distribution expenses of 25% operating expenses, including software amortization of 51% and a GAAP only restructuring and related charge of 150 million.

We expect a GAAP tax rate of 21% GAAP and non-GAAP share count of 772 million S $1.56.

For 2019 on a non-GAAP basis, we expect product costs came operations and distribution expenses of 25% and operating expenses, including software amortization of 43%.

We expect a non-GAAP tax rate of 20% and non-GAAP , Yes, 2013 cents, which includes GAAP deferrals of four cents.

So in summary, our early success for World of Warcraft Classic modern warfare and call of duty mobile speaks volumes about the value and potential of our large durable and broad portfolio a fully owned intellectual property.

And with a significant announcements we made up let's call. It last week you now can understand why we have been so excited about what's in our pipeline for the coming years.

Well, it's not easy, creating and sustaining interactive entertainment franchises like ours is one of the biggest and largest growth opportunities in all of media and our stable of enduring franchises gives us a strong foundation to build upon.

We are encouraged by our recent progress in a number of franchises as well as the green shoots across the rest of our portfolio.

We can and will continue to maintain the disciplined operating focus that as characterize our company for many years, we remain confident that executing against our plan will position us to deliver strong results and shareholder value over the long term.

Now I welcome our business leaders, Jay who Mylan, Rob as they join us for the Q and a portion of the call.

Operator.

Thank you if he would like to signal whats questions. Please press star one your Touchtone telephone if your choice today, you say speakerphone. Please make sure you function, it's turned off to why your signal to reach our equipment.

Yes that will be star one if he would like to ask questions. Our first question today will come from Michael Inc. with Goldman Sachs.

Hi, Thank you very much.

And <unk>.

Bottom warfare with the absence of a season pass and with implementation of the new in game system.

Talking about what that means for in game spending growth next year versus like ops for thank you very much.

Yeah, I think so the question Mike It's Rob I think it's really important you first talk about our overarching principles on what we're trying to do.

We're focused on bringing the together building, one big community and keeping them playing together through great content and features.

Changes that we've been making are certainly in service of those principles and we believe there not not only great for our players, but also for growing and sustaining long term engagement, which of course is critical to our long term success I do want to talk about some of the things you mentioned some of those changes we did eliminate the season pass.

And instead, we'll be focused on dropping free content to the community. So everyone can enjoy it together tomorrow is actually going to be the first three content drop for modern warfare and we're excited about that in a much bigger things there yet to come to the community. We also implemented across placed her first time in the franchise to keep friends plan together no matter what platform.

They're on and I think this was actually really important and I'm seeing it and how friend groups are connecting already players who haven't played called did you gathered years are doing so we think that's really great for the community. Overall now we're also implementing a new bout pass system, which you mentioned and it's going to launch later this quarter, we feel it's the right thing.

Due for the game in House design.

More importantly, we think it's the right thing to do for our players that launch is still ahead of us, but we've been really encourage by the early response from the community to the change that we're making there.

So in terms of growth, we do feel good both about our long term engagement potential as well as a new system that we're implementing I'll, let Dennis speak to how we think about end game revenue this quarter and beyond but on the content side, we have plans for seasons and events that we believe we'll keep the community plan together for a long haul.

Modern warfare is really a great game, it's a deep experience and we believe it just scratching the surface what it can do we keep saying in many places that launch of modern warfare is just beginning and it truly is there's a ton more look forward to hear Dennis is there anything else you that I got a couple of points just to build on what you are.

You mentioned, Rob I mean, the first thing is we do feel great about the end game plans and a lot of the changes that you you and the team have made we're always though very careful when my modeling these new initiatives, particularly in launch quarters like this one and when the timing of it.

Overall with the changes in sort of keeping the committee together in the cross platform into the new economic system that we have inside the game, we think that most importantly, that's going to drive long term engagement inside the franchise and usually when you've got great long term engagement great business results follow so we're pretty excited about what we have in store and whats coming.

And we think that's gonna be a nice tailwind heading into 2020 from our worker.

Thanks, Mike.

Next question please.

Certainly our next question will come from Mike Olson with Piper Jaffray.

Hey, good afternoon. Thanks for taking my question. After 2019 that was maybe less robust pipeline perspective, and you touched on this a bit but how would you say that investors should think about the pipeline for the company over the next 12 to 24 months. Thanks.

Sure. Thanks, Mike This is comedy the person Dennis you know highlighted on the call sort of particularly excited to be decide is gone.

I've been able to.

Just a.

In the upcoming content.

When you couple that with the initiatives underway.

King.

Looking at the strongest content.

[noise] injury.

And one of the reasons for that.

Steps we've taken.

The last year.

Possibly investments we made resources focused on our core franchises push to make sure that the content gains across funds.

Mobile since all of our key franchises.

And you know we took some stuff just want to make sure we can fund.

All in service of getting to this you can show.

The players coming on to deliver.

Expectations and above.

I think early results are really important stein.

On the road.

Well classic anything major expansion coming into that universe.

In an off year typically as you know every other years any major expansion.

They can step change impact on the region that franchise seems like mobile.

Pardon.

Well that we had to make significant investment side or production in publishing capabilities and again this change.

As we age.

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No matter, what fair, which we think.

Stands alone in terms of experiences.

Well continue to do.

So.

It was aren't just sort of.

Issues.

Signposts and milestones.

As possible and we used to what we think is coming some of which you know you know concurrently.

Wow Shadowlands, KMI 2020, Hearthstone battlegrounds workout to forge <unk>.

The needs for significant news for the community.

Yeah the model.

For Overwatch and you have.

Level.

It is coming up.

Activision King.

And so it's when we said that.

Yes.

Well, we can take the significant.

And then if you want.

And you want the strongest pipeline any industry, we think it here Activision Blizzard.

Thanks, Mike.

Question. Please.

Our next question will come from Mario live with Barclays.

Hey, guys. Thanks for taking the question. So just one on Overwatch I think the share multiplayer environment, you announced between Overwatch and new Overwatch to owners is very intriguing and unique anything you can share in terms of what kind of business model has got X Baxter Overwatch too. Thanks.

Hi, This is Jay thanks to the question a you know last week at Blizzcon was a really big reveal for overwatch to for us and the team and we're you know the reception has been grade and we've been really humbled by that one of the things that you alluded to and I think is worth really kind of Arctic.

Collating as this idea that the team has around redefining a sequel and really what does that mean and so if you think about for Pvp. We've communicated that you know all the players Overwatch will play on the same Matt.

Asked players have ever wants to add in other words will be one that pool.

We've also announced that all players will have access to the same set of heroes and the principal for this is that no. One is left behind and then we really are not splitting up the community.

We've also communicated that we want to honor the collection from the existing game and so everything that you've earned will carry forward into overwatch too and the thought behind this is you know we've worked hard to build a strong community and we want to move forward as one.

For you know for PV is cutting talked about we're introducing lots of content for watch to you know players really asked for a backstory at a narrative and the Overwatch universe for you know since the very beginning and we're really excited to create a huge amount of replaceable content that really does that.

And we also think this PV content will bring entirely new players into the Overwatch universe.

So that the overall goal is to continue to build the largest can be possible in the game with excellent content and a commitment to you know really continuing to release different what content than you've seen historically at a hurricane.

So you know stepping back to your question on business models were always looking for the appropriate business model for each franchise and yeah. Blizzard. We're lucky to have several different experiences are several different versions of different business models.

I think that players its proven that players demand.

Premium and differentiated content and many of the blizzard watches or premium experiences you know, we don't see any reason to walk away from that given what we can offer the players.

The next question.

Our next question will come from Jason Bazinet with Citi.

Hey, guys, it's Ted content on for Jason. Thanks for the time I'm just curious at the King segment, if you're able to provide any color on sort of where you plan to devote most of the focus going forward just given that the capesize for for Candy crush appear to be you know, perhaps a bit better then for king as a whole just wondering if there's any.

Sort of a trade off between sort of maintaining the durability of candy crush and probably another titles.

Hey, Thanks for the question this is houma.

So I think it's a theme that you're seeing it across Activision Blizzard I think it plays itself out a quite nicely as well, that's getting which as.

We're often finding that our biggest opportunities are in our biggest franchise is I really think candy crush franchise is a great casing point on that.

So we've we've increased the resources in the candy team.

And you as you mentioned the results are pretty evident I think in Q3, we had the fourth consecutive quarter.

We had here on your mobile I may use and net bookings growth for the candy franchise. So really strong results from that focus on the candy opportunity.

And I'm.

Firmly believes that the opportunities and that kind of franchise. A continued to be ahead of us a we're continuing to introduce quite a bit of features and content and innovations in our live ops environment that drive.

<unk>.

Player engagement and we are expanding the network as you see in our it may you a trend.

So.

As we continue to to focus on that I continued to see a lot more opportunity you know candy franchise I do want to highlight though that we are also selectively investing in new IP.

And there were taking an approach of fewer bigger bets are very focused or look at our pipeline.

As you well know launching new mobile IP as a tough in the industry, but the combination of the creative talent at the King.

And the sizable network that we have gives us a good advantage.

And you've heard us probably on previous calls I mean talked about advertising efforts, we continue to push hard into that and the continued to move that momentum forward. So all in all right. That's the areas of focus at the king level.

That said.

Next question please.

And moving on to Brian don't walk with Morgan Stanley .

Hi, guys. It's a it's not on for Brian . Thanks for taking the question can you give an update on how called duty mobile is doing in terms of attracting and retaining players now that we're a month out from launch and are you seeing any cannibalization there without a modern warfare. Thanks.

Hey, Matt it's Rob Thanks for the question probably the first thing I want to do is just step back and say that overall, there's a pretty special time for call. It Judy across mobile our traditional console and PC business and across each board you know, we're seeing significant success and traction on all fronts.

What's called any mobile you know your question. We've obviously have a great game high quality game, we've talked about the installs over 100 million and under a month, which has been fantastic.

It seems strong growth in many geographies like India, Brazil, more so than we've ever had in our history and its providing a real step change and reach for the franchise and frankly, just drawing the brand at all new ways, which is great to see.

We also just had a really strong launch for modern warfare, which suggests we're creating a really strong franchise eco system globally, where this product where these products are actually complementing one another and not competing with one. Another this is exciting news for us on a number of fronts, including how we think about cross promoting.

Our products across ecosystem, both now and I think well into the future now in terms of the mobile Metrix specifically, we're obviously very pleased with the install them weve refer some another at times on the call, but importantly, our retention has been really strong and that's due to the great game quality and great game experience we have.

As well the quality of our ongoing live operations.

I also have a compelling content pipeline ahead that we believe we'll continue to drive our business results.

Right now we feel great about where we're at we feel good about really good about our prospects for the future.

I do just want to come back in calls before I started with the success on mobile with the success of modern warfare and with the quality League launching in January we do think the best days for the franchise are squarely in front of us and that's a pretty cool thing to say given all the success. We've had the past 16 years. Thanks for the question though.

It's kind of just jumping out a few points. One is I just know that bringing called T. Mobile is one of the first and most important initiatives that this team set up for as they kind of stepped in to new roles and so it's a real credits.

He says.

That has been a road and again this place.

Awesome to see but I think important that it's just the first step up there are a number of things happening costs costs continue to spend across platforms.

And.

Ecosystem that just across mobile and conflicts.

So I think.

It's really important things still to come and yeah. I think that's not just for cod, but across a number rather keep franchise as well or call. It did you success another point.

Hey, what's possible for some of other chip.

Operator next question please.

And next will be Mike Hickey with the benchmark company.

Hey, guys congrats on a quarter. Thanks for taking my questions I guess, just two on hard style.

You shared with us sort of the impact you're seeing from competition. There how we should think about the opportunity to determine the franchise well. Thank you.

Hi, This is Jay I think we think about different games.

And you know, we think about Hearthstone I think if natural to attract.

Competitors, it's not something that we spend a lot of time thinking about you know I think new games and bring in new players new ideas.

The growth of the industry, which is great for everybody.

That's the thing that players will try lots of new games, but are going to return to come back for differentiated experiences.

So you know we focused on making the best experience, we can and then increasing the cadence of great content in great gameplay.

One of the thing that one of the things that the industry is seen this year is the rise of the auto metallurgy.

And at Blizzcon, we announced our take on this within Hearthstone.

Already actually seen some some positive response from the early audience feedback and we're looking for it to the wider released next week.

It is a an engagement driver you know that's the focus is on a new and returning players with us mode.

I think the person team has really done a great job. This year at I'm Super proud of what they've accomplished in a very short amount of time. They they saw this as an emerging as honor really early in the year something they were really excited about how do they pushed to add to mode Hearthstone in a very blizzard way in a in a way I think is going around the great players.

Thanks, Mike.

<unk>.

And that question will come from Alex Jama with Jefferies.

Thank you guys, just hoping to get a bit more color around the long term mobile strategy within the portfolio with cod mobile up and running we know immortal, it's coming at some point, but with mobile makes sense for any other tent pole franchises like a wow or and Overwatch. Thank you.

Sure. Thanks, Alex This is Scott I guess it take first just on mobile strategy generally you know.

Remember a third of our business is on mobile already and you.

We have the largest mobile gaming presence in the west and so we want to build on that leadership position and we think that.

I think it's a foundation of strength can do that.

It is a massive opportunity and we think not just for call it and not just for.

And it's worth pausing in talking for another college.

Mobile for why it's such a large opportunity.

I think first it shows that.

Simply kinds of games, we make are ready to work on low because of the improving computer graphics capability.

Honestly because of all these expectations you know is now the case that many of the most successful global games are RPG first person action strategy, but all I imagine very well with our portfolio.

We have a growing ability to execute and and we're seeing a franchise familiarity and awareness matter that are fundamentally and like to the tune of hundreds of millions of people that when you reach out in the latest franchises are willing to come in and so that's the level of opportunity. We see in terms of what will make you might imagine we're looking at all of our franchises.

We want to do where it makes sense and thinking about strategically in three main buckets. The first extending existing game play. This is what caused the level. It is taking the best of call of duty.

Yes weapons characters and it's brought that list.

That's one bucket.

Looking at a number of opportunity to go to go do that the second is me imagining the IP or on the middle class one.

Just a question, which is really every imagination to work out that he had a card game.

Well.

Magic number.

Like that and then developing.

That works on the started questionable.

Some of those take time, but.

Anxious to move and you mentioned one but.

So excited about rolling that out.

The next so of course.

Thanks, Alex.

Question.

The next question will come from rate stock shell with consumer edge research.

Great. Thanks for taking my question, how is retention trending for world of Warcraft Classic and can you help us think about the long term opportunities around running a multi track subscription model. Thanks.

So you asked about a classic specifically, but I think it's important to note that we think of world of Warcraft as a single community.

Watching while classic into the existing subscription was was very intentional you know we made a conscious choice to have one ecosystem and one in gave me some players.

The goal of that system was frictionless movement between classic and Mark.

So now we have a large group of players and we have the challenge of keeping them engaged and I think we have a number of different ways to do that you don't classic you've already seen the first example, with the error mall update which was released in mid October .

And we've seen player engagement into Q4 with subscriptions in some regions continuing to grow.

We also have the added benefit for classic with a a known content road map for players.

You know switching to modern well at Blizzcon, we announced the next expansion with world of Warcraft Shadowlands, and so that's more content and more flexibility than ever before and so it's a good position for for us to be.

You know personally I'm I'm Super happy with Warcraft or it is you know I don't think classic two years ago was one of the highlights my professional career and to so let's see the excitement of the players and the joy that as kind of come from that is.

And for me personally.

That's right over the next question.

And we have a question from Robert Burke with Berenberg.

Yes, hi, Thanks, taking my questions a couple from me. Please the first on the next generation consoles, we've heard from EA and Youve yourself on how they're thinking about the potential tailwind for units housing 2020 trend you Ron interested to hear how youre Carney thinking about the impact over the next generation consoles on your business. So.

Second question is given some of these developments on PC and mobile recently streaming coming what are your latest views on the prospects for lower royalty rates across the industry over the medium term. Thanks.

Sure. Thanks.

Got it I guess, maybe taking a step back first we are increasingly seeing an industry, leading certainly true for our franchises that they exist.

And beyond any single platform.

Their franchise that appeal dropping.

I was just mentioned.

No issue on call of duty across PC console and mobile and if you go back several years ago that that wouldn't have been true for comedy, but now robust growth across all three of those.

Oh watch of course across PC, and counsel meaningfully and hearthstone across PC and mobile meaningfully so.

First just start with it.

Well above.

Any individual console change the news about the broader nature of our franchise across multiple platforms of course, all that's like we're excited when large partners want to come in and expanded their platforms and so.

That includes console and Nexgen, you know looks to be getting ready, we think it's an opportunity to continue to showcase our premium experiences.

We also think increasingly you see console is the internet and that gives us the opportunity we believe to keep our communities together. It's why we meets a strong investments to keep communities, playing together and either but doesn't that bucket or now that we're doing so when you think that continues its console generation that's to come.

I just remind you know kindles only about a third about business maybe different from some of our competitors. So are we kind of see ourselves, having robust, but I find it across all the large platforms out there.

Finally, just about economics.

Well that we always have to bring IP to bear and appropriate large platforms as long as economics, right I would not get into specifics about royalties at this stage.

We have a long track record, making sure that IP is fully understood. It.

And and I, just I think the broadest point you remember is right now you got a lot of well funded platforms coming in looking to build out gaming beach, and they're looking for great content and their short of it.

And are says we can very fortunate and well positioned to have great content to bring to bear.

Sets us up very well for the next several years.

Thanks, Rob <unk>, one last question.

Certain lanes that question come from Colin Sebastian with Baird.

Thank you.

One question. Please I'm wondering what you took away from the Overwatch sports experience and wrap ramp in terms of applying that knowledge to the call of duty League launch next year. Thank you.

Sure. Thanks, Collyn its Bobby.

Well as you can imagine we learned a lot.

Probably the most important thing is that we underestimated things like the demand for the broadcast rights sponsorships even on the licensing front.

I think we also under estimated.

I would have or from prospective owners, which is why the price and the teams went up so much over the two year period.

And then I think operationally we had the benefit of two years in a fixed locations are really thinking about how to optimize production.

But as we go out into the local markets next year, which is the big point of differentiation for us in our views between us and anybody else is thinking about sports is really engaging these great local entrepreneurs and professional team owners were professional groups.

In actually generating revenues marketing new fans new opportunities for fans to connect to their favorite players and so.

What we've learned over the last couple of years. The server is incredibly well as we launch the call of duty League and in fact, most of the owners our existing owners and most of them have jumped in at prices that are higher significantly than what they paid for their overwatch schemes and.

I think we're going to get the benefits of scale of being the biggest operator of professional he supports the anywhere in the world. The other thing I think is we probably didn't appreciate how big the viewing audience was.

If you look at the demographic that we serve your principally 18 to 34 year old.

Oh audience that we're serving on a global basis is bigger than the MLS for that demographic, where major league baseball for that demographic. So you know, there's an untapped opportunity for sponsors for advertisers.

For our licensing partners you'd be able to reach an audience that has become increasingly difficult to reach.

So I think from every perspective, not only we learned a lot, but I think what we've done in terms of execution is the best that anybody is expected or seen in professional EA sports and so when you then think about what's happening in these franchises whether it be announced what we just made about.

Overwatch too.

For the new hundred million consumers that just came into the call of duty marketplace community. We're seeing an incredible amount the growth in both the opportunity for spectators, but also in audience that we'll be able to reach for our sponsors our broadcast partners advertisers and so when you look.

Over the course, the next 12 to 24 month, there will just be a lot bigger ecosystem for us to be able to take advantage of and a lot more of an audience for our players are professional players to be celebrated by recognized by and so.

We couldn't be more pleased with the progress that we've been making anything all these initiatives that are expanding their communities of our franchise is it just service better as we move into the local markets.

Alright, Thanks, Bobby and thanks, everyone for joining US today, we'll look forward to hopefully seeing many of you end game over the coming months and then back here in early February when we release or end of year results. So thanks.

Well. Thank you that does conclude today's conference where do you think you for your participation have a wonderful day.

Okay.