Q4 2019 Earnings Call

Good day and welcome to the Activision Blizzard Q4, 2019 earnings conference call at this time I would like to turn the conference over to Chris Vicki.

Senior Vice President Investor Relations. Please go ahead Sir.

Thank you for joining us to tell you right. So we didn't blizzards fourth quarter 2019 calls from school was this all Bobby Kotick CEO 40 Johnson.

Right.

Dennis Durkin companies, so when precedents emerging businesses.

Right, well cost plus dozens of Activision <unk> personal lines of business that's pretty much.

<unk> Mimi persistence is king will also join us.

To remind everyone that during the school, we won't be making statements that are not historical facts. The forward looking statements. In this presentation are based on information available to the company.

As of the dates this presentation.

Believed to be true they ultimately may prove to be incorrect, a number factors could cause the company's actual future results and other teachers circumstances. So just a materially from those expressed in any forward looking statements. These include the risk factors discussed and now actually see filings choosing how it's once you're in.

Reports on form 10-K, and there was on the slide to the show it.

The company undertakes no obligation to release publicly any revisions to any forward looking statements to reflect events or circumstances, often today. So I've always a six twentytwenty, we will present, both GAAP and non-GAAP financial measures. During this call will provide non-GAAP.

Sure measures, which exclude the impact of expenses related stock based compensation dealt with physician of intangible assets expenses related to acquisitions, including legal fees costs expenses accruals expenses related to debt financings and refinancings restructuring related charges. The associates a tax benefits of these cruises.

And significant discreet tax related items, including amounts related to changes in tax rules amounts related to the potential final resolution of tax positions.

There are unusual or unique tax related items that activities. These non-GAAP measures announced intended to be considered in isolation from a substitute for superior to.

Our GAAP results, we encourage investors to consider all measures before making an investment decision. Please refer to <unk> earnings release, which is posted its own debris to reserve resolve Activision Blizzard don't call for full GAAP to non-GAAP reconciliation on further explanation with respect to our non-GAAP measures. There's also an earnings presentation, which you can access with the west coast.

Which will be posted to the website. Following the call. In addition, we will also be posting a financial overview highlights in both GAAP and non-GAAP results.

Now I'd licenses yourself CEO Bobby Cotellic.

Thank you Chris Thank you all for joining us today.

A fourth quarter results exceeded our prior outlook.

Both revenues and earnings per share.

As we continue to transform the company Weve remained focused on the delivery of epic entertainment that connects engages world.

We believe we can do this with greater speed and efficiency, while maintaining our longstanding commitment to quality and excellence.

Providing superior returns to our shareholders.

We ended the year with over 400 million monthly active users strong year over year engage with.

And significant potential in monetization.

We're in the privileged position of having a direct digital connection.

As of millions of players to whom we deliver some of the world's best professionally produced content.

And we have the ability to provide their audiences with a variety of ways to enjoy our content monetization through subscriptions premium digital purchases digital native advertising and a variety of.

Other players investor mechanisms each of their large spread.

Franchises as well as our new potential franchises have greater opportunity than ever before.

Using called duty as an example, with the introduction of called T. Mobile we grew our player base from 40 million.

In 200 million players in less than a year.

We expect significant growth in the call of duty franchise in 2020 as compared to 2019 as a result of this and from other unannounced call of duty initiative.

Mobile in fact is now our leading platform.

The business.

Well the beauty mobile is free to play which enables the rapid development of a large community of players with the option to purchase digital items and services as well as our ability to generate advertising revenues franchises like call of duty offer advertisers, a very difficult to reach targets and today the ad load.

Is extremely low as we're experimenting with the best advertising solutions for our players and their advertising partners.

[laughter], we successfully developed great game for mobile our franchises have the power to attract far bigger audiences and previously.

Hard at work on high quality.

Mobile games for all of our most important franchise.

And with respect to E sports two weeks ago. We gave you the call of duty Lee with 12 city based teams.

Working closely with our experience team owners and globally recognized sponsors we're thrilled to celebrate our players and its buyer community with professional.

I will call of duty E sports.

Our new strategic broadcast relationship with you to over 200 million Gamer viewers now have access to our world that you sports content for both call of duty Lee and Overwatch.

[noise] across console PC mobile and touch points like E sports.

The momentum for call of duty could not be stronger and this excess illustrates the larger opportunities we have across our diverse and large wholly own library of titles dating back to our founding 40 years ago.

Having no franchises on all platforms in all geographies.

The constant flow of content and leveraging the additional touch points, we have available to us like E sports an advertising continues to be our focus.

The other Great example of our franchise transformation is what happened with work right.

We doubled the size of the active world of Warcraft community in the second half of.

2019 by adding classic to the Wow subscription offering.

The remarkable growth of the loud community represent important proof point of the value of potential of our established franchise.

And it is energizer development team as we develop new content for all of our key franchise.

These franchises form the basis for large engage communities of players and spectators with whom we take our responsibility to deliver high quality content very seriously.

Prior to the prioritization of opportunity and access to more talent our challenges, but we are meeting these challenges with improved.

Houston, and we expect to grow audiences engagement and monetization and provide superior shareholder returns as we have for the last 30 years.

The final note, we wanted to acknowledge the tragedy of Kobe Bryant and finally pet.

Koby was a longtime friend of the.

Any starring masterfully in commercials for guitar hero and quality. He was entirely supporter of our veterans deployment initiatives and always made himself available for all of our veterans events and activities.

He will be greatly missed by all of us and our thoughts and prayers are with itself.

And now.

You will review the highlights of our operations.

Thanks, Bobby.

Strong execution and 29 keen on our strategy and able to Activision Blizzard do you see that fourth quarter Allison enter 2020 <unk>.

And I mentioned was created by the increase investment and focus on the created in commercial resources biggest franchise.

And allowed us to accelerate progress against our four key pillars, and our first growth pillar, having a consistent cadence of major new content to grow our beach, our expanded call of duty development team launched a very successful modern warfare.

Unit sell through in Q4, increasing by double digit percentage versus the prior year across console and.

Hi.

And if you followed up with great execution on our second good color live operations for Indian content services features and events to drive engagement occurring revenues.

Our first first season up on content that our new more engaging Indian system is good but engagement and net bookings.

Taking a year over year.

So what or perhaps even followed up on the remarkable Q3 launches last classic with substantial content update you kept the community engaged and the subscribing me well above pre crisis levels.

Hearthstone, you see increase engagements on launching <unk> latest expansion and their rollout.

That was asking that in Q4.

As far as third pillar, extending our cleaned consulates franchise mobile the October launch of coffee level was one of the most successful industry history.

I think Activision publishing each a record monthly active users.

It also highlighted the opportunity from other large franchises to each 100.

<unk>.

Thanks, Dan on the mobile.

Finally, as we build enhanced you engagement models for our franchises our advertising business again grew rapidly further strangely enough you're shipping.

We expect to build on this momentum in 2020.

Each of you still as adding net bookings for the company <unk> year.

And that's about more detail on our Q4 results and recent developments across our franchise starting that Activision Q4 was a fantastic quarter monthly active users tripled excuse me three to 120.

College continued leadership on console with minor warfare, driving you're going to yourself, but generally more upfront.

Any other franchise worldwide.

<unk> now accomplished for Canada last 11 years.

I Love her also saw strong growth in full game downloads console digital next almost 50%.

And we ended Q4 with the retail channel at the tightest level in many years.

Yes, well for ongoing catalog sales.

Franchise also expanded its eyes on PC Q4 piece you sell through about 50% you ever here.

This growing cross platform called any community. We've seen early December the largest be content offering in franchise history onsite and you system for player investment as a result Q4 in getting that.

[music].

Double digit percentage year over year, despite only the launch of thinking system and despite the removal of the season pass.

Got a second season amount of work are falling cost that much as next week and the team as more great experiences.

And surprises in store, but for that season throughout 2020, which we expect to drive strong engagement.

Okay. That's good.

And of course called the franchise talk breakout success in Q4 with lots of call. It.

The gain has received widespread.

Over 159, installs as but a huge number of new players into the franchise and given existing players new any experienced called.

Engagement is strong.

Change from Activision intensity.

Tend to sustain for the long term substantial pipeline of teachers event.

Benefiting almost 15 years at college.

The title outperformed our net bookings expectations for ranking in the top 15, good <unk> absolutely necessary.

Season is already well underway and tracking well.

So across console PC mobile and E sports.

He called me franchise has never been better position for growth and there's more to.

Including entirely new experiences within the monolithic universe.

And then of course in Q4, this year and new.

Premium coffee release, just already generating excitement and I played yes.

Finally across the document portfolio, we were honored to see this the teams focused on high quality World class content recognized by industry. The 29, she became more.

Caused me mobile and mobile game of the year crushing racing and backing the sports Center racing category.

And from Softwares second ago status that twice when game.

Turning to Blizzard monthly active users with 32 million in the fourth quarter.

What or perhaps monthly active users or higher sequentially, reflecting the steam engagement players Sunday August launch Oh Wow.

<unk> decrease you know the original out.

As you May remember.

Q3, Wow added more monthly or longer term subscription plan than in any prior quarter you franchise history.

Momentum continue into Q4, then blizzard engagement robust set of content for the modern classic well and exited the year within.

Active community, whether it's quite the size.

No.

That's strong Keynes content will continue in 2020 with great series thinking leases for classic any strong saddlebags expansion coming from bottom out in the second half a year.

I will answer you eat into explore new ways to customize characters and a revamped.

It's just another onboard new players.

In harsh them the competitive environment remains intact.

We did see sustained improvement engagement sign or at least the incentive Dragon expansion and then do battlegrounds out of Alice.

Sure.

Q4, net bookings were lower year over year, but essentially.

Hearthstone team continues to generate.

They launched new game store in December.

At least a number of new content engagement model has since its launch.

Q4 also saw the launch Oh, the watch and intend to switch further expanding our community that has now surpassed 50 million in players since 2016 watch.

The next weekend.

We watch the returns.

20 teams from around the world competing in home standpoint, after the first time.

Let's just team that you know are working on the bottom I find in its history.

Well watch to Diablo for PC and console and yellow model a mobile game developed in partnership that he continues to make good progress and will move into the testing.

Its first regional test plans the middle of the year.

Turning to King.

Yeah computers were 249 million, increasing 2 million.

Third quarter.

On a year over year basis, we saw declines and when it's all in all the title, but importantly, candy vulgar reach with little changed and benefited from growth.

King largest title Candy crush saga.

The second half, it's funny 19, King introduced new initiatives to grow Hey, Eric.

Targeting last payors as well as converting new payers into the ecosystem and these initiatives that's encouraging payers engagement trends in the last two quarters.

Well these.

Initiatives damp in getting that bookings in Q4.

Continued is down Q1 easily day broader and more engaged hey based positions the franchise for growth.

And even with these actions candy crush saga remain the top grossing titles in the U.S. app stores and the wider can't even much I suppose once again number one.

King advertising business reason that bookings over 80% year over year. This strong growth in add any with users volume and pricing.

Direct and indirect sales grew sharply for the full year add net bookings exceeded a $150 million when the business set for a robust growth again.

Throughout this year.

King will continue to optimize the economy and candy launching ongoing teachers services and events to drive player engagement in investment.

And having previously narrowed its pipeline and focused on the highest potential project.

He is investing in several promising new titles, including content based on acquisitions 11 catalog IP.

Regional testing if somebody's new titles will begin in 2020.

In conclusion, our strategy to focus on our growth pillars and indefinitely creative in commercial resources and initiatives about biggest franchise is delivering results in 20 funny. We will continue that focus their leases and I find initiatives highlighted today to further expand our reach.

Engagement and player investment to extend our largest across new platforms geographies.

We plan to reach more players on more platforms more regions.

Before.

Did you sell well also further increase investment in our technology capabilities technology platforms and data analytics.

Well fund these investments, but an ongoing focus on efficiency and organizational optimization to leverage our scale across the business I.

We know that some of our investment on bear fruit until next year later or confident in our growth trajectory this year and our growth plan and we entered twentytwenty.

I'll now hand, the call every Dennis.

That's our Q4 and full year financial results Alec Dennis.

Thanks Kelly.

Today I will review, our Q4 2019 results as well as our outlook for 2020 and the first quarter.

Q4, GAAP and non-GAAP EPS were ahead of our prior outlook, reflecting better than expected results for call of duty in world of Warcraft at a lower.

Right.

To review the core I'll start with our Q4 segment results.

Activation revenue was $1.43 billion led by call of duty growth in both upfront and in game revenues on top of MPC and the addition of call of duty mobile.

Operating income was $696 million with an operating margin of 49.

Percent.

As expected call of duty mobile was not material contributor operating income in Q4, despite a great launch as we invested to build our player base and position the title for long term success.

Looking at revenue was $595 million lower year over year as growth for world of Warcraft, and Overwatch was offset by a decline.

For Hearthstone Diablo.

Operating income was $260 million with the revenue decline more than offset by lower cost.

It was there is operating margin was 44% significantly higher year over year due to mix and lower costs.

King revenue of $503 million was flat sequentially and lower year over year driven primarily.

Vikings actions to prioritize mobile pay or engagement in the quarter as well as year over year decline in web titles.

Yeah, its business grew more than 80% year over year.

Operating income was $197 million with an operating margin of 39% one point higher year over year, driven by high incremental margins from advertising.

Across our segments in game that bookings were $1.1 billion.

Now, let's turn to our consolidated results unless otherwise indicated I will be referencing non-GAAP figures. Please refer to our earnings release for full GAAP to non-GAAP reconciliations.

For the quarter, we generated Q4 GAAP revenues of $2.0 billion.

$174 million above our November guidance.

This includes the net deferrals of $722 million net bookings of $2.7 billion were $62 million above our November outlook.

We incurred GAAP only restructuring and related charges of $30 million and we generated Q4 GAAP EPS.

68 cents and Q4 non-GAAP EPS of 62 cents, which was 19 cents above guidance. These figures include the net deferrals of 61 cents.

For the year, we generate GAAP revenues of $6.5 billion. This includes the net recognition of deferrals of $101 million net bookings were 6.4.

In dollars.

<unk> gap, only restructuring and related charges of $137 million and generated gap E.P.S. of $1.95 and Nongaap P.P.S. of 231.

These figures include the net recognition of deferrals of six cents.

From a cash flow perspective, or business delivered queue for operating cash flow of $918 million annual operating cash flow was $1.8 billion higher year over year did a lower working capital and cash taxes.

Or cash investments at the end of December was approximately $5.9 billion and we ended the year with the net cash position of approximately $3.2 billion.

Turned into capital allocation, we enter 2020 with a strong balance sheet and significant flexibility.

Has always we continue to take a disciplined and balanced approach to capital allocation and with this in mind. Our board is authorized at 11% increase in our annual dividend to 41 cents per share payable in may.

As we look back over the last year, we are pleased with the companies operating discipline commercial execution and content delivery during a period, where we refocus the business and increased investment in key franchises to position us for future growth.

Now, let's look forward to outlook for 2020.

First regarding our slate and plans for each business unit.

Division enters the year with strong momentum per call of duty across <unk> up front sales in game mobile any sports.

Along with a tight retail channel that should benefit catalog sales this positions us for a strong growth in the franchise, particularly in the first half a year.

Into four we plan to launch the next premium release of call of duty, we can't wait to unveil what our teams have been working on and we feel great about the content. Although as is customary we're prudently assuming lower cell in for Q. for versus modern warfare. This past year.

Turning to Blizzard, which just last week released Warcraft three reform.

It will build on world of Warcraft momentum with ongoing content for classic and the shadowlands expansion in the second half a year the hearthstone in over watch teams will support their communities with ongoing content and services that drive engagement and player investment.

And as Cotty mentioned Diablo immortal is planned to enter a regional testing towards the middle of the year that we don't have any material revenue from that title in our guidance.

King will continue to release content features services and events across its portfolio with an ongoing focus on optimizing reach engagement and player investment for candy and the advertising business is set to deliver another year of strong net bookings growth.

At the same time King will continue to invest in several promising new titles and it's pipeline and although we expect regional play testing for certain titles similar similar to Diablo Immortal are outlook does not include material revenue from these titles.

In addition, our business units will continue to tap into our portfolios beloved IP to bring several re mastered and reimagine experiences to our players in 2020, which we'll announce closer to launch.

Bringing all this together are outlook reflects 5% year over year growth in that bookings, we expect activision to experience the strongest net bookings gross growth amongst our segments. Both in dollar terms and on a percentage basis, we expect solid net bookings growth from blizzard for the year and our outlook reflects a flatish performance that king with year over year trends improving and.

Second half a year from.

From a margin perspective are outlook reflects gap and non gap operating increase operating margin increasing your over here.

Now, let's turn to the numbers on a got basis for 2020, we expect revenues of 6.4 or $5 billion, including net deferrals of $275 million, we expect net bookings of $6.73 billion product costs game operations and distribution expenses of 22%.

Property expenses, including software amortization of 50% and a gap only restructuring charge of approximately $50 million.

We expect a gap <unk>, a tax rate of 19% gap and non gap share account of 778 million and gaffey P.S. of $1.85.

For 2020 on a non gap basis, we expect product costs game operations and distribution expenses of 23%.

Operating expenses, including software amortization of 44%, we expect to tax rate of 19% and non gap E.P.S. of $2.22, including net deferrals of 13 cents.

Now, let's turn to R. Q1 outlook on a gap basis for two one we expect revenues of $1.64 billion, including the net recognition of deferrals of $365 million, we expect net bookings at $1.28 billion <unk>.

Product costs game operations and distribution expenses of 21 per cent.

Operating expenses, including software amortization of 48% and a gap only restructuring charge of approximately $35 million.

We expect a tax rate of 17% gap and Nongaap share count of 775 million and Gabby P.S. 55 cents.

For two one on a non got basis, we expect product costs game operations and distribution expenses of 21% and operating expenses, including software amortization of 41%.

We expect a tax rate of 17% and non gap E.P.S. of 66 cents, which includes the net recognition of deferral of 31 sense.

In closing in 2019, we have come a long way and refocusing the business on our biggest franchises and opportunities filament them for world of Warcraft call of duty and our new engagement models highlights the growth potential for our broader portfolio of durable fully owned franchises when we apply our top creative talent and commercial talent against our biggest opportune.

<unk>.

We are encouraged by our 2900 results and as we returned to growth in 2020.

Opportunity set for our business across platforms geography, and business models has never been grader.

Going forward, we will maintain our operating discipline and focus as we execute against a great content line up this year and a pipeline that includes over watch too Diablo for a more diablo immortal and multiple unannounced initiatives, including several mobile titles, we remain confident that ongoing execution against our plan what position us to to live.

Growth to our shareholders over the long term.

Now I welcome our business leaders, J., who mom and Rob as they join us where the Q. and a portion of the call.

<unk>.

[laughter].

You would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function has turned off to allow your signal to retire equipment and again pressed star wine to ask a question.

We'll take our first question from Mario Blue with Barclays.

Hi, Thanks for taking questions and I've couple on call of duty modern warfare, how it's not having the season pass affected user behavior, thus far compared to years past and secondly, and you <unk> you can provide regarding its impact on in game revenue growth and when we can expect them talking 20 things.

Yeah, <unk> Ron things for the question I think you're right touch on season pass specifically, it's important that we kind of step back per second and look at some of the macro changes. We made in season passes one of them are intent was to create a better overall experience for player community and we think we've done that you know the first big thing.

We did was bring in cross plane and cross progression you know, enabling friends to play together no matter what platform later on in the case a modern warfare is just great to see players come back together. After so many years of experience and franchise in the past.

Now with season pass it kind of played a similar roll right. So instead of you know certain portions of the audience, having certain content. We were focused now on free content for the entire community to drive engagement with the overall community and I'd say the last big change that we made was really focusing on the new Battle pass an item shop system in the game, giving play.

<unk> kind of more transparency to the content thereafter.

You know, obviously, focusing more on cosmetic content and I suppose the best way to judge all of it is just you know what's the player behavior and with the community, saying and when we look at engagement you look at daily average unique or engagement is up significantly year over year, and that's really great for us to see so many people enjoying playing this fantastic game.

And then on the player investments I I'd say fans certainly seem to be appreciating the new system quite a bit we mentioned kinda growth year on year, but one other thing I might add is that we're also seen increased attach racing game to you to the new system, which I think is a very very positive sign for us and for US all a signal is too.

Really healthy ecosystem within modern warfare, one that we think we can build on and create momentum with our community. It's really on us from now to really build grade content, which we intend to do for the long haul on this game a great pipeline of content is coming starting with season. Two next week and you know we have some surprises is derby.

On that so I'd say overall, what we expect is that healthier call of duty and 2020 versus the previous year and we look forward to sharing more in the future, but thanks to the question.

That's great. Thanks Mario.

Operates on the next question take our next question from energy Scurlock with the rest research.

I think the taking my question just one on King when do you expect to the engagement and monetize <unk> and the King say segments <unk>. Thanks.

Hey, Thanks for the question and this is home on so overall growth is impacted by some of our smallest panel and the <unk>.

We also had a number of initiative more recently aimed at driving pay her conversion and bringing back lap okay.

And that you know presented a near term tradeoff by the right thing to do for that medium term and beyond and will continue to see some of those paid off into one.

But with all that said when I look forward I see a number of growth area.

First and foremost this can be.

You know kinda continues to be an incredibly doable a franchise and received grow just through the slate of new features oldest services would remain thing and the in game event that we hold.

More recently, where also thinking quite a bit about our social features we've seen that really work in different and different battles in in different genres, and when I think about how that can be in candy and candy that could be a big online or.

Another another thing that it's pretty I looked through for growth is our advertising business.

So have you heard that's really come coming along really nicely and we both have really large and high margin business and I see growth yeah.

And then additionally, I've seen growth in our pipeline you know, we we sat down and pipeline recently and we're starting to see some really good result, and our prototypes and we will start doing some read you know testing on some of those yeah. So when I put it all back together I'm you know I look to the median family.

Then I think we have some really good growth opportunities here.

Yeah.

Thanks, Benji operates or do we have the next question.

You are next question comes from Matthew Thornton, What's on Trust.

Hey, this is Anthony on for Matt. Thanks for taking the question do you have any color on how successful world of Warcraft has been in four q. and into 2020 and retaining users from the classic mode launch and then related really also on Warcraft, there's been some negative press on Warcraft three reports lately can you tell us what you're doing to address that thanks.

Hi. This is j. took it would take the world of Warcraft question first so you know as a reminder, when we design the model for Rolls Warcraft plastic it was important that.

Players have a single existing subscription to support both games and you know we think about the while community as supporting both even though classic and modern are very distinct experiences.

And we're committed just to kind of continue to support both of those experiences over the long term.

You know given the content content updates for modern Wow and the kittens that we have for classic you know, we exited or year with a subscriber base that was double what it was at the end of cute too.

And we also see players remaining engaged in both versions of the game you know we launched a visions of news off which is content patch for motto Wow in January.

Engagement with classic has been particularly strong in the east and we see very high levels of player retention there.

And our next update for classic is going to be phase three which is blackwing layer. It's one of my favorites and we're planning on watching that on February 13th.

Concerning Warcraft three reforest honestly, it's been a bit of our week in our community has come to some come to expect.

Really amazing things from us and we've heard from them that we did not achieve that bar.

But we stand behind or games.

And have consistently shown that not only do we support them, but we continue to build on them even have to watch and we're committed to doing that here as well.

And so we're going to continue to update the date the game and will continue to update the community with our plans going forward. Thanks for the question.

Thank you will take our next question from Ben Charland with Bank of America.

Hi, guys. Thanks for taking the question you know have about rebuilding of net cash on the balance sheet I've got the annual dividend I've done some by back from the past some acquisitions, maybe just an update on a thoughts around capital allocation and use of caf cash against the opportunities ahead Max.

Yeah no. Thanks for the question, obviously, we do view a strong balance sheet as a really important strategic asset for the company and having that gives us <unk> considerable flexibility too you know invest in the business do buybacks in return Capitol or pursue m. in a when we see attractive opportunities and you know.

Track record probably somewhat speaks for itself as you as you look at that over you know a long period of time.

You know, we borrowed I'd say very fortuitously to you know finance or with any transaction or King transaction and then subsequently pay down that debt us we pay down more than $4 billion. Since we finance those transactions and actually have climbed our way up the investment grade ratings grade.

And then we've returned you know over the last decade more than I guess around 10 billion of of capital back to our shareholders about 8 billion through shareware purchases and we still do have our 1.5 billion authorization and that about 2 billion over that time period period, and dividends, which has increased you know double digits I'd say probably on average over the course.

That period, and and again this year with the 41 cent dividend, which we announced today emanate is always something we keep our eye on and as a you know we have our radar detectors up and we always look at a lot of things, but we I'd like to think we're pretty disciplined about our process. We do have a pretty rigorous processed and we try to you know look for a few criteria of things.

When we are considering it yeah, we're always trying to find great franchises or technology that could add to our portfolio and make our business are franchise portfolio stronger, we like to see track record or profitability or path to profitability a strong leadership team that's aligned around growing the business and then lastly, and this one's been more challenging is.

Finding things in a at evaluation that that makes sense. So it's not easy to find all those things and so you have to be very disciplined impatient as you think about those inorganic opportunities. So that gives you a little bit an overview in terms of Hollywood approached it I think our past track record and philosophy on this is probably the best indicator of how how we think about.

At it and the and how we'll allocate capital the future.

Thank you are next question comes from Michael Ing with Goldman Sachs.

Hey, Thanks for the question you just give us an update on Diablo immortal and discuss how that informs or go forward mobile strategy for blizzard. Thanks.

Oh, absolutely. So you know as you know we've been working closely with <unk> on the development of the game and our goal is to deliver an authentic and deep Diablo experience for mobile.

We did show an updated version of the game at Blues calm last year and we saw a lot of excitement. We've also begun doing internal play tests or additional internal play tests since that time and you know the results are are encouraging we're getting ready to move to the next phase of development with some regional alpha testing.

Later this year you know player feedback is invaluable and as we continue to work on building the game will be looking to that feedback to make sure.

In other we're making really a great Diablo experience.

When we think about what to think about mobile overall for Blizzard you know we have our roots in P.C. gaming and we're going to continue to be deeply committed to the P.C.

But we do think there are opportunities for additional experiences and in different ways for players to engage on different kind of the devices and we see mobile is also a way to attract players that we don't currently reach on P.C. and console.

We think the mobile opportunity for Blizzard overall is is very substantial.

Diablo Mortal will be our first released as a mobile first game.

And we continue to work on multiple mobile initiatives across across the lizard. In addition to the P.C. and console games.

<unk> Oh project, we have the next question please.

Our next question 'cause from Holland Sebastian with Baird.

Oh, thanks, digging down a little bit more into your relationship with Google wondering what the key factors behind the decision to partner with with the T.C.B. and then as well with you too gaming are there as well they're considerations are implications embedded that could increase your level of support for stadia. Thank you.

Oh sure isn't Patti I'll take that and that's it first you know as Bobby mentioned.

Related to that interview <unk>, Adam longstanding relationship to integrate we are real to formalize that into a deeper partnership over multiple years.

And you said, there's really too big pieces to it that vs on sort of the global I.T. infrastructure and the second is on it really is a fantastic content platform and you too.

On the first peace, what we have the opportunity to do now is.

More efficient and better delivery in the back end servers isn't infrastructure handled by a partner where that if they're great expertise and would allow us to do is it frees up our resources and developers in mind share to focus on what we do this which is making the content and getting it out the ends of our players at a faster I couldn't that that'd be great down some trees for us I mean really.

Good about the definite partnership and how it all carriers coming forward.

On the contents item you too you know, there's 200 million Gamer viewers on you and it's just a tremendous opportunity to bring our platform to new audiences. There. We think not only just in a way that players can experience. It today with new mood and format and also you know you take raid on demand viewing platform and <unk> you know.

Increasingly interested in doing our content that way.

There are other pieces this deal where there's real value, we think in terms of how to utilize their platforms and how they help this build a more reach an engagement ecosystem.

In this deal in you mentioned it it stayed yet.

You know there's cloud games dreaming experiences that are directly to the consumer we continue to watch interest and will make you know appropriate estimates as we go for it to figure out our own next steps there, but I think wouldn't points to it just as the last thought I I brought her point, which is over the last few years, we've been talking about these large technology.

G players that are coming tourist space at scale, but we said if you see there's tremendous opportunities the content provider.

<unk> take advantage of where we sit in the space and this Google deals. An example, <unk> eight large amount of value for instance, if you go for it and we think we're only you know even better position for for other programs.

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Thank you.

Our next question 'cause from Eric Sheridan with U.B.S.

[noise]. Thank you so much for taking the question you provide subdued on how cold duty mobiles trending in terms of engagement retention of users how we should be picky about future content How's the driver modernization for that Oh for that property going forward and second part any key learning that we should be aware of as as.

Learning to develop mobile games, that's sort of scale and how it might be applied to all the parts of the portfolio like so much for the color.

Eric It's a raw thanks to the question, let me start with the last part of your question on the key learnings and I apologize for being little redundant on this but I think a key theme throughout our calls it I think what we learn more anything else is that the market is is certainly ready for our franchises on mobile when we make a great game and kind of stay true to the.

Corten into what made the franchise great in the first place and we execute on that now we can read you know just millions and millions of people around the globe that may have never experience or franchise before and that's just that's very exciting for us as an organization because that obviously is true not just for just call of duty, but also for the many great franchises that we have any organization.

If I were to turn back and talk about quality mobile a little bit in terms of engagement and retention like you ask.

Look I'd say, it's still in the early days, but we've seen a number of encouraging signs obviously the installs at the beginning which we reported on had been fantastic, but also in terms of our daily you know engage men are looking at our Dallas mobile hit levels that were multiple is higher than any other title and franchise history, so that engagement base.

Really really exciting for us to work from now for US the content now becomes on the content pipeline to sustain and build on that in mobile we have a game as a platform essentially that we want to build on for a really long time to calm. So we're hyper focused on our content pipeline or monthly weekly in India.

Events as they come into the game to make sure we drive the best possible experience for player community there.

We're in the middle of season, three right now and that's that's tracking really well and I think where you're going to see is you know we're learning a lot real time, the learnings are great and you'll see s. adjusting our content continued to make the best possible experience. We can for fans as we move forward in the future. So I'd say right now we're off to really a nice start and and I'm excited about.

And you know be recording on your progress as we hadn't in the future, but thanks to your question.

Thank you are next question comes from Mike Olsen with Piper Sandler.

Good afternoon, and thanks for taking the question you touch on a bit but could you update on anything for the related to the status of King advertising how was it ram throughout 2019, and and what you're thinking I'm potential for 2020. Thanks.

Yeah.

Thanks for the question. So look I think advertising hasn't been a real success story for Fame and he's gone 2019, we're really not with a durable business here and it's a it's a higher margin one.

And the way I think about it with our scale monthly.

It really allows us to you don't get the benefit of having to launch audience have you know a small fraction of them participating in game economy.

So you know now it's become a needle <unk> 150 million and and that's okay, and 2019 and three may pass them into a great collaboration between you know the product teams in the game team advertising team and really all of them thinking about you know, what's the great player experience and how do we didn't know something.

Very differentiated for our advertisers.

I know when I look to 2020 and beyond Ah I see continued growth. There are many avenues of that girl you know first and foremost we're going to continue to roll out advertising to more and more of our players.

And then I think the teams will continue to innovate there were ready as I said have a an incredibly differentiated products that advertisers are really battering too, but we can continue to make it better.

You're not a good example of this was and Q. for was some of the what would deliver to Sony Pictures on the jumanji going to launch and there we not only had our flak from rewarded video pronto, but we did something truly different data in the marketplace, where we put an engagement.

<unk>, we put some of the game care, yeah that sounds characters in our game. It was greatly engaging for our players and then deliver tens of millions of views, who two two laundry and <unk> demeanor for them to.

So I think about you know continuing to move down that journey and how do we do that we unlocked more demand and we are working very closely with our agency. While we also continued to build our direct sales scheme and continued to build infrastructure around.

So all in all I think kind of that's trying to do that's been working continues to bear food for us and I think there's plenty of growth ahead of us and Uh huh good runway.

Thanks, <unk> operation, we have time for one last question.

Thank you will take our final question from my kicking with benchmark.

Hey, guys congrats on the corner constant taking my question.

You made a lot of changes obviously the quality of you this year I introduced to cross platform.

Game system, we launched mobile all this huge success and and these sports I guess to what extent, we expect to see similar moves over the rest of your team franchises. Thank you.

Thanks for the crush your Mike It's Bobby.

When you know I think what are the things that we found with the loss of call of duty mobile.

With game play cards so.

Our designers and developers have gotten a lot more excited about reaching bigger broader audiences and we've seen a across the whole company and so.

I think what you're going to continue to see is that commitment to innovation.

On all of our France.

And that now includes commitment to innovation with mobile devices, I think that as long as we can deliver new innovative game play with great user experiences on mobile devices, you'll see more friends size is taking advantage of that as a platform I think the other thing we've seen is that people want to reach more.

Customers and more countries and especially when you look at some of things that we're doing any sport being able to build these big inclusive communities around the world and today, you know or mobile games are played in almost 200 countries.

It's been a real catalyst for us to really rethink the way that we're approaching our Frances though.

So you can expect as J. pointed out obviously is as who mom can attest to and as we have you seen any activities in business with the success of clothes duty mobile.

Evil is now our largest platform and you'll continue to see us with not just <unk>, but all the other important points that we've no AD in the business expanding the reach of our franchises engagement of our franchises and the monitor division of our fronts. So.

Yeah, we're we're going to be more enthusiastic about the prospect. So we have going forward.

Yeah, we've talked a little bit about the challenges, which is prioritization of opportunity and making sure that we have the right talent aligned with those opportunities, but those are challenges. We managed for a long time. So it's a great question. I think you can expect that all of our friends sizes are investing and all of these new opportunities.

Alright, Thanks, Bobby thinks everyone for joining us today, we'll look forward at speaking with many of you this quarter and if not we'll see on our next door earnings call in a late April early may Thank you.

Thank you ladies and gentlemen. This concludes today's call. We thank you for your attendance of participation you might out disconnect.

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