Q2 2020 Activision Blizzard Inc Earnings Call
Good day and welcome to the Activision Blizzard second quarter 2020, <unk> earnings conference call today, all participants will be an Irish and only mode.
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At this time I would like to turn the conference every Q Christopher Hickey Senior Vice President of Investor Relations. Please go ahead.
Good afternoon. Thank you for joining us today for Activision Blizzard second quarter 2020 Ultra school.
That's helpful because tick CEO.
Likewise, president and COO and kind of stuck in companies.
The two businesses Unsecure night, well cost, which has been using J Allan Brett. This is a good that statement on the Montney persistence King will also join us.
To remind everyone. During school, we make in statements that are not historical facts. The forward looking statements in this presentation that based on information available to the company has a mistakes in this presentation I'm always pretty even to be true. They ultimately may prove to be encourage a number of factors could cause the company's actual future results and other teachers circumstances could differ materially.
That was expressed in any forward looking statements. These include the impacted the cobot Notching pandemic risk. This disgusting I actually see filings, including 2019th annual reports on form 10-K, Swissquote. The Twentytwenty 10-Q, and our second quarter, Twentytwenty turnkey, which will be filed shortly and there was almost like the children.
Company undertakes no obligation to release publicly any revisions to any forward looking statements to reflect the bank circumstances off the today walks the fourth twentytwenty.
We will present, both GAAP and non-GAAP financial measures during the school.
Non-GAAP financial measures, which excludes the impact of expenses related stock based compensation amortization of intangible assets and expenses related to acquisitions, including legal fees costs expenses and accruals expenses related to debt financings and refinancings restructuring and related charges. The associate the tax benefits of these screens.
I tunes and significant discreet tax related items, including amounts related to changes in fact feels nice relates to the potential final resolution tax positions and other unusual or unique tax related items activities.
These non-GAAP measures and often times to be considered in isolation from as a substitute for or superior to our GAAP results. We encourage investors to consider all matches before making an investment decision. Please refer to <unk> earnings release, which is posted on www dot back to some goods a dotcom for a full GAAP to non-GAAP reconciliation and further explanation with respect to run.
Non-GAAP measures.
There's also an earnings presentation, which you can access with what's going on which will be posted the websites forming the cool.
Now I'd like to introduce out CEO Bobby Kotick.
Thank you Chris Thank you all for joining us today.
We hope all of you and your families are safe and healthy.
Our employees continue to do an extraordinary job managing family demand working in challenging circumstances and remaining focused on execution of our stakeholder priority [laughter], ensuring that our employees and their families of the very best health care everywhere, we operate remains our priority.
Against the backdrop of the ongoing pandemic and significant social and cultural up people, we're delivering entertainment that inspires in unite helps break down barriers and enables players to afford can sustain friendship community through gameplay.
Well with billions of gamers worldwide.
James provide social interactions that connect people more deeply than any other form of entertainment.
The investments we've made a new compelling content can experiences within our franchises.
That's expand to almost every country in the world across a wide range of audience [laughter] today, we have a broad and diverse player base of over 400 million players.
With over 100 million players in each key region, we operate EMEA Asia Pacific the Americas.
And we estimate that approximately half of our players are now female.
We have an opportunity to grow and serve more players globally as we discover more ways to connect and engage the world through our epic Entertainment.
And volatility.
And the second quarter are Playerbase crew, 30% year over year, adding more than 100 million monthly active players.
Time spent in our games grew 70% over the same period and Q2 engagement and player investment we're at historic highs.
We grew net booking 70% year over year setting new highs for a second quarter nap bookings on both mobile and console.
With operating margins up strongly year over year.
Ah results benefited from increased demand from our content as people around the world sheltered at home.
This upside varied across businesses enfranchises with our most social content seeing the strongest and longer lasting impact.
The biggest driver every year over your engagement and financial performance was call of duty, which is C. N remarkable increase in its scale as we expanded the franchise across platforms Geography's and business models.
As the world starts to reopen we believe these actions have delivered a true structural change in the trajectory of our largest franchise and this is the roadmap we plan to follow for the many franchises we have in our library, which dates back to 1980.
The launch of war zone within the call of duty universe is given existing players compelling new content and enabled large numbers of first time players to unleash their inner military heroes over 75 million people have played war zone since it's lunch, adding significant reach an engagement to a franchise that already enjoyed strong moment.
Mm following the 2019 launches of modern warfare and call of duty mobile.
We've truly seen a step change in the engagement of our franchise with total time spent and call of duty in Q2 more than eight times higher than in the year ago quarter, and there's players engage they're choosing to invest within game player investment in sales of premium content, both meaningfully higher.
And then last year.
The expansion of the call of duty franchise to over 100 million players across P. C console and mobile highlights the scale of the opportunity for a broader portfolio of fully owned intellectual property.
We're also seeing ongoing momentum from our growth initiatives for World War craft and candy crash and as we execute on our <unk> pipeline of major content and live operations on mobile P. C. N console, we expect to continue expanding the scale of our franchises.
We remain focused on investing in our creative talent growing our development teams to continue delivering more high quality content more frequently and continuing to reduce unnecessary process that stifles innovation and creativity.
With more players in more countries on more platforms and are deep experienced across a wide range of business models or on track to deliver the strong long term financial performance that are stakeholders expect.
[noise] I'm incredibly proud of our employees and their families. They have overcome difficulties demonstrated great empathy and resilience and through extraordinary circumstance have remain steadfast in their commitment to meet growing audience demand for our games.
And more than ever there's a growing need for the services of our call of duty Endowment, which helps returning veterans transition to the civilian workforce. We of course, we're delighted to fun to record number of placements and the second quarter and have now helped more than 72000 veterans find high quality jobs. Since we started the call of duty.
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In the near term, while the economic outlook remains very unclear.
The ongoing commitment of our creative in commercial teams should enable us to remain on track to deliver great new content and the second half of the year.
We know expect record full year net bookings and earnings per share.
Thank you all for your support and your encouragement Daniels now review the highlights of our operations for the past quarter with you.
Thank you Bobby.
As you hurt Activision Blizzard significantly exceeded second corner outlook.
H a R T franchises delivered better than expected results with growth led by the call of duty franchise on launch a war zone.
During the corner, we remained laser focused on driving financial performance through our three strategic growth drivers are expanding audience reach evening engagement and increasing player investment.
Strong execution against these growth drivers enabled us serve compelling experiences to and expand gaming audience against the backdrop of demand tailwind shelter at home in the corner.
We saw substantial growth and our biggest franchises and importantly, the increased investment at successful initiatives that drove strong two two results also position us to continue growing and the lighting or global communities.
And to deliver sustain later financial performance over the long term.
Now turning to our French fries and operational highlights across their business units.
Starting with Activision monthly active users are mouse grew more than three fold year over year to 125.
Call of duty reach new heights in the corner with reach engagement Empire investment experiencing another step change increase following the launch a war zone in March.
War Zone. It has now brought in more than 75 million players and the first of all quarter Since war zone lodged hours playing in the modern warfare universe increased eight four year over year, driven by both existing and new players as war zone players engaged many upgraded to premium modern warfare experience.
In fact, and Q too we added more players outside of a launch quarter to the premium call of duty experience than ever before with the majority coming through war zone, reflecting the powerful combination of premium differentiated content alongside a free offering.
Warzones success in the neighborhood to reach new players and new Geography's, including on P. C. P.
P C consumption more than double the Pryor premium content release.
Call of duty in game that bookings more than doubled from Q1, and we're around five times higher than a year ago quarter.
And it's the first three quarters total in game that bookings for modern warfare now exceeded the prior three call of duty titles combined over the same period.
Engagement has remained strong in third quarter and our fifth season of new content marches tomorrow with map changes a new events that we think will continue to like players.
As we look ahead Activision will continue to build on it's direct digital relationship with has expanded community is it delivers the next premium installment or call of duty, which comes from a wholly owned call of duty studios track and Raven software.
We're excited for its plan release later this year.
How long duty continues to break new ground on the mobile platform to.
Call of duty mobile south strong sequential growth and engagement and player investment benefiting from both shelter in place tailwind and the teams ongoing work for the optimize gameplay monthly seasonal content.
And the in game economy.
<unk> climb up the U S appstore, grossing charts and each of the three seasons and cute to generate more of that bookings per day then the prior.
And having pivoted all matches to online play in remote production in April we continue to celebrate player achievement and drive even greater franchise engagement with a call of duty League.
And Activision continues to refresh beloved IP for some of the world's most passionate fans with two titles that are shaping up fantastically.
We are thrilled to again partner with legendary Skateboarder, Tony Hawk to bring Tony Hawkes Pro skater, one and two back to gamers in September.
And Activision will build on the incredible success of the crash franchise in recent years to launch crash bandicoot for it's about time, the first entirely new built from the ground up crash experience and over a decade launching in October.
Now turning to Blizzard mouths were $32 million in Q too.
Well the Warcraft reach an engagement once again increase sequentially shelter at home conditions for their boosted the franchises strong trajectory since the launch a classic.
Lizard is delivering live operations quality of life enhancements and major content to keep it has expanded community engaged. This include the release of the most significant multiplayer event Wow classic in July and anticipation continues to build for shadowlands. The next expand for modern Wow coming in the fourth quarter.
Engagement in the franchise is the highest it has been at this point ahead of an expansion and a decade.
And shadowlands is seeing an enthusiastic response from players and it's public testing with pre sales accelerating even further and the second quarter.
Expanded hart's-tongue team launch the games latest expansion as well as a new hero class during the second quarter as they continued to accelerate the pace of innovative content and the franchise.
Building on the success of Battlegrounds and strong execution of my of Operation Hudson pipeline includes expansion new engagement features and exciting new Gamemode plan for the coming quarters.
Overwatch saw a significant number of returning players contributing to strong year over year growth and engagement.
The franchise continues to enjoy a sizeable loyal and engage community both in the game and bolstered by ongoing enthusiasm for the Overwatch League is the development team works yearly anticipated Overwatch too.
And finally, the Diablo franchises entry into mobile Diablo immortal looks great with Blizzard planning to expand internal testing with the company play tests to start coming weeks.
Now I'm turning it king.
King mouths increased five per cent year over year, two $271 million, including double digit growth and mouse for the candy crushed franchise.
King delivered strong increases and reach an engagement mid sheltered home conditions at the start up cute too.
We saw these tailwind moderate and the second half of the quarter, although mouths remained higher year over year again, driven by candy crushed.
The teams ongoing initiatives Djabran my pay your base enable the business to benefit from this higher reach an engagement.
Pay your conversion was higher year over year throughout two two continuing the improving trend seen in recent quarters and positioning the business for stronger results over the medium and long term.
And can be crushed was once again, the top grossing French fries and the USF stores.
King recently announced its first release since narrowing it's pipeline to focus on as high as potential projects.
As we leverage the strongest capabilities across our business units to further I spend the reach of our I T team will bring activations beloved crash franchise to the mobile platform.
Crash bandicoot on the run isn't ambitious new take on the runner category with deep social and resource management elements and the game is already looking great. That's at progressive through testing.
Along with higher performance for in N out purchases can also delivered strong growth in advertising accelerating through the quarter, even with ongoing headwinds and the digital advertising sector.
While the backdrop remains uncertain of performance once again validates the value proposition of our premium safe platform for brands and any environment.
Turning to the impact of the pandemic on demand shelter at home conditions boosted reach an engagement for each of our key franchises in the first half of the corner. These killings moderated and the second half is more countries started to reopen with transferring across Geography's enfranchises.
EMEA in Asia Pacific saw greater moderation in Lockdowns ended with the Americans seeing more sustained tailwind.
And while casual franchises returned to more typical trends more quickly our core franchise with the greatest emphasis on social multiplayer game play are seeing engagement remain elevated even as regions reopened.
And operational perspective, while the vast majority of our employees continue to work from home our team's continued to deliver content features and services to our players.
As discuss last quarter remote working does add complexity and challenges in some areas of the game development process, but I'm mitigation measures have been affected so far and we believe we're on track to deliver new content and the second half.
In summary are franchise focus in a return to the execution standards that have driven our business for decades will result in substantial over performance against our original outlook.
Dennis will now share the detail the results of our second quarter and specifics of a revised outlook.
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Daniel.
Today I will review, our Q2 2020 results as long as your outlook for 2020, and the third quarter.
Our second quarter revenue in earnings were well ahead of our prior outlook, primarily driven by a strong player response to our initiatives and topology franchise, along with greater than anticipated shelter at home tailwind for other franchises.
[noise] review the quarter, let's start with our segment results.
Activision revenue was $993 million, increasing 270 per cent year over year.
Both was driven by modern warfare and war zone in game revenues strong sales are premium modern warfare, the additional call of duty mobile as well as catalog content sales.
Operating income is $559 million.
Activision operating margin was 56 per cent and all time record, reflecting high incremental margins for both in game and upfront sales uncomfortable when P C.
Blizzard revenue was $461 million growing 20 per cent year over year, driven by another strong quarter of growth for world of Warcraft.
Operating income was $203 million with an operating margin of 44% both significantly higher you over here.
King revenue was 553 a million dollars was the highest since the 2016 acquisition growing 11% year over year.
An app revenue growth moderate and during the quarter, but remain positive throughout all advertising revenues reaccelerate it throughout the corner.
Operating income was 212 million again, the highest since the acquisition with an operating margins, 38% four percentage points higher year over year.
Across our segments in game that bookings grew 77 per cent year over year to a record $137 billion.
Now, let's turn to Arkansas I'll need your results unless otherwise indicated I will be referencing non gap figures. Please please refer to or earnings release for full gap gap reconciliations.
For the corner, we generated Q2 gap revenues at $1.93 billion $242 million about army guidance.
This includes the net deferral of $146 million net bookings of $2.08 billion with $403 million a dog <unk>.
And we generated Q2 gap E. P. S 75 cents and you too <unk> P. P. S. At 81 cents, which was 17 cents a boat guidance.
These figures include the net deferral I'm 16 cents.
Three and a cash flow and the balance sheet Q2, operating cash flow of $768 million, increasing over $600 million year over year, reflecting higher operating income and lower cashed taxes, all set I working capital timing.
The quarter, we paid an annual dividend of 41 cents per sure 11% higher year over year for a total of $316 million.
Ah cashed investments at the end of June was approximately six $5 billion and we ended the quarter with a net cash position of approximately $3.8 billion.
We have long viewed are strong balance sheet as a strategic asset and we're pleased with the strength of our business fundamentals and conservative financial policy recognized in a recent upgrade of our credit ratings, a minus N S N P.
Now, let's turn to I'll look for two three and this over here.
With regard to our slate and Q3, Activision fifth season of content for calling duty modern warfare and war zone lunches tomorrow and the team or at least new features events in seasons for call of duty milk.
Number four activism will release, Tony Hawk Pro skater wanted to for the Playstation for Xbox One N P C.
[noise] Blizzard will launch its latest hearthstone expansion Soloman Academy on Thursday, This week and through the quarter will continue to support other key franchises within game content.
And King is planning numerous features and innovative live option candy crash as well as the other games across its portfolio.
And the fourth quarter. In addition to ongoing live ops in in getting content across the portfolio Activision plans to lunch crash bandicoot for it's about time and most importantly, the new call of duty premium released is slated to arrive into what we expect to be the largest and most engaged franchise player base in lunch hour and.
[noise] Blizzard plans to release the world of Warcraft Shadowlands expansion four it's expanded community.
And the second half, we'll also continued to refine and tests, new mobile content in our pipeline, although consistent with our prior outlook. We don't include any material revenue from new mobile titles and our guidance.
Before I discuss the specifics of our outlook I'll provide some context.
We continue to experienced strong momentum in the business, even as tailwind from shelter in place moderate.
And the second half, we're planning to lunch major new content into key franchises with meaningfully larger audiences and we have seen previously creating the opportunity for strong financial results.
In particular, the addition of the war zone for you to play experienced a significantly increase the reach engagement and player investment and call of duty building, an existing strength for our largest franchise and creating a strong foundation for future financial performance.
That's N. We remain mindful of risks and uncertainties related to the global economic weakness rising unemployment and potential pressures on the retail channel in pricing.
[noise] extent of the impact of October 19, pandemic on our business operations in financial results will depend on numerous evolving factors that we are not able to fully predict at this time. We continue to believe we are being proven and our guidance to account for these risks in there could be over performance. If these risks do not materialize.
So with that as a backdrop, we are again raising your outlook for net bookings revenue in EPS for the year with our full your outlook, increasing buying amount greater than our second quarter over performance.
Let me get into specifics.
Q3 on that basis, we know expect revenues at $1.8 billion, including the net recognition deferrals of $150 million, we expect net bookings at $165 billion.
<unk> came operations and distribution expenses of 18% and operating expenses, including soccer amortization of 46 per cent and a gap only restructuring charge of approximately $29.
We expect the tax rate of 20% <unk> 780 million N E. P. S of 64 cents.
Four Q3 on and on that basis, we know inspect product costs came operations distribution expenses of 18%.
And operating expenses, including soccer amortization of 40 per cent.
We expect a tax rate of 19% and non gap E. P. S of 75 cents, including the net recognition of deferrals 15 cents.
On a gap basis for 2020, we know expect revenues of $728 billion, including net deferrals of $350 million.
We know expect net bookings of $763 billion $725 million about our may outlook.
Product costs game operations and distribution expenses of 19% operating expenses, including soccer amortization of 47% and a gaffe only restructuring charge of approximately $59.
We expect a gap tax rate of 20% <unk> sure count to $780 million and gap E. P. S $2.46.
For 2020 on a non gap basis, we expect product costs game operations.
And distribution expenses, 19% and operating expenses, including soccer amortization of 42 per cent.
Expect a tax rate of 19% and non gap E. P S $2.87, including net deferrals of 18 cents.
So in closing our business that strong momentum heading into the back half of the year, having increased investment in development and commercial resources for our largest franchises last year strong execution against our strategic initiatives, not we will well positioned to drive growth and reach engagement and player investments and the second quarter as people sheltered at home.
This puts us in a very good place for the second half a year and beyond.
The opportunity set for our business and wholly owned franchises across platforms Geography's in business models I've never been greater and we remain confident in our ability to deliver the long term business excellence and performance that our shareholders right in the expect.
Now I welcome our business theaters J her mom and robbed.
Fine us for the Q&A portion of the call operator.
[noise], we will now begin the question and answer session.
That's a question you May press it started on one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys.
Can I try your question. Please press Star then too at this time, we will pause momentarily to assemble a roster.
Today's first question comes from Eric Sheridan with UBS. Please proceed.
Thanks, so much for taking the question I I could come back because I'm going to come at you made during the prepared the March wanted to know what how would you call. The 19th is asking as in <unk> industry trends digital downloads standing the base of users experience I've spent by users. What do you think this is accountability is that correct momentum.
Is over the medium Coke and Dennis everything I did authenticate and some of your comments. How you also take about the potential online from these current trends and help you play out across symbol platforms. When you walk alright. Thank you so much.
Thank you Eric This is Daniel I'm. Thank you for for the question.
<unk> ZIP code that is really accelerated secular trends in the in the sector in terms of our player numbers and engagement, we think you're seeing an acceleration and something that was already strong and was the strong growth and gaming that we've been experiencing.
Consumer leisure time has been shifting two more interactive forms of entertainment for many years and that has just accelerated in the recent months.
Now we believe that is new players come into gaming, they're going to gravitate towards the largest franchises that have massive communities, we're enjoying fresh and compelling experiences. So we've seen that with you know call of duty and world of Warcraft in particular were of content initiatives over the last few <unk>.
<unk> meant that we were really well positioned to deliver great content as new players came in.
And as we continue to benefit from the social nature of many of our games. We expect that is new players engage in form in game connections with existing or new friends.
Many of them will stay engaged for the for the long term.
And we see this is a really big opportunity and as you'd expect an a franchise. We're doing everything we can to welcome as many new players as possible and expanding befuddle to bring more gamers into our communities and really give them the compelling social experiences it turns them into longterm fans.
<unk> also seen a further acceleration and the ongoing next towards full game downloads, which cause you know has a positive financial impact for us.
As you've seen for many years now that is consumers by immediate digitally they tend not to go back to physical purchases because of the conveniences and the advantages of buying digital. So we think the shift is likely going to be sustained.
Yeah, some of the demand tailwind from shelter at home or moderating as we discussed in our opening remarks, but what's more important for us and we look forward is that there's just such a huge opportunity for us to further expand our franchises as we execute on our pipeline and a growth initiatives and invest in great.
And innovative new contact.
Oh, well, we have over 400 million players already.
There was billions of users and gamers out there worldwide and we want to continue to find ways for them to experience are franchises whichever way that they prefer.
We have the pipeline in place to achieve that and are focused on continuing to execute against this pipeline to really a lock that full potential of our portfolio.
Okay.
Thanks, Eric Alright, so can we have a nice question. Please.
[noise] today is next question it comes from Doug a correct with Cowan. Please proceed.
Hey, Thanks, So we're all waiting with bated breath to hear about which figure out plan for call Dirty. This your hobbies is this is by far the latest you've gone without showing it to your your audience I was trying to think about the marketing campaign, you've got prepared for the series call of duty how do you plan to integrate war zone into the new call of duty.
And what are you thinking about for pricing for an extra games right now.
Hey dog, it's Rob Thanks to those questions, let me try to attack them one by one.
I'd, probably want to just start off by saying first that the success, what I'm, saying War zone and called the mobile.
In addition to of course would continue to see on our premium games is created a ton of new opportunities for the franchise and so starting with marketing it's definitely had an impact there and how we think about marketing in this new world.
Did you see it from our results right now we have a larger more engaged in more global audience M. You've ever had at any point in time in our history and that means that we can be more direct and more targeted and we've ever been before so that's a huge benefit and plus for us because we think about marketing on that vector. Another thing I think that's really important this is it.
At least a marketing is from storytelling storytelling perspective.
Well, we can be even more creative and son and engaging with our fans than ever before so if you'd like a war zone in particular, it's not only like a great game experience, but it's also a great plop one platform throughout the sure you're franchise news and information directly with the community like we haven't done before so this is all.
So a big and positive change for S. As we think about the business.
And kind of do your initial appointment you're talking about why is it.
Waiting for such a long time, we are in the yard, but it's where's that one I think that's causes do we think how when and even where we reveal our upcoming titles. So.
We can't wait to share it with community and we think it's gonna be very different and more engaging anything that we've ever done before.
Now did you heard on the call before you know tree I can raven like coming up with the next premium game and obviously very excited on what they're working on and we do thank fans are going to absolutely love. It the game looks incredible right now and you know internally people, having a ton of fun playing across its campaign mode as well as the online mood cause the developers are.
Very well known for and so all I can say entered the timing is I suspect you'll be hearing more about this fairly soon.
Now on your question of how we're going to integrate the new titles were zone I think that's a good one is an important one way you should expect is that we do very tightened gration between the two <unk>.
Modern warfare and war zone, or obviously very tightly connected maybe that's really important <unk> playerbase. We plan to do the same with all of our upcoming titles as well our premium titles to share that we can reward all of our players give them crashing your experiences regardless of whether they choose it just plain war zone or also playing the premium.
Game as well so the connection will absolutely be there.
And then finally I think on your last question with in regards to Nexgen pricing.
And so what I'll stay here is will be sharing a plan soon so I can sure anything today for now which is very excited for lunch at the new generation hardware. We think it represents another strongly Florida and creating you know really incredible entertainment value for fans as we can afford.
Thanks.
Thank you.
Can I have the next question please.
The next question comes from Alex Ciano with K D V. Please go ahead.
Hey, Thanks for the question. This is Alex Seattle from Jeffries on the Blizzard side was hoping to just get an update on how the development teams are adapting to work from home as of now and if there's any potential impact of the timing of the sequels announced that and please call them 2019, and then since there won't be.
Blizzcon this year. So it should we expect some form of virtual update from the blood their team at at some point thanks guys.
Thanks This is J.
I think the teams have done a good job and adapting to a remote work environment.
You know when you think about the teen based collaboration that's required to create a great games.
The current remote work environment does have some challenges when it comes to iteration can ideation.
But I'm I'm proud of the teams and I feel like they've been incredibly resourceful to figure out ways to continue to serve the community with a great content as you saw and and cute too and you wanted this year.
You know all of this gives us a lot of momentum heading into the second half of this year.
Have a lot of things planned the Wow and the hearthstone teams continue to bring lots of content to the community.
This is important for both of these games going forward.
Longer term longer term projects that are in a more creative or collaborate stage of development <unk>.
Make it harder to really measure the impact of the shift for them not working.
And you know one of the things that were conscious up as the longer the situation persists the greater the challenge. So we're continuing to actively monitor continuing to plan and try to put ourselves in the best possible position continuing to operate effectively during covered and that'd be on.
So you mentioned Blizzcon and you know we did announce that we will not be breeding community together with a small.
But we are planning on channeling the spirit, Wisconsin into a virtual event.
Early in early part of next year, you know, we're really fortunate to have.
Give me just community.
That's really looking forward to war, creating and what we're working on it I was looking forward to sharing what the teams and I've been working hard to that event.
You know suggest about sequels Diablo and Overwatch teams you know, they're they're deeply committed to creating awesome AAA experiences for players, they're working hard to bring those games the community.
And you know, we expect the launches and data that'd be can take a release on those to be big events for those French fries. Please.
And beyond those lunches, you know I've been focused on delivering new experiences in our lives games the community really enjoy it. So yeah, we talked about hearing Wow through classic we've been able to introduce more content from the existing subscription.
To continue to give the community real reasons to to stay engaged outside of the temple secret Secret is we have another number of initiatives that are underway and we expect to deliver Australia in your system performance in future. That's that's something that's very important to us. Thank you. So the question.
Thank you.
Thanks have Richardson have a nice question. Please.
The next question comes from youngest Kim with Piper Sandler. Please proceed.
Thank you for taking the question can you describe the trends you've seen in the advertising business since the last call help us understand the drivers and what the opportunity for growth looks like.
Hey, this is my mom thanks for the question.
[noise], alright advertising business proved resilient and the second quarter.
And would delivered robust zero over here girls.
Now at the heart of this AD business is our platform, which provide fully control safe environment for Brian.
And that's a very thoughtful value proposition for advertisers, especially given the times backdrop.
Right now to add to that we have a number of initiatives underway.
That will further strengthen dispatch one [noise].
A as an example are continuing to invest in the does that sounds force and extend our network the ninth gluttonize as well.
And again, we saw strong Yo Yo gross across both the dropped the advertisers and the men pardon S N K too.
Now add to that that we're continuing to invest in our tech infrastructure.
And we continue to invest until the as well to further optimize the demand and the pricing around it.
At the heart of it the way I think about the investment is also the investment in the product the telephone the innovation there.
So that is also resonating.
So as an example to give one we worked with target and cute too and they were looking to drive awareness in consideration with their Easter marketing campaign.
And when we combined and integrated sponsorship and candy crush saga with rewarded video products.
Target was able to reach tens of millions of players and your last and a cheese.
Pinpoint left in the top of mind, Atlanta, and a seven point that I can consideration. So all of this is allowing to track, allowing doctor I tried to new brand advertisers into the ecosystem.
And over the past few months, we had a number of these which <unk> a number of sectors.
And these names you know spend something like some Samsung to buyers JBC to <unk> to home depot.
And we continue to use dress salesforce to reach out to more of these advertisers a coffee sectors and continue to innovate the product around them.
Now with all that sad.
There is on so I can get mad market <unk>.
You've seen in the recent months and that includes apples recent announcement around IBSA.
Now, it's still too early to determine the specific impact on the business. Please on our business.
But we're not working closely with our advertising partners in order to Matt pardon Mr. <unk> password was changes.
So put some takes out there and that that was still remain confident in the value proposition and the long term opportunity of this advertisement.
Thank you alright, so can I have a nice question. Please.
The next question it comes from Marianne Lou with Barclays. Please proceed.
Great. Thanks for taking the questions I have two on call of duty and mobile with the title generating more buggings per day and each season of two two versus the season Pryor any color you can provide on how sustainable that performance is going forward and secondly, what the Activision segment, reaching its record operating margins. This <unk>.
Order, our most prophets of Khan mobile in particular are still being invested back into growth as you guys stay at a previously or or some flooring down to the bottom line now.
[noise] [noise] can I add throb I'll take that one.
You know obviously, we do believe that it's sustainable and we're we're very excited for what's going on a cop normal we're staying really strong them at them with the tie it all the games now surpassed over 250 million download globally and it just keeps on tracking T. S.
For the past several months a team has made really great progress on adding grilled new content content for the community and then also in optimizing.
<unk> that attention in the in game economy to make sure. We're working on all components. So overhaul. The game is performing really well and as you noted in your.
And your question, we are absolutely still reinvesting in both the product itself and also in the marketing to build an even larger audience similar to what you'd see you know a lot of top moguls do especially in this earlier grilled cheese the mobile.
And but I'd also say at the same time the game is still contributing nicely both of the top and bottom line for Activision that'd because of its scale, we're seeing it benefit us and we're also reinvesting in it.
You know the games.
Coming up on the 20th anniversary in October and I mentioned the content investment in October we plan on delivering significant new content to the game and a lot of in game enhancements, including a new weapons system for mobile now you've probably seen our players it certainly notice modern warfare, how much they're enjoying customizing their weapons and how they do.
And that experience and we think the community is gonna love the opportunity to do the same card mobile.
So you know overall were extremely happy with the sustained trends, we're seeing a mobile we continue to reach new audiences around the world and I'd say, we're just very committed to growing our mobile business.
That includes adding additional internal mobile talent and resources of course will continue to support our existing initiative.
[noise] importantly, as we look forward, even more tightly integrating mobile into the overall quality ecosystem to bring our community together closer than having more fun.
And you know I'd, just like to close by and we've mentioned this before I think that it is important and they'll call of duty right now through the success of our premium Paddling War zone and marble is larger and more global than it's ever been at any point in time as history and I just wanted to say thanks to all of our team to just an incredible job across the board and of course weird.
Thankful to our incredible community for their continued trust and support what we're doing I'm party. Thanks for the question.
Yeah. Thanks, Mario Uprise, how can I have the next question. Please.
The next question it comes from Brian Novak with Morgan Stanley. Please proceed.
Thanks for taking my question I wanted to sort of bringing together the two segments curious about learning as you've had from call of duty War zone and mobile that you think it would be applicable to diablo or other franchises, just just sort of help us to help us think about some of the growth drivers for a job or other franchises and 21.
And 22, they may have learned from call of duty.
I'll take that doesn't have a Daniel and Brian. Thank you. Thank you for the question.
As you just heard from Rob.
We are really bringing that community and that experience together across platforms and across experiences.
Firstly I'd I'd say, we're really just not done with call of duty. We're we're in the first inning.
We've only been five months N. Since the life of a war zone and the team is working really really hard to integrate that with our next premium release. So we can really maximize the potential this powerful combination of both premium.
And I'm afraid to play contest.
And it's still early and expanding the audience on P. C as well, which offers as you know a very significant potential for future growth. When you consider the size of the playerbase and particularly including the fact that we are now having access to players all around the world you know and expanding it.
P. C. Obviously is more accessible.
And then as Rob was mentioning there's a lot more to come on mobile to.
<unk> mobile is off to a really great start, but we're just scratching the surface of what that franchise can be on mobile and then integrating the experiences across multiple platforms. We know is just a an incredible opportunity for for the French fries.
But to the early successes they do represent incredible proof points us to your question of the Fred how the franchise strategy is really working and it certainly applies to a lot of other franchises that we have we see that our current players really want more ways to engage with their favorite I.
P b it through mobile or other platforms and that offering authentic and really deep experiences on new platforms can can drive much much higher engagement and this quarter quarters results really shows that.
And we also see that the free to play on mobile and other platforms can bring in multiples of new new players into our franchises.
Importantly, with strong execution. This is not cannibalistic actually on the contrary free to play coexist with other business models and can be meaningfully additive to a franchise, bringing your players into the ecosystem.
So these proof points are relevant across our portfolio into your question. It's not just y'all blow, but it's also across all our franchises at our team see an opportunity to drive at greater reach engagement and player investment greater than ever before across the franchises and with a really strong execution that we know we can.
[noise] deliver we expect to continue that trend.
Thanks again for your question.
Yeah. Thanks, Brian upright so can I have the next question. Please.
The next question comes from Mike <unk> with Goldman Sachs. Please proceed.
Hey, good afternoon. Thank you for the question. It was encouraging to hear that Gallo mortal was entering into an extended company play testing to coming weeks.
Could you just give us an update on your expectations for the Diablo mortal over you at all testing plan. Thank you.
Hi, This is J. Thanks for the question you know as we talk about earlier, we are planning for the game to enter you know what we're calling expanded internal testing this quarter.
And internal testing is an important step for us not only for really an operational perspective, but also because you don't have many lives employees, who are deeply engaged we have quite a few extra players within the company and you know a lot of employees that we have represent many aspects.
Local community.
You know from the very beginning it was important to us to insure that this is an authentic lizard quality diabolo experience for the huge community of diabolo players around the world.
And you know, it's our attention to meet.
Expectations of those players everywhere.
You know the type of experience that Diablo players have loved for over 20 years.
Is one that we think is appealing to everyone and we think that we're working here on a deep and engaging R. P. G on mobile.
So that was great potential for players and all regions really love the game.
So we're more than willing to spend the time on it to get it right.
Continued to see a lot of interest in anticipation from the Diablo community and the games coming along really well, we're we're eager to get it into the players here.
I'm actually one more thing that you asked about Diablo mortal, but I do want to take the opportunity to awesome. It should be able to war, which we are building four P. C N for console and it also coming along and I'm looking really good.
We sure public quarterly updates with community and we really discuss the team discusses you know the approach of different elements of different storytelling and design philosophies, and we need to interact and see that hardcore diabolo playerbase respond with the excitement about the directions again and you know the entire T.
Deeply committed to bringing them sitting continuation Tonight theories and so you know there's a lot for players and fans of the piano P. I look forward to a chocolate shake.
Thank you J.
Thanks, Mike Alright, so can I have the next question. Please.
The next question it comes from Garrick Johnson with B N O. Please proceed.
Good afternoon. Thank you so crash bandicoot seems a bit of a shift for came here now reaching into the Activision catalog to create games can you talk about this strategy a little bit and how can resources will be used going forward, especially as it pertains to the Activision Blizzard catalog. Thank you.
Hey, that's it thanks for the question is at home.
First at the heart of our strategy is our biggest live games, which represent our you know the heart about growth here and that's consistent I think with a broader company approach.
So we're continuing to focus on our life French fries and in particular candy crush, where we see a reading substantial opportunity for ongoing growth.
And that means that would continue to invest in content and innovation features.
Both to engage our existing audience and to awesome continue to bring your players into our games network.
And we seem to pay off we've seen double digit gross no onions.
And can be players and we see continued progress on our pay your conversion afterwards.
And receive the opportunity for growth across both be in a purchase business and all adds business.
And they can do franchise.
Now have you said that we will continue to selectively invest in focus to new games pipeline.
And we explore both new I P N, where it makes sense at the Activision IP library.
So with crash in particular.
When we started can vibrant history and we saw what that represents over the past 20 years, a trip presented a great opportunity for us to expand became portfolio.
With an iconic iced tea you'd like that.
We have Coke is you know our new game development efforts over the past few years to really allow me selectively invest behind the most exciting opportunities.
And with this one the king team is thrilled to be developing game with this I P.
From the accident catalog and as you see from the dance Traver, It's looking really great.
Wherever you're imagining the crashed franchise half for an incredible mobile experience and we just can't wait to get this came out there to authenticated.
<unk> and base and to also bring it to new audiences.
No Rob I don't know if you have anything to that will deactivate I'm sorry.
Yeah, I think it just brings up thank you ma'am I think it just brings up a really important point.
And it's a great example of what we can do is brought her organization when we leverage kind of our respective strength to maximize the potential of our I T across the company you know there's multiple examples if you look at how we partnered with Blizzard Green call of duty to Battle net on P. C. What we've driven record results.
We also launched world-class city bases sports business with the call of duty League in partnership with our Activision Blizzard He sports team and so now in the case it crash.
This I P as getting the pool treatment deserves and it's getting it because of.
The town across the company.
Bursts, where they're very thrilled to be bring in brand new experience the consoles and October with crash War and the game is just come in Oh, I'm really great M. A T. M. At 20th you Bob is done an excellent job of insuring. The game honor that's rich history, yet deliver something told me one son fan. So that's one really important that good.
[noise] focused on that as we think in terms of mobile last year, we launched call of duty and modern warfare very successfully and I'm very close together quite frankly and together these games a proven accretive to our overall result, and certainly grown her audience I'll go basis. So now we're standing here, we look at this opportunity with King.
[noise] I'm, taking a little perfect opportunity partner with the talented team married so proven in mobile now such great talent in the organization to expand a crash I P. M mobile with a unique game experienced a different from what we're doing on council and then of course, while at the same time deliver your new premium experience two coffees with crashed for myself net net.
For me, it's one it's a great time to be a crash man and two is chip also really great to see the company and working so well together on so many fronts. So that's what I would add so thanks.
[noise] Thanksgiving.
Alright can we have times one last question.
[noise] today's final question comes from Kunal, I'm I'll be with L. Atlantic Equities. Please proceed.
Hi, Thanks for taking the question I was hoping you could give us some more color on what sections, you'll gardens, particularly what you've assumed in terms of stay until ones and it'll just be uncertainty around the economy and consumer spending that you've referenced a few times on that's cool.
[noise] yeah. It at college, Dennis here I really appreciate the question you know we've known you for a long time and we always try to be a stop those we can improve in our approach to guidance, but I think it's even more important now obviously with the economic backdrop being so oh at all and unpredictable regarding shelter at home you heard it in our prepared remarks and <unk>.
Daniel reference that earlier, we have seen some engagement and Tamworth moderating somewhat is regions reopen particularly in some of our games that have left social connective tissue.
We were assuming in our guidance that continues as more regions reopening Q3, although it's not entirely clear how quickly that plays out because it trends kind of a different in different regions of the world.
Even so you know, we're obviously very strong strong momentum and we feel really confident about our third quarter guidance, particularly because our largest franchises.
I have so much momentum and that leads us to the strong guidance. We were provided for Q3 already when you're trying to cute for you know R. Q4 tied implies you'll see some appropriate risk that we've applied into our outlook. Obviously, there's a few reasons for that I wasn't aware of the economic bad batch.
[noise] off that we're in with unemployment an unusual levels and.
<unk> to consumer spending, particularly with new consoles coming out which will absorb some consumer wallets with a purchase new hardware. Similarly wanna be relatively concerned about the retail channels that continues to contract. We do see obviously the flip side of that as a strong benefit inhaling that brings the digital cross which was the comments Manitoba mentioned earlier.
We have seen acceleration on that type of the console, which is an iced tea I wanted to be expect that to continue.
In an environment like this and we talked a little bit about a last quarter. We do feel really good about the value proposition of our content in past challenging economic times, you know interactive entertainment is given it's low cost per hour relative to other forms of entertainment is a very compelling value for consumers. So hopefully that bodes well even M S.
Uncertain economic environment that we find ourselves in but similar to last quarter. Obviously, there's a lot of unknowns and we tried to be prudent with our guidance, but in spite of how we obviously raised or for your guidance by the largest amount in our history.
And you know we believe there's obviously potential for even further over performance at some of those risks materialize, if we can navigate through them effectively.
Which obviously would give us a great momentum actually here with a very very large playerbase heading into 2021 and beyond so lots of opportunity in front of us, albeit in an uncertain time.
So thank you very much for the question. Thank you very much for everyone for joining us today and for your participation of interest we look forward to speaking with many of you this quarter throughout the quarter and hopefully we'll see many of you again. Thank you.
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