Q4 2020 Activision Blizzard Inc Earnings Call
Good day, and welcome to the Activision and Blizzard fourth quarter, 'twenty and 'twenty earnings Conference call. All participants will be in a listen only mode. So you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions to ask a question you May press.
Star then one on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Chris Hickey Senior Vice President of Investor Relations. Please go ahead Sir.
Good afternoon, and thank you for joining us today for Activision Blizzard and fourth quarter of 2020 conference call with US are Bobby Kotick, CEO, Daniel Alegre, President and COO, and Dennis Durkin, CFO and for Q&A will constitute precedents of Activision J Allen Brack questions, a good sense of payments and two months like me and me Scott.
And it will also join us.
Like to remind everyone that during this call we will be making statements that are not historical facts are forward looking statements. In this presentation based on information available to the company as of the day to day presentation, and while we believe and to be true. They ultimately may prove to be incorrect a.
And number of factors could cause company's actual future results and other future circumstances to differ materially from those expressed and any forward looking statements using Tuesday and passed since the COVID-19 pandemic the risk factors discussed in our SEC filings, including our 2019 annual reports on form 10-K, and third quarter 2000, Twenty's and 10-Q and those on the slide.
And as shown on the.
The company undertakes no obligation to release publicly any revisions to any forward looking statements to reflect events or circumstances. After today February the fourth 2021, we will present, both GAAP and non-GAAP financial measures. During this call, we provide non-GAAP financial measures, which exclude the impact of expenses related to stock based compensation.
Amortization of intangible assets and expenses related to acquisitions, including legal fees and costs expenses and accruals and expenses related to debt financings and refinancings and restructuring and related charges. The associated tax benefits of these crews these items and significant discrete tax related items, including amounts related to changes in tax laws.
And that's related to the potential final resolution of tax positions and other unusual or unique tax related items and activities just to be considered in isolation from as a substitute for or superior to results.
<unk> investors to consider all measures before making an investment decision. Please refer to our earnings release, which is posted on www Dot Activision and Blizzard Dotcom first of all got snow and GAAP reconciliation and further explanation with respect to our non-GAAP measures.
And earnings presentation, which you can access with the webcast and which will be posted to the website portal and Nicole and no.
Now I'd like to introduce our CEO Bobby Kotick.
Thank you, Chris and thank you all for joining us today.
And through incredibly challenging circumstances, our focused execution and increased investment in people and new content enabled us to achieve record results during 2020.
On a GAAP basis revenues increased year over year by 25%.
Operating income increased 70% to $2 $7 billion and earnings per share increased by 45%.
Since present management assumed control of the company 30 years ago, our returns to shareholders have been four times greater than the returns generated by the S&P 500 during the same period of time.
Our shareholders had the benefit of our strong financial performance in 'twenty, and 'twenty and our 400 million players had the benefit of the connection and Joy our games delivered each and every day.
And a year filled with adversity, our mission connecting and engaging the world through Epic Entertainment has never been more important.
I'm incredibly proud of our employees and the way they responded with resilience compassion and dedication to support each other and our communities.
And with almost 400 million players and 190 countries our games welcome some of the most diverse audiences and the world.
We have long understood that we simply cannot create broad appeal entertainment without diverse views voices and talents.
To that and we continue to invest and initiatives to identify and develop emerging leaders and exceptional talent, both within our company and throughout our industry and other sectors.
Our company and our employees remain committed to the communities in which we operate.
One important example of Eric community commitment is the call of duty endowment.
Our efforts to place veterans and high quality jobs provide our company as well as thousands of other employers with the most dedicated ambitious disciplined and hardworking talent.
We resolutely believe the heroes, who serve their countries to protect freedom and Liberty deserve special opportunities as a result of their surface.
With unemployment rates skyrocketing, we still manage to achieve our most successful year ever and placing over 15000 veterans into high quality jobs in 2020.
Of those we help place last year, 21% were women and 28% were black.
Metrics, and which we take great pride, considering that women veterans and black veterans compose just 10% and 12% respectively of the U S veteran community.
Since 2000, and I and we funded the placement of 81000 veterans into new jobs, but now more than ever we must ensure that our dedicated public servants have access to the very best employment opportunities.
We've also sought to create career pathways for talented young people, especially from backgrounds that have been historically underrepresented in tech and entertainment.
And our investment and management leadership for Tomorrow has allowed that organization to grow its extraordinary career preparation program doubling the number of participants and equipping high achieving black latinx and indigenous Americans with skills and coaching to accelerate their careers.
Our support for the United Negro College Fund is funded scholarships for some of our nation's most promising youth.
These initiatives further remind the 10000 people who work at Activision Blizzard that purpose and meaning is the most powerful way to broaden the connection and engagement that our games offer to so many.
Our employees around the world are determined to serve our audiences and deliver exhilaration through accomplishment provide welcome unnecessary distraction during turbulent times and enable moments of solace and comfort throughout the day.
We create safe and use their rewards unity and celebrate our differences.
Differences and sometimes unnecessarily divide our society.
Gaming connects people more deeply and any other form of media.
And video games are redefining what it means to interact socially.
And 2020, we introduced even more ways for players to connect and find community, particularly and call of duty.
Our approach to the franchise has become the roadmap we are now applying to many of our other games.
We then call of duty, we have meaningfully expanded social connections and improved engagement through free to play experiences on mobile phones computers and game consoles.
These initiatives expanded franchise reach with over 250 million people, playing called TD last year more than tripling. The 70 million people, who played call of duty and 2018. Our approach has made the franchise more social than ever benefiting both our players and our business performance.
Call of duty players, who play and groups with friends and spend over three times more hours and the game and invest around three times more and in game content compared to other players and we've really only just started to scratch the surface of what's possible for social interaction within our franchises and we have initiatives underway.
And to enhance the social nature of all of our key franchises.
Call of duty has also established a clear blueprint for franchise based innovation and we're applying this strategy across our other core franchises to grow reach engagement and player investment.
As I mentioned, we had roughly 400 million monthly active players in 'twenty and 'twenty.
And we are accelerating our path to reach 1 billion players as we apply the call of duty framework across our other wholly owned franchises.
Of course, we always begin the process with inspiration and creativity.
We then offer great gameplay through free to play access to all consumers availability on mobile phones and continuous regular delivery of in game content and premium content.
And call of duty, we expect further growth both in our traditional regions and new countries as we continue to enhance the player experience across all platforms and.
And the Diablo franchise Diablo immortal our upcoming free to play mobile title was extremely well received during its recent regional testing and.
This has set the stage for the franchise to meaningfully expand its global reach and.
In addition to launching new Diablo content. This year, our highly anticipated Diablo four is on the horizon.
As we execute on our Diablo pipeline, we expect the franchise to contribute meaningfully to our reach engagement and player investment growth in the coming quarters and years ahead.
And our Warcraft franchise, we intend to deliver more frequent premium content to sustain and expand the world of Warcraft community.
And we've made multiple mobile free to play Warcraft experiences.
And they're now and advanced development based on our franchises beloved IP.
This will create opportunities for both existing players and new fans to experience the Warcraft universe and entirely new ways.
For Overwatch, we intend to not only reinvigorate the franchise for the existing community with the launch of Overwatch two.
But also substantially broadened the community through business model and growth initiatives across platforms.
And then candy crush, which more than half a billion people have already played since launch we have a clear opportunity to continue winning back players as we execute against the pipeline of social and competitive features the current lapsed and future players will find compelling.
As we expand the opportunities for fans to engage with their games and our intellectual property overall, we expect our strong financial performance to continue through.
And three franchise has generated over $1 billion and net bookings in 2020, and Ron a clear path to further increase their growth engagement and monetization.
We expect at least two additional franchises will reach similar scale over the next couple of years.
We plan to grow earnings per share again, this year, given the structural expansion, we've driven and our largest franchises.
And we will maintain our focus and further increase our investment and creative talent, while continuing to reposition our business to leverage our direct digital relationships with players and to take advantage of the increasing demand around the world for our games and.
And 'twenty 'twenty, two should see even more significant growth given our planned release of new content across multiple platforms. We're confident that executing against our plans will allow us to realize the full potential of our portfolio of fully owned intellectual property and deliver superior shareholder returns as we have.
For three decades.
Of course, none of this would be achievable without the unwavering commitment of our employees and our players around the world and of course, Thank you to our shareholders for your ongoing support.
Daniel will now review the highlights of our record year with you.
Thank you Bobby Activision Blizzard delivered better than expected results for the fourth quarter and for the fiscal year and we are entering 2021 with momentum across our largest franchises.
Throughout 2020, we continued executing on the fundamental changes to our core franchises and investing in development resources, and doubling down and content delivery.
We saw early returns from our initiatives to transform our largest franchises through compelling premium content and more robust and game operations, expanding and the mobile and ramping new engagement models, including advertising and especially expanding free to play opportunities to attract new players.
And call of duty, our new approach to player engagement and investment through adding free to play War zone and mobile entry points have meaningfully expanded the ways in which players can interact with the franchise.
And this is only adding to our premium proposition, creating highly differentiated ecosystem with consistent and immersive seasonal content across mobile console and PC.
If you look back at the reach for the franchise since we embarked on this new direction.
<unk> seen monthly active users grow from approximately $40 million in 2018 to over $100 million in 2020, and we see more opportunities to grow the user base.
And world of Warcraft, the introduction of the classic game drove substantial growth and reach and engagement between expansions for the modern game and we.
We have built on this momentum with the shuttle day of expansion, which has seen a tremendous rissman.
We have multiple initiatives underway to ensure players can continue to experience the magical warcraft and a more consistent basis and on more platforms and ever before.
And and Candy crush our investments to expand the payer base, while keeping players engage with continually updated content and went to double digit year over year growth and net bookings and the fourth quarter and we finished the year with the strongest performance since we acquired King.
Throughout 2020, we also continue to invest and building our direct digital relationship with players, including through government. The entry point for tens of millions of players on PC to access our games each month.
Since inception over 400 million accounts worldwide have been created with multiple forms of payment.
Our record results illustrate our opportunity to drive step changes in the reach engagement and player investment of our franchise.
Well our business has benefited from industry tailwind in 2020 much of our growth was driven by strong product and commercial execution.
We expect our growth initiatives for call of duty, where the worker and candy crush to again drive strong results and 2021 and.
And we believe all of our large franchises, we will see meaningful user growth engagement growth and player investment growth over the next two to three years.
Making significant progress against our development pipeline for our key intellectual properties, which we expect to fuel further growth in 2022 and beyond.
We have more new content being created and at anytime in our history and we expect our content related investment in 2021 to be almost 40% higher than in 2019.
And as we adapt to close duty model, creating free to play entry points across new platforms, and geographies, increasing social functionality and frequency of content delivery as well as improving player investment opportunities. We are very confident we can continue to grow and accelerated pace.
Now, let's review, our Q4 and full year operational highlights and then we will provide more insight into our future plan.
And Activision 'twenty and 'twenty was an extraordinary year for reach engagement and player investment and our call of duty franchise.
Mike to date consumer spending of around $27 billion. It makes it one of the most successful entertainment franchises of all time get the franchise delivered a structural change in 'twenty and 'twenty with net bookings approximately doubling year over year and we expect further growth this year.
Activision monthly active users and $128 million, marking the fifth consecutive quarter with more than 100 million players driven by call of duty.
This level of scale for the franchise leads to better gaming experiences for the community provides more data for us to continue improving our experiences and creates more opportunities for player investment.
Call of duty momentum continued into the fourth quarter, the biggest quarter of the year with net bookings growing double digits year over year.
And November launch of Black and Cold War, the newest premium call of duty experience further expanded the ecosystem across console and PC.
And hopefully active users or mouse.
And PC grew approximately 70% year over year in the fourth quarter and time spent and game more than doubled.
Our premium business has never been stronger.
Full year premium unit sales grew over 40% year over year with a further strong shift to digital premium downloads.
In December we launched the first season of Black ops four in game content and integrated the game with wars and.
This drove strong acceleration and premium sales with units growing sharply year over year in December and January again, demonstrating the power of our free to play experience and driving demand for our premium content and in game player investment and also continues to have momentum.
In game net bookings and console and PC grew more than 50% year over year in the fourth quarter.
And the first season of Black Ops and war zone and content that is still underway has seen the highest number of passes consumed since we introduced the investable season content cost from late 2019.
Call of duty mobile delivered its best quarter, yet with strong double digit growth and net bookings year over year.
As we increase developer resources for mobile and expanded team has continued to enhance gameplay and deliver even more compelling seasonal content for our players.
This increased capacity on the mobile title is clearly paying off with monthly payers and the west reaching the highest level yet in Q4 with average spend per player increasing strongly year over year.
And in late December call of duty mobile also launched in China, bringing the franchise to the largest mobile audiences in the world.
The game quickly reached the top of the download charts.
There are 50 million installs to date once again illustrating the global appeal and the franchise and setting the foundation for a meaningful contribution in 2020 Mark.
The call of duty League will kick off its second season next weekend fans will get to enjoy even more large scale competitive play this season and its 12 city based teams compete and a new tournament style.
And the Black Ops Cold War era.
Call of duty is entering 2021 and with the largest player community. It has ever had to start a year.
And with a compelling pipeline of live operations and seasonal content across PC console and mobile and now mobile momentum in China, our focus will be to continue to expand the reach of our franchise, while sustaining deep engagement for existing players.
Now turning to Blizzard blue.
Blizzard is committed to improving consistent innovation and content delivery for its dedicated players.
The warfarin and a very strong year with net bookings growing over 40% year over year to the highest level and nearly a decade.
Fourth quarter net bookings for the franchise group by a double digit percentage year over year, driven by strong sales of the shadowlands expansion subscriber growth and higher participation and value added services.
One of the Warcraft reach expanded year over year for the sixth consecutive quarter contributing to overall blizzard mouse with $29 million in Q4.
The trends for reach and engagement after the launch of shadowlands or even stronger and the levels. We typically see at this stage after and expansion March.
With both the modern and the classic nodes continuing to operate at global scale.
Blizzard has more opportunity to delight and engage the world of work and a community and ever before.
Looking forward the multiple warcraft teams have and unwavering commitment to innovation and expansion for reach engagement and player investment through more new content initiatives across platforms and positioning the franchise for further growth in 2021 and beyond.
The Overwatch franchise continues to engage its community with in game content and to celebrate its players and the Overwatch League where teams are preparing for the start of the 2021 season and April.
And mobile remains a top priority at Blizzard, both to give existing fans new ways to engage and to allow new players to experience it as franchises.
Diablo Immortal concluded its first stage of regional testing, but very positive player feedback.
And lot of excitement about the depth and.
And authenticity of this latest Diablo experience and strong engagement metrics.
We look forward to getting the game and enhanced more players and further regional testing ahead of a launch planned for later this year.
And the Blizzard team is looking forward to channeling and the spirit of blizzcon to engage and celebrate the community once again and Blizzcon and mine on February 19th and 20th where they will share more about the plans for the franchises.
And King the business concluded its best full year performance since the acquisition.
And in game net bookings grew by a double digit percentage year over year in the fourth quarter with growth accelerating relative to Q3.
Mouse were 240 million and Q4 and payer numbers continued on a positive year over year trajectory following the team's initiatives to broaden the payer base.
Within the Candy crush franchise players responded, particularly positively to new features choosing to invest more deeply and their experience and driving strong growth and in game spend per player.
Candy crush was once again.
<unk> franchise, and the U S app stores and the combination of our payer base and strong execution and live operations means the franchises entering 2021 with strong momentum.
Elsewhere, and the King portfolio farm heroes, and bubble, which again grew quarterly net bookings year over year, driven by strong execution growth and I've operation and seasonal events.
King also delivered significant year over year growth and advertising with net bookings and both the direct and partner sales channels growing sharply.
For the full year advertising revenues grew nearly 50% year over year.
And the team continues to invest and the direct sales channel take infrastructure and further product innovation, we expect that advertising business to deliver another strong year in 2021.
Kim will add to its portfolio this quarter with the launch of crash bandicoot on the run excellent.
The launch of crash on mobile is a great example, and how we're leveraging our strength across business units and the global appeal of our own IP and we look forward to introducing fans to an entirely new crash experience and the mobile platform.
2020 was a fantastic year for the King business, and which the team accelerated accepted delivery for its live franchises and introducing more new features and engaging seasonal content to drive broader and deeper player investment across the network.
And this year he will build on its strong execution and it delivers against a large pipeline of products and innovation, including new social and competitive features positioning the business for ongoing growth in 2021 and beyond.
Across the business focus and execution on our largest franchises delivered another strong quarter and our most successful year.
This performance represents a base from which we intend to build and as you will hear from Dennis We expect another strong year in 2021, driven by momentum and ongoing execution across our largest franchises.
We are also making clear progress and our other initiatives to expand the scale of the other key franchises and our portfolio, which are set to drive further growth next year and beyond.
And Blizzard in particular, our teams are hard at work and Diablo for Overwatch, two and multiple mobile titles. We have further bolstered head count and key franchises and supporting the team's plans to follow these ambitious titles with compelling content and sustains blizzards communities over the long term.
Pipeline is progressing really well and we anticipate that 2022 would be a great year for blizzard.
To achieve these plans, we will continue to invest and growing creative talent across our key franchises funding. This through efficiencies as we continue to better leverage the talent expertise and scale of our business units.
We will also continue to invest and are battle net platform and ensure that we are leveraging the direct digital relationships, we enjoy with our players to efficiently maximize the reach of our new content.
We believe we're only at the beginning of unlocking the full potential of our portfolio and expect another step change and financial performance in 2022, as we execute against our pipeline.
Dennis will now share the detailed results of our fourth quarter and specifics for our outlook Dennis.
Thanks Daniel.
Today, I will review, our 2020 and Q4 results as well as our outlook for 2021 and the first quarter.
All growth comparisons are year over year.
Otherwise indicated I'll be referencing non-GAAP figures. Please refer to our earnings release for full GAAP to non-GAAP reconciliations.
Our full year results were substantially above our original outlook and it was a record setting year and which successful growth initiatives for several of our key franchises Sop net bookings growth, 32% year over year GAAP revenues increased 25% operating income grew 70% and EPS grew 45% all reaching new highs.
For the year, we generated GAAP revenues of $8 1 billion.
And this includes the net deferral of $333 million net bookings were $8 4 billion, we generated GAAP diluted EPS of $2 82.
And non-GAAP EPS of $3 21. These figures include net deferrals and 26 cents.
Over the fourth quarter, GAAP and non-GAAP EPS were ahead of our prior outlook, reflecting business over performance and a lower tax rate.
And let's look at segment results for the full year Activision revenue grew 78% with call of duty revenues approximately doubling.
Operating income increased 120% and operating margin expanded nine percentage points to 47%.
For the quarter Activision revenue of $1 six $6 billion grew 16% driven primarily by call of duty and game revenues operating income rose, 12% to $780 million with an operating margin of 47%.
Blizzard and full year revenue increased 11% and operating income grew 49% with a nine percentage point expansion and operating margin.
And Q4 revenue of $579 million was slightly lower year over year as growth for world of Warcraft was offset by a decline for other titles and the absence of Blizzcon and the court.
Operating income was $160 million lower year over year, driven primarily by increased marketing investments and amortization of development costs behind the launch of Shadowlands Blitz.
Blizzards operating margin was 28% and the fourth quarter for the full year King revenue grew 7% with operating income growing 16% and margin expanding three percentage points.
King grew revenue, 15% year over year to $577 million and Q4 with both in game net bookings and advertising growing strongly.
Operating income was 242 million and operating margin of 42% three points higher year over year, driven by high incremental margins from advertising.
Our business continues to shift to more recurring and digital revenue streams driving structurally higher margins over time and 2020 in game net bookings grew 44% year over year to reach 58% and net bookings and digital net bookings grew 45% represent 85% of total net bookings.
Our record performance on the income statement also drove record full year cash flow.
Annual operating cash flow grew 23% to $2 3 billion, despite cash payments for taxes.
For the full year free cash flow defined as operating cash flow less capital expenditure grew 27% to $2 2 billion.
Our cash and investments at the end of December was approximately $8 8 billion with net cash of approximately $5 $2 billion.
Turning to capital allocation, we enter 2021 with a strong balance sheet and significant flexibility.
As always we continue to take a disciplined and balanced approach to capital allocation.
With this in mind, our board has authorized for the 11th year in a row and increase and our annual dividend. This year to <unk> 47 per share and increase of 15% over the prior year, which will be payable in may and.
And also our board has adopted a new two year $4 billion share repurchase authorization and increase from our prior $1 $5 billion share repurchase authorization now, let's turn to our outlook for 2021.
First I will provide some context.
Much of our success in 2020 was due to strong product and commercial execution driving structural improvements and our largest owned franchises.
While we believe we benefited from various shelter at home requirements. We are seeing continued strength even in markets where restrictions have eased.
Overall, we are entering 2021 with momentum and our biggest franchises and our pipeline of content and growth initiatives that we expect will enable each of our segments to grow operating income for the full year 2021.
Activision enters the year with strong momentum for call of duty and has a fantastic pipeline of in game content and across all platforms.
We will benefit from a full year of horizontal and driving upgrades to our premium content and incremental in game player investment and we have a substantial opportunity to continue migrating the community and you to black ops Cold War as well as another strong premium or at least plan for Q4 and 2021.
And our outlook, we are conservatively assuming call of duty premium units are lower year over year how.
However, with opportunities and in game across all platforms, including the ramp up of call of duty mobile and China, We do expect growth and net bookings overall for the call of duty franchise.
We expect Blizzard net bookings to grow given the momentum and world of Warcraft and other growth initiatives, we have and the business. Our outlook does not include Diablo for Overwatch two launching in 2021.
And while Diablo immortal is progressing well and we anticipate its launch later this year, we don't have any material contribution from the title and our outlook presently.
We expect topline growth and king primarily by ongoing growth and candy crush across both in App purchases and advertising.
We assume relatively little contribution from the release of crash bandicoot on the Ron as is customary for new mobile titles.
From a margin perspective, our outlook reflects further GAAP and non-GAAP operating margin improvement year over year building off the record margin performance in 2020 with ongoing benefits from an increasing mix of digital revenues and operational discipline.
Now, let's turn to the numbers.
On a GAAP basis for 2021, we expect revenues of $8 to $3 billion, including net deferrals of $225 million, we expect net bookings of $8 $4 5 billion.
Our GAAP operating margin of 36% GAAP and non-GAAP share count of $787 million and GAAP EPS of $2 83.
For 2021 on a non-GAAP basis, we expect an operating margin of 41% and non-GAAP EPS of $3 34.
Including net deferrals of 26 cents.
Now, let's turn to our Q1 outlook.
On a GAAP basis for Q1, we expect revenues of $2.02 billion.
Including the net recognition of deferrals of $265 million.
We expect net bookings of $1 75 billion.
Our GAAP operating margin of 30% GAAP and non-GAAP share count of $784 million and GAAP EPS of <unk> 59.
Our Q1 on a non-GAAP basis, we expect an operating margin of 42% and non-GAAP EPS and 84.
Including the net recognition of deferrals of 19th.
In summary, 2020 was a record year for the company.
And as our 2021 outlook indicates we believe the business has reached a new structurally higher financial profile. Following our actions to expand our largest franchises, but there is much more to come.
Our pipeline has never been stronger and as we look beyond 2021 and plans for 2022, we are looking forward to delivering some of the most eagerly anticipated content and the industry and.
In addition to our regular cadence of content across call of duty World of Warcraft and Candy crush and we expect blizzard to release major new titles across console PC and mobile contributing to another step change and financial performance for the company next year.
We are confident that delivering against our plan will continue to deliver strong shareholder value over the long term.
Now I welcome our business leaders, J, who mom and Rob and they join us for the Q&A portion of the call.
Later.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your touch telephone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Paul Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
And the first question will come from Tyler Parker with Keybanc capital markets. Please go ahead.
Hey, Thanks for the question guys I'd like to touch on call of duty first I guess, so first off now that you've launched a new edition and the franchise, but blackouts Cold War and integrated data and the war zone, and I guess, what and learning. So far has it gone as expected and then following up on that just to reinforce your confidence may be and the strategy going forward or did you come away with any new ideas on how to and a.
Great day in future releases into the wars and experience.
And.
Hey, Tyler it's Rob Thanks for the question as you mentioned.
Zones now tightly integrated both with Black Ops Cold War and modern warfare and this was a really big effort by our development teams across content progression and game systems and a lot more and.
And overall as we've noted on the call. It's gone extremely well, we had a historic fourth quarter engagement across our premium games and war zone, We had a record second year sales for modern warfare and 2020 and also the black ops Coldwater sales started strong and even gained momentum.
In December when we launched season, one and the Great News is we're seeing positive momentum early in this quarter as well.
That said to your question, we learned a lot through this integration and I'd say, there's probably a few of the top line.
Black Ops Cold War brought a ton of content to walk down and had over 30, new weapons, new operators and a lot more and this was a massive update the required a lot of resources on our side and having gone through this integration now we now have even a greater sense for how we can make these transitions work, even better and smoother for all of our players.
And the future and this is really important for us because what is that it's going to be front and center for us for a long time and on that front I'd like to take a moment to thank our players for their constant and continuous feedback on all aspects of the game, it's something we listen to each and every day and it's important to our process.
Overall on the content side, the Q&A the community responded really well and black up content and.
We saw with valor path as you heard those being increased and off to a record start our upsell was strong and our engagement, we spiked and the fourth quarter, particularly around the season one launch in December when it kind of black ops content came in and now this has only strengthened our commitment to continue to continue to bring compelling new content.
Net to both premium and free to play players on a regular basis.
And that said, we know our player expectations are very high for new content and rightly so and we want to make sure we over deliver on that front as we move forward.
I'd say another insight that became evident to us over the course of the year and in the fourth quarter is that we're doing is just become the best way for us to communicate with our fans and.
And the game itself events like the reveal and Black ops Cold War, where fun for the community and attractive like a large and engaged audience and also had a great impact on our results on the marketing front year on year now we've more than doubled the number of players who've opted into marketing from us and that will provide a great ongoing benefit and.
Italy, we've also seen great results on conversion with our free premium trials with a free to play audience where zone.
And net having this direct relationship and dialogue with our community really puts us in a unique position relative to other forms of entertainment to communicate to really a broad broad audience and also relative to other many other games.
So your last part of your question overall, we feel really good about and very confident and our strategy going forward, whereas they are and will continue to be a central part of that future content planning to our entire community can come together and experience. The latest franchise has to offer.
And our growth and our goal remains the same whether you're a premium or free to play call of duty player. We want to provide everyone with incredible gameplay experiences and we're going to continue to invest significantly across all fronts.
Port that effort for the community. Thank you.
Great. Thanks, Scott operates and I can have a next question. Please.
The next question will come from Eric Sheridan with UBS. Please go ahead.
Thanks for taking the question Paul.
And as well and and happy new year to the whole team.
Comment maybe on how titles continue to outperform in the COVID-19 environment, we still find ourselves in and and most of the world maybe as a follow up with some of the key learnings or behaviors, you think they'd either permanent or transient coming out of COVID-19, and how we should think about that.
Hopefully, we move away from the virus and back to a normalized environment and this would go through 'twenty, one and into 'twenty. Two thank you so much guys.
Hi, Eric It's it's Daniel Allegra and.
Happy new year, Thanks for the question.
First as Rob said, and just really want to take this opportunity to thank our development teams for their incredible resilience and.
And real dedication to our mission.
No it hasnt been easy and they have just nevertheless delivered and incredible quality that our players have.
Have come to expect of all our games.
To your question the biggest factor in how our communities have grown across our portfolio really is our focus on the execution of the new engagement models and platforms, such as with war zone and call of duty that I talked about it a little bit earlier. This is why I have a very strong conviction that our momentum.
And is sustainable.
The deep pipeline of content and initiatives within our franchises to really meet and exceed our players' expectations.
Now going to the shelter at home, we're seeing a consistent pattern in audience size and engagement that that I referred to earlier.
May expect many of our key titles saw an uplift and players and engagement around the first wave of the Lockdowns and engagement patterns really oscillated throughout the pandemic and particularly in countries, where restrictions where eventually lifted.
But two things that we saw one is that.
On our more social titles engagement remained at an elevated level.
Second and I think more importantly, we see that for the franchises, where we are executing on our new franchise strategy, especially call of duty and world of Warcraft, we see engagement substantially higher than we had even as regions reopen and that's why we're just cell phone.
<unk> and making content available across all platforms, enabling us to reach much wider audiences globally and connecting players through our games and through this COVID-19 time connection that players are found has really been special and and is rewarded.
Now regarding the retail to digital shift we have seen an acceleration obviously COVID-19 has helped it but this is actually a shift that's been going on for quite some time and.
And I don't need to emphasize the improved margins to our business from digital distribution.
So across all of these initiatives I think one thing I really need to emphasize is quality is key and that's the expectations that players have of our games and the developer teams have executed really fantastically under very difficult circumstances and I know this is very talented team will continue to delight our players.
Thanks again, Eric.
Operator can we have the next question please.
The next question will come from Kunal multi with Atlantic Equities. Please go ahead.
Yes.
Hi, Congrats on the strong results I was wondering if you could give us any more color on the puts and takes for 'twenty and 'twenty. One guidance is there anything to be aware of and times the phasing of that through the year and then you also mentioned a step change in 2022, how should we think about sizing that.
Yeah, Hey, Ken I'll, let Scott it's Dennis here. Thanks for the question.
As you can imagine we do spend a lot of time, putting together and our full year plan and our long range plan as well.
And we always try and be thoughtful and prudent and.
And the numbers, we put together and guide to and this year is no different on that front.
You did hear a lot about the strong momentum that we have particularly and our biggest franchises. So it's always nice to start the year out strong.
But each of our big three franchises really have great opportunities for growth.
This year, and that's really embedded in our and our guidance and I mean and card you can see we've got obviously a full year of a war zone.
And the premium integration and as well as obviously, the mobile opportunity and particular with China being added this year.
Wow has tremendous momentum coming out of the late shadowlands launch from last year, great engagement as we've heard on on the classic side, which frankly will give us great momentum throughout the year.
And which is kind of unusual and the non expansion year for awhile, and then hammam and King and the Candy team had a really great.
'twenty and the business is really firing on all cylinders both on the in App purchase side the advertising side.
So across our three biggest franchise, we have great momentum and then we have a few other things up our sleeve in terms of remastered content that we'll unveil and do in due course.
And I should provide further opportunity for us this year and as Daniel mentioned and we've sort of mentioned throughout our remarks all of this incremental opportunity is digital.
Should allow us to continue to.
Grow our margin.
As we did and we set record margins last year. So we should be able to build upon that from a phasing point of view you see our Q1 guide is obviously extremely strong and.
And we expect that to continue into Q2, or Q2 will probably be roughly and the same range as Q1.
And that's a little bit of a tough comp versus last year, when Moore's out and launched and some of the earliest shelter at home trends hit, but then you'll see you should see pretty natural phasing as you'd expect and the back half of the year and then we will have very strong momentum as you as you pivot and we pivot to looking at 2022.
It's obviously early and we still have.
Work to do but we have and incredible lineup planned across all platforms and.
And it should be a great great year for each of our business units with with Blizzard in particular, obviously driving significant financial growth.
I'd suggest obviously, we try to model the business prudently, but when you think about the ramp up that we have with multiple bets and mobile.
And the <unk>.
Franchise that we have operating at scale and.
And the opportunity to bring maybe a fourth and a fifth franchise to that.
And can have a meaningful step change and our earnings power over the next couple of years.
So obviously, we feel great about the trajectory for not only this year, but next year and beyond and the opportunity is sizable and we're just very focused on execution. So we can realize that potential.
Thanks, Scott and then.
Question. Please.
The next question will come from Colin Sebastian with Baird. Please go ahead.
Alright, Thanks, guys, good afternoon, and and happy new year as well.
Question is how should we should think about the sustainability of the keen growth trajectory into the new year, and then and particular can you discuss what levers are available to drive growth and both reach and player investment and thank you.
Hey, Thanks for the question.
This is mark So look 2020 was a remarkable year for king earlier in the year and we saw the highest daily game rounds across our network ever and then we closed the year out and real strength. So in Q4 Candy crush saga posted its highest revenue day, and we had the strongest quarter since 2000.
14, and then across all of our revenues grew 7% sequentially and 14% year on year. So we're really pleased with and momentum and trajectory as we enter into 2021 now let me talk a little bit about what drove that performance.
And candy crush we accelerated the pace of content and feature delivering in 2020, and again to Echo everybody's thoughts amazing execution from the team under a very difficult circumstance circumstances, but we've also invested and deeper product roadmaps and the candy franchise and so we had more struck.
And we're around seasonal events and a lot more integrated player facing programming and that seemed to resonate quite well we saw the benefit of that as we saw more player investment trends, so and the parents and candy were up year over year and Q4.
But broadly we also started increasing frequency and high impact events and live ops and our other titles and the portfolio and that Matt.
And heroes and bubble witch to grow year over year point, and second quarter, and neuro and Q4, and so we like the momentum and that as well.
So as I look ahead and 2021.
Our life businesses got really good momentum and we want to continue to add to that we think we have a good formula and we're going to continue to improve it. So we will continue to bring a fresh slate of content and events to our players and then we're going to complement that with.
Big feature innovation, including more collaborative and competitive social features, especially and candy and we've seen that.
When we have that social connection and our games it correlates with player engagement and player investment. So let me give you a quick example here.
And we're creating more mode and the game so that it brings more players and teams together and to experience. The game at the same time and we're also finding ways to connect with players with each other and a large audience network that's going on now.
And now if that's the momentum we are driving and the <unk> gain.
We have in 'twenty. One is we're gearing up for a game launch later on this quarter. So we're hard at work, bringing cash crash on the run to our mobile audience is next month.
We're super excited about working on this very iconic.
And we've chosen a runner genre.
Which is a very attractive category and mobile because it comes with largest toll volumes historically and has the potential format Swiech. So will brings us.
Amazing mobile title to our cash plan, but we equally are focused on broadening the franchise's audience and mobile so when I put all those together I feel pretty good about that and momentum in 'twenty, one and beyond.
Great. Thanks.
Thanks, Colin and can we have the next question. Please.
The next question will come from Stephen Ju with Credit Suisse. Please go ahead.
Alright. Thank you so much. So I think you guys have been pretty clear on wrapping up engineering talent to facilitate development of free to play mobile as well as your.
Existing premium games, and I think and the past you have also called out the need for franchise and managers to accounts.
The business and customer acquisition management and monetization so.
How is the availability of talent and allow these directions and.
So where do you stand in terms of either having enough for not having enough resources to do all of the things that you want to do it. Thank you.
Yeah.
Great. Thanks for the question stuff and this is Daniel maybe I'll tag team with Jr. And answering your question.
Since we're focusing our business a couple of years ago on our biggest and IP and the biggest opportunities. We've made very great progress on expanding the development teams on these key franchises and.
And you're already seeing that this increased investment is delivering really strong growth.
Which are in our biggest three franchises call of duty, where the Warcraft and and candy.
And as we look to drive the significant expansion across our other franchises. We're also continuing to invest in talent and a few key areas one of them and it's just a crystal clear opportunity for US is mobile we're hiring mobile developers around the world to really join our growing <unk>.
Dave and development teams. This is an imperative for the business and we're laser focused on driving that and more broadly we will continue to focus resources and investment on our largest franchise.
And that's where we want to bring more content more frequently to our communities because they expect it.
This is obviously incredibly relevant to blizzard. So Jay why don't you why don't you give your opinion and and your point of view on this question as well.
And I think it's actually a great question and I think part of it is we're coming up on all the milestones.
And where we will celebrate.
Pretty at Danaher company and Rob.
Rob I'll Grant community event, and what's gone wrong in February 19th and 20th and will shape.
And then.
And things.
We're working on and I think you're excited about.
And the company has accomplished a lot in the last 30 years and you know what.
Think about our near and long term development pipelines and when you look at just the Warcraft franchise alone.
There are hundreds of millions of players around the world.
And they're played or interactive at war craft through different games are different expression and that universe.
And when we bring those experiences to players and we think there's a lot of potential mark.
Beyond where we are today, especially if we get these games right.
The same is true for our other franchises and so if we look at the near term for the outflow as an example, we have Mike.
The AAA Diablo four that's in development as well as a free to play mobile expression and the Albemarle mortal.
Both teams have continued to make great progress.
Overwatch two is another Great example, we've successfully passed a major internal milestone in December.
And that involved testing many key features and the game with hundreds of developers across borders.
And so we're happy with how that game is progressing.
So doing and achieved all these aspirations takes and what kind of talent as you brought up and so and we're continuing to grow and lean and all the team and we have plans to hire more developers going forward one of the competitive advantages that we have that blizzard is the ability to really focus talent and.
Bring talent from one game to another internally that's a.
That's something that served us really well and the past.
And I think the last note and that's important to bring up is our aspiration to bring games and players around the world and across different platforms and John Rawls.
And I was going to be led by gameplay and quality, but our goals and the team's everything that they need in order to make the best possible experience and strong players.
Alright, Thanks, Steve and operator can we have next question. Please.
The next question will come from Alexia <unk> with JP Morgan. Please go ahead.
Hi, Thank you and my questions on back on Kim If you can maybe discuss your outlook for advertising for 'twenty and 'twenty, one, but more specifically what impact do you expect from the idea and changes.
Hey, Alex Yes. This is Rob again.
So look the AD business is entering 'twenty, one with incredible momentum.
Particularly and our direct sales part of the business, which grew more than 80%.
That's on a group of about 80% last year.
So I'll touch on some of the specific initiatives that drove that performance because I really believe that those are also the levers that we move the business forward and 21 and beyond.
We saw that the team executed really well and deepening our product offering around the what we call the platform and branch based proposition.
And we.
August specifically focused our offering unlocked scaled brands.
All this was and the context of.
Building a product that was very.
Very compatible with the player experience and so we think that's working really well at <unk> and 2020, and we continue Gary.
Forward and 'twenty, one and alongside of that.
We grew the direct sales team and growing the sales team allowed us to broaden our coverage to reach new brands.
And then we started seeing those two things come together and really gives us a great result. So one example, we worked with sky and the United Kingdom to design and alongside of them and execute and AD campaign that leverage that reward Nick video.
Product that we have and.
And it created and really engaging game are fine and experience.
That really drove results for <unk> kind of advertisers. So the campaign that I'm, referring to drove an eight point uplift and AD recall and a six point uplift and parents Association to the Sky brand messaging.
<unk>.
We continue to drive that forward and as you alluded to we're also preparing for the Ibs changes and the industry.
Initiatives underway.
And just specifically addressing that I think our current momentum and to drive sales momentum that we have gives us confidence and the growth trajectory.
And of our AD business overall, even though taking ideas and.
And context.
So this year, what I see ahead of us and.
Further product innovation that are already underway and.
And further ramping up of and direct sales resources, and both of which should enable us to reach more brands and provide more experiences and more broadly we think that there is expansion even beyond there. So as I look at more titles available to repeat what we did with candy and our other key battles.
We have other launches across the company that we can look into integrating that experience and brought and the overall network. So all of these opportunities ahead of us and the scale of the play out and network gives us a really.
Really good kind of momentum and we feel pretty good about where the business is headed.
Thank you.
Thanks, Alexia asked and we have the next question. Please.
The next question will come from Mike <unk> with Goldman Sachs. Please go ahead.
Great. Thank you very much for taking the question I was just wondering if you could talk a little bit more about your long term content plans for world of Warcraft and just also talk a little bit about the philosophy around managing content for classic and modern.
And could you just share a little bit more about your expectations for a while growth in 2021.
Sure. Thank you for the question.
Modern and classic Wow are certainly you know theyre not one to one in terms of what players expect and desire.
And the two communities are really different and they engage and different ways, but we think they have the same love of the game world and they have a unified subscription which is virtual sales to both communities.
The release of Shadow Longs and the work from home environment is a huge point of pride for us.
We think the expansion and turned out great.
And it's got content for players of all kinds and truly engage with.
And the metrics, what we traditionally truck and expansions planned expansions relief and then quite successful.
Life to date.
On Shadow land and definitely the highest any expansion and the last 10 years.
We also see significantly more player engagement than we typically see at this stage and.
And that momentum has continued through January and with the player base still significantly larger than it was a year ago.
Wow classic the community continues to be highly engaged and it's a global community.
Since the launch classic is really giving players who love the game away to experience as Rob and the community the way they experienced and kind of very first time and as a result, the overall world of Warcraft was a significantly larger player base, which provides us with a lot of opportunity.
Looking ahead, we have plans to continue serving both of those communities in creative ways.
And I will allow players to continue to explore cautious wellness and alger and ways that feel great well.
What is sure about the various content updates for awhile, shortly but we do see while.
Significant growth driver for Blizzard overall and this year.
Great.
Thank you very much.
Thanks, Mike operator can we squeeze and one last question. Please.
Yes. The next question will come from Brian Nowak with Morgan Stanley. Please go ahead.
Hi, everyone. This is Matt on for Brian. Thanks for taking the question can you just provide a quick update on call of duty mobile and how we should think about growth vectors and the game and the second year now and any early thoughts on the launch and China. Thanks.
Yes, Matt it's Rob Thanks for the question.
Okay, and I'd say overall, we see a ton of opportunity ahead on on mobile I think it's really important for us to step back and look and the fact that commodity mobile and the west has only been live for about actually a little less than a year and a half.
And in that time period, and we shared this data, but we quickly scaled over $300 million downloads and Daniel and also mentioned in the fourth quarter, we delivered our best quarter, yet and obviously a clear sign that our team's focus on on gameplay and new seasonal content and just driving engagement overall, it's driving strong results for us, but this is certainly disappoint and time and when you.
Step back and look at the biggest games and the west.
They continue to scale at the three year, Mark and well beyond and in many cases. So we believe we have a lot of headroom and regions around the world to grow this business and the beauty and Cod mobile as it allows us to reach new players and markets, where our console and PC may not be as well developed and we've seen tens of millions of new players and regions like <unk>.
And America, India and beyond what we're seeing potential for a lot more upside.
And looking ahead for this global community of course, we're going to take our end game seasons and content and events to another level for our community.
And I also see a lot of opportunity for us at the local market level to drive local initiatives to make call of duty even more relevant and.
And those local markets and al I wanted to go back and mentioned one other thing, which I think I mentioned on our previous call, which is it's really important to note that all of this right now is accretive to our overall franchise success. When we look at registered players who play both on mobile and on console or PC. These players show significantly higher.
Engagement and player investment and other groups and so again and just proof and I think the ecosystem is working really really well together.
Now you also asked about the recent release and China by Tencent and it is early right, but the game is off to a great start we've seen tens of millions of downloads and the first months a lot of good reception early on and we do think this is going to be a meaningful contributor to our overall mobile results as we move forward and as I step back.
I'm, just really excited about our ability to now grow our brand further on a global basis by being in such a massive massive market.
And so what I the way I'd sum it up and that it's been a great start on mobile.
But it's just that it's a great start mobile is a critical long term growth driver for Activision and we are definitely taking a long term view of the platform and the opportunity we're hiring aggressively to make sure we're well positioned to create the best possible mobile experiences for our community and I think in PAH.
Fortunately as we project, even further out making sure we have the ability to expand to mobile and the very best of what's working and the quality of the ecosystem, which I think presents yet another layer of opportunity for us and the years ahead.
Thanks for the question.
Alright. Thank you everyone. We really appreciate your interest and participation today and we look forward to hopefully seeing you either at Blizzcon online and a few weeks or in game somewhere thanks and have a great day.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].
And then.
[music] day.
Mike.
[music].
Yeah.
Yes.
Okay.
And then.