Q1 2021 Activision Blizzard Inc Earnings Call
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad 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 Investor Relations. Please go ahead.
Afternoon, and thank you for joining us today for Activision Blizzard first quarter 2021 call from school with desktop Bobby Kotick, CEO, Daniel Alegre, President and COO and Dave.
<unk> CSO and Dennis Durkin.
So Q&A webcast page president of Activision J Allen Brack President.
The tax payment.
Non stop me President, Dave King will also join us.
I would like to remind everyone that during this call we'll be making statements that are not historical facts are forward looking statements. In this presentation are based on information available to the company as of the day to this presentation and while we believe them to be true. They ultimately may prove to be incorrect a number of factors could cause the company's actual future results and other future circumstances to differ materially.
As expressed in any forward looking statements. These include the impacts of the COVID-19 pandemic the risk factors discussed in our SEC filings, including our 2020 annual reports on form 10-K, and those on the slide that is showing.
The company undertakes no obligation to release publicly any revisions to any forward looking statements to reflect events or circumstances, Bobby may for 'twenty 'twenty. One 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.
Assets and expenses related to acquisitions, including legal fees costs expenses, and accruals expenses related Scott financings and refinancings 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 amounts related to them.
Central final resolution of tax positions and other unusual or unique tax related items and activities. These non-GAAP measures are not intended to be considered in isolation from as a substitute for or superior to GAAP results. We encourage investors to consider all measures before making an investment decision. Please refer to our earnings release, which is posted on WD.
Separately.
Provision visit Dotcom first of all got to non-GAAP reconciliation and further explanation with respect to our non-GAAP measures.
From an earnings presentation, which you can access with the webcast and which will be posted to the website portal Nicole.
Now I'd like to introduce our CEO Bobby Kotick.
Thank you, Chris and thank you all for joining us today.
For more than a year now amid very challenging conditions. The teams at Activision Blizzard have played an important role in supporting and serving our community of 400 million players.
90 countries.
Our teams have kept players connected using our platform to comfort inspire and draw people together.
Their hard work and dedication enabled us to deliver significantly better than expected first quarter results.
First quarter net bookings increased year over year by 36% to $2 1 billion.
Non-GAAP operating income grew 38% and non-GAAP earnings per share increased by 29%.
Year over year performance was driven by our three largest franchises call of duty Warcraft and candy crush with each delivering strong double digit growth in net bookings.
This over performance was well ahead of our expectations and confirms that our multi year franchise strategy and continued execution is delivering value to our shareholders.
With momentum continuing across our business, we're raising our financial outlook for the year.
In the last 20 years, we've delivered 21% compound rates of return as compared to the S&P 500, which delivered 8% compounded rates of return.
$1000 invested in Activision in 2001 would be worth over $45000 today as compared to $4900 in the S&P 500.
This performance is possible because of our deep library of franchises, we own some of the most enduring and popular global entertainment franchises supported by the very best creative teams in our industry.
Our strategy centers around our long held view that wholly owned entertainment franchises offer the opportunity for a limitless innovation.
We continue to increase investment in creative and commercial resources for our franchises and potential new franchises to deliver new compelling experiences for players and superior financial returns for our shareholders.
With free to play entry points across mobile PC and console call of duty experienced an increase of over 100 million players in a little over a year.
Call of duty is the template, we're applying to our proven franchises as well as our new potential franchises as we attempt to grow our audiences to 1 billion players.
Our increase in live operations as reflected in last quarter's results.
And our forward outlook as we've seen our business shift from a seasonal focus with a holiday emphasis to an always on business model with far less seasonality.
This quarter also mark the five year anniversary of our acquisition of King and the Candy crush franchise with the candy crush team delivering more year round content to over 200 million monthly players King's business is delivering excellent results segment revenue grew over 20% year over year to reach a new record.
<unk> in the first quarter.
It is especially noteworthy that of the top 10 mobile franchises worldwide at the time, we announced the acquisition of King.
No. Other game has grown in that revenues over the period or matched candies compound growth rate.
King's advertising business continues to deliver spectacular results too with revenue growing 70% year over year in the first quarter.
As we look ahead demand for our content has never been stronger we continue to ramp our investment in creative and development talent, especially with increased competition from Chinese companies and platform providers and this will allow us to better serve our players from.
From the start of 2020 through the end of next year, we intend to hire more than 2000 developers we plan to triple the size of certain franchise teams compared to those teams sizes in 2019, and we have aggressive hiring plans around the world, including New studios or major expansion in Poland, China, Australia.
Alea in Canada.
And as our shareholders expect we remain laser focused on finding and retaining the best talent in the industry and always aligning performance and reward.
From the extensive shareholder outreach, we conducted this past year, reaching well over 60% of our shareholders. We are pleased that our companywide pay for performance compensation philosophy, and the ESG initiatives are aligned with the expectations of our shareholders.
This quarter, we will release, our first ESG report highlighting our commitment to the environment human capital management, social good the very best governance practices and their direct connection to the creation of shareholder value.
While the reported new our commitment to these practices and shareholder value creation is not.
In particular, we've long appreciated the creation of broadly appealing game requires diverse views diverse voices and diverse skills and an environment that fosters inclusion.
And importantly, our ESG report will include our commitments to help ensure that our scale serves our players our employees, our communities and especially our shareholders and that those commitments are embedded into and across our business.
Also in the service of our shareholders I am pleased to introduce <unk> as our new Chief Financial Officer.
<unk> deep experience as a global finance and operations executive and his contributions as Chief operating officer of Blizzard and Chief commercial officer of the company make them, especially well suited to serve as our next CFO.
Six years with the company arm and has been a central figure and the company's continued growth and record financial results.
He has the commitment to profitable growth and operational excellence that our shareholders have always recognized us for.
And arm and comes to the role with an incredible team assembled by Dennis and Thomas over the last decade.
Dennis has been a key contributor in some of the most value creating moments of our history, including the buyback of control from Vivendi in 2013, and our expansion into mobile through the acquisition of King.
Dennis his contributions have meaningfully shaped our culture, leaving the company in a much stronger position than when he joined 10 years ago.
Dennis on behalf of Brian Thomas and our board of Directors I. Thank you for your friendship your partnership and your leadership.
Thanks for the kind words Bobby.
I did want to take this opportunity to personally say, thank you to you Bobby.
Incredible people and teams at Activision Blizzard and to the board for all the wonderful support and partnership over the last nine years, it's truly been an incredible journey and one I will never forget.
I will also Miss my interactions with all our great analysts and investors I really appreciate all of our dialogue over the years, you pushed us and made me and our business better. So thank you Paul.
Well, it's tough to go I'm pleased to be leaving at a time when the business has never been stronger and I can't wait to see the results as the company continues to execute against our strong pipeline.
This business is in good hands with Hartman, who I've known for a long time.
I know that he will continue to bring our disciplined and prudent approach and commitment to shareholder value creation at <unk>.
<unk> expect from Activision Blizzard.
Ill sign off by saying one last thank you I truly am grateful for at all.
I'll now hand, it over to Daniel to go through the highlights from the quarter Daniel.
Thank you Dennis and I would like to add my own appreciation for all your contributions to the company.
I will certainly Miss our partnership although I am thrilled to continue my close working relationship department in his new role.
As you've just heard Activision blizzard significantly exceeded its prior outlook for the first quarter.
Very strong growth across our largest franchises. These results confirm that our strategy is working.
<unk> new experiences for our franchises across platforms alongside engagement and player investment opportunities that appeal to the broadest audience.
It is incredible to see with the backdrop of ongoing challenges from working from home our teams have risen to the occasion and they really continue to deliver exceptional results.
Our increased investments in our largest franchises are enabling us to connect and engage people in more ways than ever before.
Sheldon from home has accelerated a trend we've been seeing where consumers around the world are turning to gaming for entertainment connection and community.
Our successful growth initiatives, and our largest franchises vibrant and active communities and our strong pipeline position us to continue driving strong results. This year as regions start to reopen.
Aligned with our overall strategy. We also continue to enhance our battle net platform as we build on our direct digital relationships with our players.
In the first quarter, we rolled out the biggest hunt and upgrade the bottleneck in years delivering improved navigation enhanced social features and a rich storefront.
Contributing to strong year over year growth in sales per visitor to the platform in the quarter.
And as we look into 2022 and beyond our teams continue to make great progress on our pipeline that includes Diablo for Overwatch, two and multiple Warcraft mobile titles, which we expect to deliver substantial growth for the company.
Now turning to our franchise on operational highlights across our business units.
Starting with Activision, which had a record of 150 million monthly active users in Q1.
Our call of duty free to play War zone, and mobile experiences have transformed the franchise more than tripling the number of monthly players over the last two years and adding over a $1 billion of operating income the Activision segment results last year.
Our franchise once again delivered fantastic year over year growth in reach engagement and player investment in the first quarter.
Mao's increased sequentially and grew over 40% year over year blip on console PC and mobile.
Time spent grew even faster year over year again to a new quarterly record for the franchise.
Now moving to console and PC since we integrated war zone with Black Ops Cold War in December you have continued to see a strong conversion to the premium game.
Q1 premium sales were well above the levels typically seen in the first quarter and in game player investment trends Similarly remained robust.
In game net bookings on console and PC grew more than 60% year over year in the first quarter.
And the first two seasons of Black Ops Cold War and wars on content. We're both in the top three seasons and call of duty history for in game net bookings.
And season, three which Lance just two weeks ago alongside a major refresh of the wars and experience yeah sustaining the strong run rate tracking in line with the first two seasons.
On mobile and call of duty mobile saw strong year over year growth in reach engagement and player investment in the first quarter benefiting from the team's ongoing enhancements to the game in the west and the launch of the title in China.
The team continues to make great progress optimizing the game in the west with the Mark season, concluding as the highest for player investment yet.
And momentum has continued into the second quarter with the April season, now the top grossing to date.
At this point after lunch.
And in China call of duty mobile brought tens of millions of new players to the franchise. Following its launch in late December.
By your investment in China in the first quarter was on par with the rest of the world combined.
Similar to the Western launched 18 months ago. The team is now focused on refining gameplay and content for local taste to build durable engagement and monetization in 2021 and beyond.
With the 2020 one season of call of duty League also off to a great start enjoying strong year over year growth in average minute audience through the first two stages of competition. It is clear that there is ongoing momentum across the entire franchise.
And there is so much more to come for call of duty we.
We continue to invest to grow our creative teams successfully adding hundreds of developers the franchise in the last year and enabling us to deliver even more compelling experiences in coming quarters.
And in particular, we are very excited for this year's premium call of duty release development is being led by Sledgehammer games and the game is looking great.
And on track for its fall release.
This is a build for next generation experience with stunning visuals across campaign multiplayer and cooperative modes of play designed to both integrate with and enhance the existing card ecosystem.
We look forward to sharing more details with the community soon.
Now turning to Blizzard, where the teams continue to make great progress on rich pipeline of premium releases and extending key franchises to mobile.
Mouse were $27 million.
And the Warcraft franchise, the world of Warcraft Shadowlands expansion continued to drive strong results. Following its record setting released in November with Wow, net bookings growing sharply year over year.
Shadowlands is building on the momentum seen since the 2019 introduction of classic drove a substantial increase in scale and enhanced financial trajectory for a while.
The team's work to deliver a high quality expansion is being recognized by the community.
First quarter reach was sustained at a higher rate and we typically see falling expansion launches accompanied by deep engagement.
And Blizzard saw a particularly high number of new players joining the wild community in the quarter boosted by its initiatives to enhance the onboarding experience.
And World of Warcraft also saw strong participation in value added services further bolstering year over year growth in net bookings.
Blizzard is building on this momentum with further content for the modern game and the upcoming introduction of the burning Crusade expansion of first launched in 2007 to Wild classic.
The burning Crusade was critically acclaimed at launch and we expect the upcoming release to more deeply engage current subscribers bring back lapsed classic fans and also bring entirely new players into Wow classic.
With the expanded development team executing well against the strong pipeline, while remains positioned for much stronger annual financial performance and its typical outside of a modern expansion here.
Now staying within the Warcraft universe Hearthstone is seeing encouraging trends as the team executes on our strong pipeline of new in game content features and game modes.
Archstone latest expansion forged in the Barents was released at the end of the first quarter with a game on track to deliver expansion Overexpansion net bookings growth for a second consecutive release.
And blizzard expects to sustain this trajectory with more new content, including mercenaries.
And innovative new mode in the popular role playing genre planned for the coming months.
And the Diablo franchise is nearing the start of its reincarnation.
Blizzard announced launched later this year of Diablo to resurrect it the return of one of the most acclaimed titles in PC gaming history.
The game received very positive feedback during early testing in April.
And all my viewership of the Alpha test was the highest blizzard has ever seen for a game test illustrating the communities anticipation for this release.
On mobile after a highly successful regional testing last December.
I'll blow Mortal has just entered its second phase of testing and is on track for global release later this year.
We expect Diablo immortal to broaden diablos reach ahead of the launch of Diablo four on PC and console.
Diablo four development is progressing very well with a significantly expanded team focused on not only launching an ethnic new experience, but also following this up with robust and game content to sustain community.
And Overwatch the team is making good progress on Overwatch, two and is looking forward to sharing more frequent updates with the community in the near future.
April saw fans around the world return to celebrate our players and city based teams and the opening weekend of the 2021 season of the Overwatch League the.
The League also signed a multiyear partnership with Billy Billy Esports for exclusive rights to broadcast league games to the platform as passionate and growing Overwatch League fan base in China.
Now turning to King, which continued to benefit from strong execution on growth initiatives in the first quarter.
Mouse were $258 million exhibiting better seasonality than we typically see following the fourth quarter led by its most important franchise candy crush.
For a number of quarters Hain has been pursuing initiatives to broaden the payer base deliver more frequent seasonal events and introduced compelling new features into candy crush as well as portfolio of titles.
This work again delivered excellent results in Q1 with N game net bookings growing high teens year over year and accelerating further relative to Q4.
Candy crush grew in game net bookings is very strongly year over year. It was once again the top grossing gaming franchise in the U S App store.
Farm Heroes King's second largest franchise also grew sharply year over year.
King built on the strength to increase investment in growing the candy and farm audiences in key regions.
We expect the ROI positive investment to contribute the King's operating income performance in the coming quarters.
As King continues to execute against this strategy in game net bookings have remained strong into the second quarter continuing to grow well year over year in April even against tough comparables from the start of lockdown in the year ago quarter.
Late in Q1, King launched crash bandicoot on the run a new mobile titles based on the beloved Activision franchise.
The game has been downloaded over 30 million times, a day and the team is now focused on optimizing the game for retention and engagement.
That said, we continue to assume limited contribution for the game and our full year outlook.
Along with a strong performance for in App purchases.
<unk> again delivered significant growth in advertising.
Across both direct and partner sales channels.
As the mobile advertising backdrop continues to evolve the team is expanding its partner network and its growing its direct sales force building advertiser awareness for its differentiated brand safe platform.
And positioning the business for ongoing growth throughout the year.
In summary, we are executing well against our strategy while.
While the business is delivering strong results. We believe we are only at the beginning of unlocking the full potential of our portfolio.
And we look forward to demonstrating further progress against the potential in the coming quarters and beyond now I will hand over to Armen, who will provide more color on our financial results Harman.
Thanks Daniela.
Nice to be with you all on my first earnings call as CFO and.
And would like to Echo, Bobby and Dennis coming in thanking Dennis he.
He has been a fantastic mentor partner over the years and I wish him all the best for the future.
Now, let me review our record first quarter results.
As well as outlook for 2020, one in the second quarter.
Our first quarter revenue and Tony.
Sure.
Ahead of our prior outlook.
Driven by better than expected performance for call of duty and Candy crush net bookings grew 36% year over year with $2 7 billion.
And segment operating income grew 59% to $853 million.
Total segment operating margin expanded six percentage points year over year.
Electing the high incremental margin associated with digital revenue stream.
Now, let me turn to our segment results.
Each of Activision Blizzard and King contributed to top and bottom line growth in the quarter.
Activision revenue was $891 million.
Growing 72% year over year.
Growth was driven by call of duty Black Coldwater and Watson income revenue.
Sales and call of duty mobile.
Operating income more than doubled year over year to $442 million with an operating margin of 50%.
14 percentage points higher year over year.
Blizzard revenue was $483 million.
Increasing 7% year over year with very strong growth for volume.
Partially upset by product type.
Operating income was $208 million and operating margin was 43% broadly consistent year rate yet.
<unk> revenue grew 22% year over year to $690 million.
And a new record.
By strong in game revenue growth for Candy crush.
And advertising revenue grew 70% year over year.
Operating income was $203 million.
Growing 30% year over year, even after increasing investment in user acquisition.
And Kings operating margin was 33% two percentage points higher year over year.
Finally across our segment.
Net bookings grew 40% year over year to $1 $34 billion, representing 65% of <unk> net bookings.
With each of Activision Blizzard and king contributing to the strong performance.
Okay.
Turning to our overall consolidated results.
And unless otherwise indicated.
I'll be referencing non-GAAP EPS.
As always please refer to our earnings release for accrued GAAP to non-GAAP reconciliation.
For the quarter, we generated one GAAP.
<unk> two <unk> two 8 billion.
$260 million above our February outlook. This includes the metro aggregation of because of some $9 million.
And that's okay.
$2 seven.
$7 billion.
$316 million the buffer.
And we generated GAAP yet.
79.
And quarter, one non-GAAP EPS of <unk> 98.
<unk> 14 cents above our February outlook.
Figures include the network admission of because of what's been said.
Now turning to cash flow and the balance sheet.
Our strong business fundamentals also drove substantial cash flow generation Nick water.
We delivered operating cash flow of $844 million.
Significantly higher year over year.
Reflecting higher operating income tax.
Tax settlement in the year ago quarter.
Changes in working capital.
Our cash and investments at the end of Mark where approximately $9 $5 billion.
Ended the quarter with a net cash position of approximately $590 million.
And as previously announced this week will pay an annual dividend of 47 cents per share.
10% higher year over year.
Now, let me turn to our outlook for quarter, two and the full year.
Regarding the fleet our expanded team are focused on delivering epic in game.
Upfront content.
This means that we will continue to support our final testing with new in game content events and pizza at.
All of which are critical elements.
Business as we focus on keeping a community of engaged and drive year Ron investment.
In terms of upfront releases.
We will release, while burning crusade closely in the coming months.
And we're looking forward to launching Diablo two resurrected.
And the latest premium believes of call it could be in the second half of the year.
And on mobile we continue to plan for the launch of the Abilene Watson in the second half although as is customary we do not include meaningful contribution on new mobile launch it in the outlook.
Now before I discuss the specifics.
Of outlook, let me provide some context.
The year is off to a very strong Scott.
Our growth initiative continues to deliver great results in the first quarter.
Momentum continued across all of our key franchise into the second quarter.
Competition for talent remains high.
And in this context, we have been increasing our investment in creative and commercial talent.
To deliver even more compelling experiences across our portfolio.
<unk> of this year.
As a result, we feel great about our ability to continued lighting and engaging argument.
So while it's still early in the year.
And we remain prudent in our assumption, we are raising our outlook for full year net bookings and earnings per share.
From a phasing perspective as this.
On the last earnings call called 50 faces a difficult comparison in Q2 since premium sales a year ago.
From the launch of Watson product timing and the introduction of check up on home mandate.
We also intend to take advantage of our strong business momentum to increase marketing around new content in Q2.
We therefore continue to expect total segment operating profit.
To be lower year over year in the second quarter with stronger year over year performance in the second half of the year as we deliver against our second half pipeline.
Now, let me get into specifics or product two on a GAAP basis.
We expect revenues of $2 $1 billion, including the net recognition of it growth of $285 million we.
We expect net bookings of.
<unk> eight 5 billion.
We expect our GAAP operating margin of 39% a tax rate of 21% GAAP and non-GAAP share count of 785 million and EPS of <unk> 81.
But what I do on a non-GAAP basis, we expect a tax rate of 18%.
And non-GAAP EPS of <unk> 91 include.
Including the metric would need smokeless sales with 21.
Now turning to the fiscal <unk> on a GAAP basis, Scott 2021 we now expect revenues of $8 37 billion.
Including net growth.
Brian.
And I expect net bookings of $8 6 billion.
GAAP operating margin of 36%.
Our GAAP tax rate of 22%.
GAAP and non-GAAP share count of 10 months.
$7 million and GAAP EPS of $2 91.
But 2021 on a non-GAAP basis, we expect a tax rate of 20%.
And non-GAAP EPS of <unk> 40 to.
Including net deferred to any extent.
So to close in Q1, we continued to deliver strong results across our largest franchises.
And our momentum has continued into Q2.
We are making great progress on our pipeline, which include key content that we expect to deliver another step change in financial performance in 2022.
That's why that's unannounced initiatives can.
We expect to drive longer term growth for the company.
We have a combination of leading owned franchise is best in class developer and commercial talent.
And expertise across the platform and business model, all of which create a powerful platform for sustained financial performance.
We remain focused on execution and operational discipline and committed to profitable growth to drive shareholder value over the long term.
Now I'll ask Scott business, either raw commodity who joined Bobby Dennis and myself to answer your questions operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Our first question comes from Tyler Parker with Keybanc capital markets. Please go ahead.
Great. Thanks for the question I just wanted to ask about consumer behaviors, we reopened in vaccines start to rollout or are rolling out more significantly. The question is are we seeing any effects on engagement outside of the typical seasonal trends. Thanks.
I'll take that and thanks, Tyler Thanks for the question.
First and foremost.
Is clearly great needed that the regions are starting to reopen.
It's great to see people.
Out and about and obviously healthy.
We've been looking at engagement trends very very closely and as you would probably expect the trends vary between the franchises depending on the nature of the audience and also the type of the game.
Now we do see some variation between regions that are reopening versus those that are locking back down but overall as we continued to execute against our strategy. We really continue to see strong engagement across each of our largest franchises and importantly player investment really remains.
Is very consistent across regions and Thats.
That's important to note.
I'd I'd reiterate that while we have seen some benefit from sheltering from the home similar to the rest of the gaming industry. We do believe that much of the expansion that we've seen in our latest latest.
Larger franchises is due to product initiatives that we've implemented via the launch of war zone in call of duty mobile or the introduction of classic in a great while expansion in shadow land or.
Our work to grow the payer base and deliver more frequent compelling content in candy.
And I think some of the comments you heard today to support that in terms of how April went for us even as some of the regions have continued to but for instance call of duty season, three is that a similarly strong trajectory as we've seen for season, one and season two.
The current season of call of duty mobile is tracking as the best yet in terms of player investment in the West and World of Warcraft, just performing very well with strong engagement ahead of the upcoming launch of burning Crusade classic.
And.
Canada cannot ignore Kandi kandi is continuing to grow year over year against really tough comps.
These trends really do show our ability to build on the expansion that we've already seen in some of our franchises even as regions reopen and as we look forward, we see a long term trend of more people gaming than ever before in more geographies and on more platforms and that's been going on for.
Decades, now, we only see that continuing with gaming, becoming even more significant form of social connection and obviously entertainment. So.
It's great to see so many people being vaccinated around the world.
Some regions reopening and we're encouraged by the fact that we're seeing engagement.
As economies reopen but as ever we remain prudent in our outlook and I. Appreciate your question hopefully that answered it.
Question.
The next question comes from Alexia Quad Ronny with J P. Morgan. Please go ahead.
Hi, Thank you can you discuss the ongoing integration of work down with Black ops.
And maybe circling back to your comments on the launch of call of duty Melbourne, China anymore color you can provide perhaps in terms of engagement and monetization there or perhaps if you can touch on where you see the opportunity longer term.
Yeah, Alexia, it's Rob Carthage I'll I'll take this one but.
And I guess before I get into those questions directly I do think it's worth stepping back and noting some of the incredible milestones we've hit across call of duty ecosystem, which is what we've been focused on building more holistically.
Which you've probably seen which has obviously been transformational for our business in so many ways. It's now crossed 100 million players are premium call of duty games have now sold over 400 million copies life to date on the franchise.
The mobile has now crossed over 500 million downloads.
Remarkably after all these years the franchise has never been stronger or more widely played and for that we are just super thankful for the community's ongoing support and we are more committed than ever to provide them with the best possible experiences in the years that lie ahead.
Now with respect to the integration of work done in Black ops.
Really pleased with the integration you've heard some of the financial results already on the call season, three is maintaining the great momentum of seasons, one and two and when you look at even the other factors season, three set of new viewership records for US net reveal with over 2 million streaming viewers and this is higher than even more zones launch in March of last year and this just continues to death.
Constraint the strength of our direct connection we have with our players and with all that said.
We still truly I fundamentally believe we are just scratching the surface of what we're doing can expand into for the community and that's the exciting part and thanks to our World Class development publishing teams. We certainly believe the future of <unk> zone has never looked better.
Now as we look ahead for more zone later this year there'll be some other really fun integrations with the great work that sledgehammer games is leading for this year, new premium release and Daniel Daniel mentioned this already.
It's worth noting that sledge. The studio now is also stronger than ever the studios expanded it.
Very talented team across its foster city in Melbourne location and now as you've been expanding further the sledgehammer Toronto.
Most importantly.
At the end of the day, we believe towns are going to really really excited and I got in love with the studio is building that's what it's all about in this business and we can't wait to share more on this front.
And finally back to just your question on mobile we talked about a lot of the data I think on the call a little bit but mobile is live in China. As you know doing very well the west continues to perform very strongly and globally today, Paul the mobile has now crossed over $1 billion and player investment. In addition to deal with a 500 million downloads around the world.
The current season has referenced Tokyo escape is tracking to that is the highest grossing to date. So what I would say is overall our teams are just continuing to execute really well across the east and the west and we continue to see really strong opportunities in all regions and we remain very very excited.
The future of this platform and Brian recall data ecosystem.
Thank you for the question.
Thanks for that and we have the next question. Please. The next question is from Ryan Gee with Bank of America. Please go ahead.
Yeah.
Hey afternoon, everyone great results. Thanks for taking the question.
Last quarter, you guys talked about the breadth of content and the Blizzard pipeline. So it'd be great. If we could get an update on house. The blizzard teams are progressing.
Projects, you've already announced namely Overwatch, two and Diablo four and then if you could talk a little bit more about what else might be in the pipeline that would be great. Thank you.
Hi, there this is Jay thanks for the question.
When we look at the sort of the Blizzard development population, we've added hundreds of developers across our key franchises over the last few years.
And we continue to invest in World class development working to bringing talent in from all around the globe.
And the goal here is to execute on the plans that we have to create continuous content for players across all of our games.
Speaking of Overwatch two we've got we got some great feedback from the player community around the development progress that we showcased in February.
Timeline, and we feel really confident in both the game and the team and they're going to continue to share updates about overwatch to progress new features in a live game going forward.
With Diablo Theres a lot of strong momentum right now we have public testing that's taken place in both April and May for both moral and Diablo resurrected Diablo to resurrect it Rob.
And we also have a lot of community interest around the development of Diablo four as you mentioned.
We're also continuing to make progress across multiple mobile titles that we've alluded to in the past, we really want to bring authentic blizzard quality experiences to all the games that we have and so for us it's a pretty exciting time as we continue to work on PC console.
And mobile expressions of all of our franchises we.
We feel like the.
The IP and franchises that we have are really full of a lot of potential and we'll look forward to sharing more.
As.
These projects progress you can make more progress going forward. Thanks for the question.
Thanks, Brian operating we have the next question. Please. The next question is from Mike Hickey with the benchmark company. Please go ahead.
Hey, guys. Congrats on your quarter. Thanks for taking my questions and Dennis Best of luck to you you will be missed great job.
I guess I'll keep very strong performance you noted I guess how sustainable.
Do you see these trends in particular.
Navigate the rollout of IBSA. Thanks, Scott.
Hey, Thanks for the question Mike.
So as you noted Q1 was a great quarter for King.
We mark the five year anniversary.
<unk> acquisition, we got that one.
Our record financial performance across the business, including our best revenue quarter ever.
As you've heard we are.
Momentum across both our in game and advertising sides of the business and we expect that momentum to continue.
So on Ibs day.
I believe we're very well equipped.
As the industry navigates towards the idea of exchanges and we're equipped on both the advertising side and also on the user acquisition side. So let me give you a little bit of color on each of those.
On the advertising side with our Q1 exit trajectory.
And including kind of the continued momentum we see in our direct business and that positions us well as we navigate those advertising changes and as we look ahead, we are adding to that momentum with initiatives underway.
A long.
Some examples and product innovation why were expanding kind of the number of AD products that we have in our network, we're expanding our partner network and our direct sales force and we're broadening the categories of the advertisers that we work with and so when you put all those together.
Believe we still have a long runway for growth and the advertising side and we're constantly bringing in new.
New brands I should say.
As we develop deeper and deeper relationships with brands across the category.
Just one example in the United Kingdom.
He worked with sky across three parts on three different areas of that business.
Q1, and we were able to drive significant improvement in there Brian metrics across Recon consideration Association of there Brian.
So all of that we continue to believe that Dennis.
Through there as we as the industry navigates with IBM.
Now I'd like to turn on the other side, which is our user acquisition.
We have strong momentum.
Isn't this and we continue to leverage the strength of our brand as we invest in.
And as we invest in non life ops and we invest also in our Wi positive marketing to deliver new installs and bring back returning players. So more broadly we as we put more like events like Candy crush all stars and as we add more social features.
An example of the March launch of a competitive mode. You can be so now we are bringing more exciting walgreens to help us on that user acquisition.
So all in all.
Current momentum as we begin as you saw and we expect that momentum to continue and have confidence in our ability to deliver that over the next few quarters.
Thanks, Mike operating can have the next question. Please and our next question is from Qunar them All day with Atlantic Equities. Please go ahead.
And congrats again on your new role I was wondering if you could give us some color on your areas of focus going forward.
Might be looking Steve differently to Dennis.
Yeah. Thanks Kunal.
For me it all comes down to execution.
We have an incredible team.
As you've heard today, we also have an incredible pipeline.
And we know when we execute that well.
We not only delight player, but we also create attract.
Attractive returns for our shareholders.
So what you should expect from me.
On a few key areas.
It all starts with a focus on shareholder value creation.
This has always been a focus for the company.
Frankly, we have never been better positioned.
That's up today.
Our franchisees have incredible potential so I'm very focused on <unk> with the team.
So prior to his investment.
And it resources.
Our biggest value creation opportunity.
Net as I mentioned, we expect a very strong focus on execution excellence.
Creative been commercially and in that context.
I do believe that the CFO has an important role to play in not just what we're seeing the achievement of our financial targets.
But also the progress against our.
Waiting and commercial plan. So you should expect me to elaborate Mike.
Chief commercial officer of the company.
<unk> Chief operating Officer Lisa.
Just have to make sure that all of our franchises are set up for success.
And then of course, you should expect continued focus around.
Financial discipline and organizational excellence.
Our culture is centered around growth.
<unk> discipline and financial conservatism and that won't change.
So from an organizational perspective finally.
We need to be focused on building a world class.
The team in order to support our growth plans that we have discussed per day.
So I hope that gives you a sense of I am approaching the role.
But really really what I am looking forward to getting out there and meeting all of you in the coming months. Thanks for the question coming up.
Thanks, Scott operating we have the next question. Please. The next question is from Brian Nowak with Morgan Stanley. Please go ahead.
Thanks for taking my question I wanted to ask one about Diablo mobile curious to hear about any learnings thus far from the Diablo mobile beta are things that are sort of working particularly well versus you know areas, where you see room for further innovation and then it sort of a bigger picture one on Diablo talk to us about sort of the how you think about the importance of <unk>.
<unk> approach to having an Diablo remaster, followed by mobile followed by by by part for US are really maximize our gamer interest. Thanks.
Yeah. Thanks, a lot for that question I personally am a Nashville, a fan of Diablo I have put in.
<unk> of hours into various Diablo games over the decades, and we're all very excited about the overall strategy and the direction of the games that you mentioned.
When we think and look at Diablo, we've got three upcoming releases that we expect to really expand the audience and really delight.
And exceed their expectations.
Diablo to resurrect it is bringing.
We think of as really a true classic in gaming into the modern gaming world for both new fans and that and things that really are going to come back and play it again.
I'll blow mortal the point there the goal there is to broaden the audience bring an authentic version of Diablo to mobile.
And then with Diablo four that's going to be our next mainline title that we feel are going to advance the art.
Action RPG genre.
So it's really never been a better time in the history of Diablo to be of Diablo can we've seen positive reception to the development progress that we shared this year for Diablo four we announced a new class the rogue at Blizzcon wine and the team is continuing to progress through important.
Incremental development milestones.
With Diablo Immortal. It's currently in the second phase of testing we've introduced another new class, we've introduced new zones and we've also introduced <unk>.
First time for it to the public the high end and game and Pvp content.
And we've seen the community respond pretty positively thus far particularly around the systems design.
And we're looking forward to more of their feedback as testing continues.
On top of being an authentic diablo experience on mobile and more.
<unk> is also bridging a narrative GAAP between the events of what happened at the end of Diablo, two and startup Diablo three and so that that's bringing additional storytelling into the franchise.
And then lastly, Diablo two resurrected recently completed its first public cost and the reception that we received was really great.
The original Diablo too is you know it was up.
Landmark game in Blizzard history, and that we're really happy that we've been able to kind of reintroducing experience to new players and spark renewed passion and players who really loved the original.
And so the overall strategy for Diablo is to really provide players with different ways to engage in the franchised on their platform of choice.
And we think that this will welcome all kinds of people all around the world into the Diablo player community. Thanks for the question.
Thanks, Brian Operator can we have the next question. Please and our next question is from Andrew Werk Wittes with Jefferies. Please go ahead.
Hey, thanks for.
Taking my question.
Theres been quite a few game abilities in 2020, so far in 2021, obviously consoles are very hard to find.
Could you talk about how this this may have impacted game development for you or is impacting heating element are you hiring more are you limiting scope are you pushing out timelines.
And then lastly, how are you balancing all of this.
With crunch and kind of the other mental aspects for all of your employees working from home. Thank you.
This is Daniel again, thank you Andrew for the question.
First of all our focus is absolutely ensuring the health and safety of our employees. This means both physical and psychological and we've been in constant touch with our team managers to ensure that our employees are kept safe.
And also they are able to find the time that they really need to recharge when when needed.
Early on in the pandemic Bobby shared his personal telephone number with each and every employee for them to reach out if they need any help.
And I'm personally very proud of our company's response.
And also just amazed by the talent in our organization, who have adapted to so many curve ball.
This pandemic has really thrown at it people.
Answering your question on game development, we are fortunate that to date, we really haven't seen any significant impact to game development with our current games and pipeline.
Because were really meeting our pre COVID-19 milestone.
And as we've seen in in 2020 and also in early 2021, we've delivered the games that are players have expected and with the quality that really defines our company.
And we also have been very fortunate that we haven't had to compromise gamesville net our players havent resolved.
The best value for the money. So it was it's been it's been incredible to see now as mentioned in previous earning calls.
We have reopened some of our studio capabilities in a limited fashion.
For areas that really net needed like like motion capture for instance.
It was really to ensure that we just paid on top of our milestone.
And in each case, we obviously ensure strict adherence to heightened COVID-19 testing and separation protocols that will ensure that our employees.
Wow.
Dave.
But having said that we recognized with our strategy of increasing game content and frequency as well as doubling down on our live operations, we must and we have to continue to grow our developer base and this is why we recently announced as Bobby alluded to in his opening remarks, our goal to hire.
2000, plus developers over the coming few years and we're actively hiring around the globe and we have the benefit of having the studios in cities across Asia, Europe and of course across the Americas.
Our teams are really adapting working across geographies and you'll see us opening or expanding studios in locations such as Poland and in Toronto for instance to give us access to some.
One of the great pools of talent to really help us deliver an even more content in the years ahead.
Thanks again Andrew.
Operator can we have a nice question. Please. The next question is from Garrick Johnson with BMO capital markets. Please go ahead.
Hey, good afternoon, and thank you Sue.
Your peers have been active some of your peers have been active in M&A recently.
What is your perspective on inorganic growth now that we're sitting here five years after the Konin acquisition. Thank you.
But this is Dom and thanks Gary.
We haven't changed our approach.
We have a very strong track record of being balanced and disciplined in how we allocate capital across investing to organic business growth.
Returning capital to shareholders via buybacks and dividends.
As well as strategic M&A.
And on M&A, specifically, we have completed several transactions that have created significant value.
You mentioned <unk> is a great example of that we mentioned today that we just celebrated the.
Fifth anniversary of its acquisition.
Gave us a leadership position in mobile and evaluation that deliver significant value to our channel them. As you know now when we look at the industry today, we do continue to see scale benefits.
As you know we are still only 4% of a very fragmented market.
Even though we are the leading stand alone game publisher in the bed.
But we will and we can afford to be disciplined in our approach around the key criteria, which we believe are essential for value creation through M&A and then those we generally look for <unk>.
A large established franchises or technologies that have the potential for scale.
We also look for strong leadership team with a strong track record of profitability and then of course, we'll look for an attractive valuation that hits our return thresholds.
That's a pretty high bar.
It can be difficult to find the right targets that meet these criteria, especially as you mentioned with so much capital from many industry right now, but as I mentioned, we kind of thought to be yes. It will stay disciplined.
But even more so with the significant organic growth opportunities. We have so we will remain patient for the right opportunity. It's an approach that has served the company well for the last 30 years, and we believe will serve us well into the future again. Thanks for your question.
So we have time for one last question. Please and that question will come from Colin Sebastian with Baird. Please go ahead.
Thanks, and good afternoon first just to congratulate armen on on the new position.
Wish Dennis all the best and what's next.
I know you touched on some of this already but I wanted to follow up a bit more on the broader mobile development strategy.
Alluding the genres and types of mobile games that you may be exploring both within the existing franchise base as well as extending out perhaps to new experiences.
Great. Thanks, Thanks, Colin and I will take the last question is Daniel again.
Look we believe our franchises absolutely has to be accessible wherever the players are.
And that obviously includes mobile.
Not only in developed countries, but even more so in developing countries in mobile. This is just the ultimate driver of reach with almost 3 billion smartphones worldwide.
Forecasted to increase to $4 billion in the next five years.
We are really doing ourselves and a community a disservice.
Our games are not almost platform. So that's why this is so critical to our strategy and the opportunity is crystal clear.
A little known fact is most of the top 10 franchises on mobile worldwide are actually based on existing PC or console IP.
And our franchises are in <unk> that are particularly well suited for mobile.
And they are amongst the few franchises in the industry to really have the appeal around the world, including region, where mobile is the main way that people play core games.
And as a result, we really want all of our franchises to be on mobile and in some cases, there might be several different ways in which our franchise can be represented on mobile.
You may have re imaginations of an IP on mobile in addition to games that are more similar to an existing console or a PC experience.
And as our.
Core part of our strategy to make our franchise available across platforms. We've done a number of things. So obviously, we acquired king and that brought tremendous mobile talent, which has proven to be the case through continued momentum in that business exemplified by what you just saw in our Q1 results and we've also as a company.
Leverage the learnings from king across the business platform engagement, our live ops user acquisition or managing game economies.
And across Activision and Blizzard.
With call of duty mobile following up with Diablo immortal.
Jay was just referring to and we're also working on a number of Warcraft mobile titles.
Some unannounced initiatives well underway.
Players will increasingly be able to enjoy these franchises they love on copper.
Console PC and mobile experiences we're building. So as you can tell this is a real priority for us a lot of investment.
Hiring hundreds of mobile developers to achieve these targets.
And you should continue to see the results of this work in the coming quarters.
Colin.
Thanks, Daniel Thank you all for your interest and participation. This concludes our call for today and as I mentioned.
I'm really looking forward to getting out there and meeting all of you in the coming months stay healthy.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].
Okay.
[music].
Yeah.
[music].
Dave.
Okay.
[music].