Q2 2021 Activision Blizzard Inc Earnings Call

Good afternoon, and welcome to the Activision Blizzard second quarter 2021 earnings Conference call.

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I would now like to turn the conference over to Chris Hickey Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us today for Activision Blizzard second quarter 2021 call from school.

This call Bobby Kotick, CEO, Daniel Alegre, President and CFO, and almonds, as CFO and for Q&A, well postage president of excavation John O'neill, Kevin need of places Nike Barbara co leader of Blizzard.

Executive producer of incubation will also join us.

I'm certain you need price Duncan King incentives apologies. He is unable to join due to a family medical mindset and look forward to connecting with investors next quarter.

I would 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 are based on information available to the company as of the date of this presentation and while we believe them to be true. They ultimately may prove to be incorrect.

<unk> of course, the company's actual future results and other future circumstances to differ materially from those expressed in 90 forward looking statements. These include the impacts of the COVID-19 pandemic risk factors discussed in our SEC filings excuse me out of 2020 annual reports on form 10-K, and those on the slides of this shows.

The company undertakes no obligation to release publicly any revisions to any forward looking statements to reflect events or circumstances. After today August of 2021.

We'll 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 costs expenses and accruals expenses related to debt financings and refinancings restructuring and related charges the associated tax benefits of these skus.

These items and significant discrete tax related items, including amounts related to changes in tax laws amounts related to the potential final resolution of tax positions and other unusual or unique tax related items and activities.

These non-GAAP measures and awesome, thanks to be considered in isolation from as a substitute for or superior to our GAAP results. We encourage investors to consider all measures before making an investment decision. Please refer to our earnings release, which is posted on www Dot acquisition. This is dot com for a full GAAP to non-GAAP reconciliation and further explanation with respect to.

Our non-GAAP measures. There's also an earnings presentation, which you can access with the webcast and which will be posted to the website. Following the call and now I'd like to introduce our CEO Bobby.

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

Wanted to start by making clear to everyone that there is no place at our company, we're discrimination or harassment or unequal treatment of any kind of will be tolerated nowhere.

We so appreciate the current and former employees, who have come forward and passed in recent days with courage and.

To reiterate the commitments we've made to you.

Our work environment everywhere, we operate will not permit discrimination harassment or unequal treatment.

We will be the company that sets. The example for this in our industry.

While we've taken many steps towards this objective already today, we are taking even more.

Jennifer O'neill and Mike you Barbara had been named the new co leads of Blizzard.

Ken has been with the company for 18 years, She's the former head of our studio Vicarious visions and most recently had production and development oversight for our Diablo and Overwatch franchises.

Mike has been in our industry for over 20 years, including in leadership roles within Microsoft Xbox Division.

Blizzard as general manager of Battle net.

I'm also pleased to have Adam here today as most of you know Alan is 1 of the founders of Blizzard. After 12 year hiatus Allen returned to Blizzard to lead our new product of new IP incubation efforts.

Each of these individuals brings vast industry experience and tremendous integrity to their roles. They are the very best examples of leadership with character and accountability.

I'm confident this team will ensure that blizzard provides the welcoming comfortable and safe workplace that is essential to foster creativity and inspiration.

In addition, we will continue to investigate each and every claim and complaint that we receive when we learn of shortcomings, we will take decisive action and to strengthen our capabilities. In this area will be adding additional staff and resources people will be held accountable for their actions.

That commitment means that we will not just terminate employees, where appropriate but will also terminate any manager or leader town 2 of impeded the integrity of our processes for evaluating claims and imposing appropriate consequences.

Because our work cannot be successful without diverse voices views and talents. We made a commitment to consider diverse slate of candidates for all open positions and we will continue to add resources to ensure this occurs throughout the company.

Over the past several years, we've made significant changes to address company culture reflect more diversity within our leadership teams and create environment's conducive to reporting any type of misconduct. We've amplified internal programs that encourage employees to report violations, we've reinforced channels for employees to voice.

Turns and confidential and safeways without any fear of retaliation, we're directing additional resources to our compliance and employee relations teams dedicated to investigating complaints.

We pride ourselves on paying our employees competitively and fairly for equal or substantially similar work. We regularly review our compensation to ensure that we remain equitable and our approach we take a variety of proactive steps to ensure the pay is driven by nondiscriminatory factors such as performance.

Roll and expertise.

And we conduct extensive antidiscrimination trainings, including for all employees involved in the compensation process.

I workplace initiatives are crucial to our continued success and our leadership in this effort is my priority.

Our workplace safety also remains a priority and as we consider our return to work initiatives. We remain focused on providing the very best health care for our employees and their families.

Mike unwavering commitment that we will continue to focus on serving our players and delivering the sustainable growth that you've come to expect and we will take all necessary actions to foster a culture that is supportive and welcoming for all of our employees and we expect to be the very best example for other <unk>.

Companies to emulate.

Daniel will now review the highlights of our operations for the past quarter with you.

Thank you Bobby.

I'd like to underscore the point that Bobby made regarding the company's commitment to ensuring the very best work environment.

Our leadership team and I will do our utmost to make sure that we're always improving and building the kind of inclusive workplace that is essential to enable creativity and professional growth for all employees.

There will be no tolerance at our company for harassment or unequal treatment of any kind of.

Our continued strong performance is because of the efforts of our incredibly talented people and we will make certain of workplace facilitates the best possible performance through constant improvement to our culture and unwavering conviction to our values.

Now turning to the second quarter.

We exceeded our prior outlook benefiting from strong execution by our creative and commercial teams and delivering compelling experiences and in game content to our deeply engaged communities.

Over the last 2 years, we have increased investment in our biggest opportunities, creating new ways for our communities to engage and investing in our franchises across platforms.

Our strategy has significantly expanded the financial scale of our 3 largest franchises call of duty, although Warcraft candy crush.

This work continued to deliver strong results in the second quarter, even as countries continue to reopen from Lockdowns due to the pandemic.

Looking forward, we continue to transform our franchise portfolio to faster delivery of compelling premium content more robust in game operations, expanding to mobile and accelerating new engagement models, including free to play and advertising.

Now I'll discuss our Q2 franchise and operational highlights across our business units.

Starting with Activision.

127 million monthly active users engaged in our content in the second quarter.

Commitment to delivering innovative engaging experiences to our expanded call of duty ecosystem continued to deliver strong results.

The franchise sustained reach engagement and player investment well above levels seen prior to our introduction of free to play experiences across console PC and mobile.

Across the call of duty ecosystem second quarter mouse were consistent versus the year ago quarter and over 3 times higher than Q2 of 2019.

Hours played in the franchise in the second quarter were higher and for all of 2019.

We continue to see robust engagement, even as regions continued to reopen.

On console and PC mouse and time spent across black ops Cold War modern warfare and war zone saw higher retention from Q1 to Q2, and our experiences and years, leading up to the launch of a war zone.

Conversion from wars on again drove strong premium sales in Q2 at.

At multiples of the level typically seen in second quarters prior to last year.

And gameplay of investment remains strong with console and PC in game net bookings similar to that seen in the first quarter.

While lower year over year against a quarter that benefited from the launch of war zone and likely more people at home in game net bookings in the quarter were approximately 4 times the level of Q2.2019.

Our teams remain hard at work on the next new premium call of duty release planned for the fourth quarter.

From a study of our fans know and love to an incredible amount of content development, including an extensive live off schedule. We believe this release will be incredibly well received.

In addition to launch you got great seamless experience for both current and next Gen console players. We are focused on continuing to integrate Warsaw and engage our direct relationships with our player base through even deeper content integration between the premium and free experiences.

And substantial innovations coming within horizontal itself.

Our teams cannot wait to unveil what they had been working on.

Call of duty mobile net bookings grew double digits year over year and sequentially driven by strong execution of seasonal content of the west and the recent launch of the game in China.

Our team continues to enhance the game building on learnings from player data and leveraging over 15 years of call of duty content to deliver increasingly compelling content and driving greater player investment overtime.

As we build on this momentum we recently added new social gameplay to the title and have new modes maps and seasonal events planned for the second half of the year.

Call of duty mobile is on track to exceed $1 billion in consumer spending for the year.

And as we continue to optimize the title. We're also investing in mobile capabilities with a singular goal to create the best mobile experiences for our community.

We have established a new internal mobile studio and are aggressively adding mobile resources across several teams, including peanuts, and Activision and king.

Together. These teams are leading the development of an unannounced new mobile titles within the call of duty universe that we expect will help take the franchise to new Heights.

Turning to Blizzard, we couldn't be more excited about the leadership changes John and Mike are outstanding leaders and we look forward to the impact they will have on our culture of accountability and fostering the very best work environment.

The launch of burning Crusade classic in June Mark the start of what is intended to be a very significant 18 month period for content releases Mark.

<unk> were $26 million.

And of Warcraft franchise World of Warcraft net bookings again grew double digits year over year in the second quarter driven by the well received launch of burning Crusade Classic in June.

Subscriber numbers in hours played were.

Following the release again, showing the importance of classic and enabling more ways for players to engage in Wow.

The strength in classic added 2 ongoing deep engagement in the modern game. Following the Q4 shadowlands launch and launch of its first major content update in June.

And as a result, while remains on track for a much stronger engagement this year and its typical outside of of modern expansion here.

Elsewhere in the Warcraft universe Hearthstone latest expansion forged in the Barrons deliberate expansion Overexpansion net bookings growth for a second consecutive release.

With the latest expansion United in storm when launched today and mercenaries of new mode in the popular roleplaying as all of our plans for the coming months, we expect hartzell financial performance to strengthen in the second half of the year.

Blizzard continues to make progress in its work an ambitious new Warcraft mobile experiences that can attract entirely new players to the franchise as well as offer new ways for existing fans to engage.

2 warcraft mobile experiences are in various stages of internal testing with the team looking forward to sharing more about these titles.

Now turning to Diablo, we've added hundreds of developers of the franchise over the last 3 years and we continue to grow our teams as we prepare to launch 3 unique and complementary experiences across platforms.

Diablo III resurrected will launch on PC and console on September 20 <unk>.

Anticipation for this remaster of the quintessential action roleplaying game is high and we can't wait for the community to experience the quality of the title.

On mobile Diablo immortal continues to progress well through testing receiving excellent feedback for its gameplay.

<unk> substantial potential for this release, both and it's alright.

The long running authentic Diablo experience and to broaden the franchise's reach ahead of Diablo 4.

Recent testing revealed some exciting additional opportunities the team is going to pursue to make the title even more engaging for a wider audience.

That means the game is now planned for release in the first half of 2022. We believe these efforts will set the title of ups and even greater contribution next year and beyond.

And most importantly, blizzard continues to make strong progress on Diablo 4.

Game is shaping up incredibly well and the team is allocating substantial resources to creating exciting content to drive engagement over multiple years.

The extended Overwatch team is similarly, making strong progress on Overwatch, 2 with development passing of an important internal milestone in recent weeks.

After a great response to the recent community update the team is looking forward to it of being more of the game in the coming months as they approach. The later stages of production.

And King the team continues to execute extremely well again, delivering double digit net bookings growth against a tough year ago comparable mouse were $255 million.

King continued to drive growth through its work to optimize all of operations in game of economies and user acquisition for its titles, particularly candy crush of farm heroes its 2 largest franchises.

The business saw ongoing year over year growth in our franchise Payors and investment per payer in the second quarter with candy crush once again, our highest grossing game franchise in the United States App stores.

Building on successful initiatives to broaden its payer base over the last 2 years. The candy crush team has been accelerating the delivery of compelling seasonal content that delights, our players and drive in game of investment.

Second quarter King reached a monthly cadence for seasonal content within candy crush saga its biggest title.

These seasonal events not only sustained strong engagement among the existing players, but also drive reengagement of lapsed players as well as attracting new players to the franchise.

Candy team is planning an innovative slate of seasonal events and live operations for the second half of the year, including tie ins with brands that value of the association with our premium network positioning the franchise for ongoing momentum in its in game business.

Advertising business is also delivering.

Q2 advertising revenue grew sequentially and doubled year over year King.

<unk> ongoing initiatives to enhance the AD platform.

Work with more demand partners and reach more categories of advertisers drove year over year growth in both volume and pricing with broad based strength across geographies.

In summary, Q2 was another strong quarter.

We are taking actions to address stakeholder concerns and the adverse consequences to our business.

If we experience prolonged periods of adverse publicity significantly reduced productivity or other negative consequences related to this matter our business likely would be adversely impacted.

We are carefully monitoring all aspects of our business for any such impacts.

From a pipeline perspective, we have strong lineup plan for the second half of the year.

And as we look to 2022, our current plans contemplate compelling new experiences across call of duty and candy alongside several major new titles across PC console and mobile from Blizzard.

With the aim to deliver significant expansion in the reach and engagement of our portfolio.

Above all as we go forward I want to reemphasize that the safety and wellbeing of our employees is of utmost priority.

Our teams are the source of all creativity and magic in our games.

Now I will hand over to Amit, who will provide a detailed review of our financial results.

Thanks Danielle.

I want to reiterate that our priority is ensuring of workplace that provides opportunity for all in the most of what's coming and inclusive way possible.

Today I'll review, our second quarter results.

The rest of our outlook for the third quarter and full year 2021.

Our second quarter results were ahead of our prior outlook.

But both operational outperformance and.

Non operating items.

But it kind of call, we delivered double digit year over year growth in net bookings and solid growth in operating income and EPS.

We achieved new records for each of each.

As we continue to increase investment in the business.

And our development team to support our strong pipeline.

As of recently reopened.

Our business continues to operate at significantly greater scale.

And that theme prior to our successful growth initiatives across all of its franchise.

Now, let me turn to our consolidated financial results.

Unless otherwise indicated.

We are referencing non-GAAP figures please.

Please refer to our earnings release of full GAAP to non-GAAP reconciliation.

What I call at the beginning of a good.

Quarter, 2 GAAP revenue of $2.3 zero billion.

$161 million.

Bob ill make either.

The net recognition of depot.

$375 million.

Net bookings of $1.92 billion.

Right.

Above all of them.

Outlook.

And we kind of call it 2 GAAP EPS of $1.12.

Non-GAAP EPS of $1. Thank you Scott.

Which was 29% above our guidance.

These figures include the net recognition of the growth of 29.

Part of 2 EPS.

Included in <unk> benefited from a gain on an investment most of which was unrealized.

Other expense of northern tip of detected in the quarter due to the timing of overseas tax with what I'll do I'll call your tax rate assumption is unchanged.

Turning to cash flow and the balance sheet.

Quality of operating cash flow of $388 million Loy.

Lower year over year, reflecting operating with us local cap of the timing and the timing of cash taxes.

During the quarter, we paid an annual dividend of.

<unk> 47 per share.

15% higher year over year for a total of $365 million.

Our cash and investments at the end of June.

Approximately 9.6 billion.

And we ended the quarter with a net cash position of approximately $6 billion.

Now, let me turn to our segment results.

Activision delivered another strong quarter contributing to record first half segment revenue and operating income.

Revenue was 789 of them.

As expected call of duty of revenue on PC and console was lower year over year against last year's quarter of who benefited from the March 2020 launches of what zone.

1 of them walked up to remarks debt is 1 of the introduction of Goldman.

However, caught up with your mobile grew strongly year over year.

Segment operating income of 3.

<unk> hundred $63 million.

On an operating margin of 46 of them.

Blizzard revenue was $433 million.

With double digit year over year growth in light of what crop.

First by product timing for Hearthstone, and lower overall fleet revenue.

As explained in prior quarters.

Operating income of $141 million with an operating margin of 33%.

Reflecting investments into product development against the rich content pipeline.

Sales and marketing around the launch of burning Crusade.

At quarter end.

King revenue grew 15% year over year to $635 million.

This is another new record driven by double digit engine revenue growth of candy crush and Paul here.

Advertising revenue.

Right, Yeah and.

And trailing 4 quarter advertising revenue is now above $300 million.

At the time.

Operating margin was also strong at 39 of them in there.

Brian record operating income of $248 million.

Across our segments strong execution in light of operation and in game content growth in game net bookings to a combined 132 billion.

Rob me consistent with the level of the prior fourth quarter.

And almost 70% of total net bookings this quarter. The in game business represents a recurring base of profitability for the company with a significant opportunity for further growth in both existing and new franchise experiences.

Finally, the second quarter saw strong double digit year over year of growth in mobile net bookings would.

Which exceeded $3 billion annualized run rate for the first time this quarter.

Mobile platform delivered more than 40% of total net bookings and ease of.

A key strategic priority for us.

We extend each of our key franchises to mobile in the coming year.

Now, let me turn to our outlook for the third quarter end of year.

With regard to us late.

Our Spanish team are focused on delivering epic in game and upfront in the third quarter Activision fifth season of content for call of duty back with Cornwall and Wassa on launches later this month and the team will continue to release significant new feature event and season for call of duty mobile.

Good day visit released popcorn latest expansion United income bid.

Yes, Brian right corrected we launched in September of 'twenty Scott.

And king with the Candy crush and other games across its portfolio with numerous seasonal event, Peter and innovative Michael probation.

In the fourth quarter. In addition to ongoing life of an in game content across the portfolio. We're looking forward to Activision launching new coffee the premium content and long term nature of new income experienced digital work done. These are the most important releases of the year for us and we concrete to show them community what our team.

Welcome Mike.

And the second Paul.

Also continuing to refine and testing of mobile content in our pipeline, including for both Warcraft and Diablo.

Consistent with our prior outlook. We don't include material revenue from new mobile titles in our guidance sort of country yet.

No.

The specifics of our outlook, let me provide some context.

Taking substantial action to address the concerns of employees kind of acoustic cortland.

1 of their risks that our business could be adversely impacted the center of this kind of.

Currently our business performance.

In the third quarter, we expect ongoing robust performance of call of duty candy in the world of Warcraft can be complemented by the launch of Diablo II resurrected.

While we are taking a prudent approach to our outlook, we do expect year over year net bookings growth in the third call we've been increasing investments in the quarter in our product compliance employee relations and.

Sales and marketing.

Unlock the full potential of our franchises heading into 'twenty 2 as.

As we move into the fourth quarter, while we continued to invest in the business.

Lower copper and growth in earnings year over year, primarily as mentioned the expansion of investment gain as of second quarter, which we are partnering with our outlook based on evaluation at the end of July.

Bringing this all together we are once again, raising our outlook for net bookings revenue and EPS for the year.

Now, let me get into some specifics for Paul.

3 on a GAAP basis, we expect revenues of $1.97 billion.

Including the net recognition of the growth of 120 minutes.

We expect net bookings of 185 billion.

We expect our GAAP operating margin of 35% of tax rate of 22% GAAP.

And non-GAAP share count of 785 million and EPS of <unk> 60 book that Paul.

1 of 3 on a non-GAAP basis, we expect a tax rate of 20% and non-GAAP EPS of <unk> 75 <unk>.

Including the net recognition of its Scott.

Now turning to the fiscal year on a GAAP basis for 2021 we expect revenues of $8.5 2 billion, including net debt.

35 of them.

And I expect net bookings of $8.65 billion.

We expect the GAAP operating margin of 37% of GAAP tax rate of plenty of 1% GAAP and non-GAAP share count of $785 million and GAAP EPS of 3 development of.

But 2021of the non-GAAP basis, we expect a tax rate of 20% and non-GAAP EPS of $3.54 of them.

Including Netflix garage with 22 of them.

In closing our business continues to perform well in the second quarter delivering strong results.

Any of investing creative team and positioning our franchisees for even greater reach and engagement in the future.

With our current plans continuing to support growth.

The annual performance in 2022.

Look at Bobby in terms of made it clear.

We understand that our people our greatest asset.

These are the people responsible for continued strong performance.

Couldn't be more committed to ensuring an inclusive work environment for all of our employees as well as to long term sustainable growth.

Working with our team.

Our company together to become the most inspiring and inclusive of entertainment company possible no raw.

Then Mike and Alan Bobby Dennis.

To answer your questions operator.

We will now begin the question and answer session.

To ask a question you May press Star then 1 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 2.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Matthew cost with Morgan Stanley. Please go ahead.

Hi, Hi, everyone. Thanks for taking the question. So I mean, you've seen a lot of headlines about the lawsuit and employee concern can you talk more about what you've been doing it and will do to address those issues and then just secondly can you expand on any expected impact to productivity as you work through this situation and do you expect any impact on the pipeline. Thanks.

I'll take this question and thank you. Thank you for the thoughtful question. This is Daniel.

As you heard from Bobby our employees are truly our greatest asset and we remain absolutely focused as a leadership team of providing a diverse and a safe environment for our teams and have taken a number of actions thus far.

For instance, we have engaged an outside law firm to conduct a review of our policies and procedures with respect to our workplace and where employees can connect if they have experienced any issues whatsoever.

We will also be adding staff to our compliance and employee relations teams that investigate employee concerns. This is to ensure that we're always considering also diverse candidates for all open positions.

As of Hispanic leader myself, I know how important having a diverse workforce can be for all aspects of our business and this is this is critical.

We will be evaluating of training also our people managers to make sure. They are complying with our processes for handling employee concerns as well as taking the right actions and.

And we are proactively engaging with our employees to hear and respond to their feedback.

For several years now we've been focused on ensuring more diversity throughout the company, especially in our leadership roles and have dramatically increased the number of women and minorities in both the C suite and in our business units.

And our compensation practices that women and men are paid equitably for equal work.

As you heard we have appointed general Neil and Mike Bar as the new co leads at Blizzard and I'm. So glad that an original Blizzard founder I went out of them, who returned to the company. A few years ago continues to lead our game of incubation projects. We have great leadership bench of Blizzard and are excited about the new direction the company will.

Take.

Also we are committed to an equitable and safe work environment and that's what's important as we evolve our company you should expect further announcements from us going forward.

Now to answer your question on productivity of the pipeline as you heard today the pipeline is progressing well in particular of some of the content of our pipeline has been in development for many years and is approaching the final stages of production.

Monitoring the impact of recent events, obviously as we discussed today, but based on what we see currently we have a strong lineup planned for the second half of the year.

And as we look into 2022.

We're currently planning for several new titles across PC console and mobile from Blizzard.

Thanks for the question.

Thanks, Matt Operator next question. Please the next question is from Mike Hickey with the Benchmark company. Please go ahead.

Hey, Bobby and team nice quarter guys.

Got it.

Curious, what you're seeing on the global reopening.

Our recovery.

What sort of player engagement trends.

That youre seeing and how youre thinking about or how you shake your guidance around key performance regions that are reopening. Thank you.

Thanks, Mike This is Amin.

Generally speaking what we see.

Different trend.

Ross.

Franchises in games and these trends can vary of cross platform.

Gateway types and numerous other factors.

More specifically when we look at some of our largest franchises we.

We actually saw minimal variation in engagement and player investment call.

Reopened.

Even though we did see some variation they were small relative to the structural growth.

We have seen on the business.

In the last year or 2.

What's really key is that when we look at the data.

You see debt product and other initiatives.

The bigger determinant of reach and engagement. So we do believe that.

Much of the expansion of the Athene and our largest franchises.

Due to strong product initiative.

More frequent life of operation.

And new engagement model with.

All of which we have started to successfully implement.

Examples of that include.

The introduction of free to play experiences on mobile and on Washington and call of duty.

The launch of classic on World of Warcraft.

And and more frequent compelling content on Kennedy.

And as a result, we are.

Operating at much greater scale and continue to have momentum.

As evidenced by our quality of results as well as trends into July.

As it relates to guidance.

We of orbit thoughtful encapsulating all approach.

We assume locked on King continued to moderate in the third quarter.

And of course, we are monitoring any impact of recent trends as discussed.

But as you have heard we still expect year over year of growth and net booking and Steve.

Initiatives continue to deliver results and we start to generate return from our many years of work to reinvigorate the outflow.

Finally looking forward.

We see of long term trend of.

More people gaming than ever before.

Across genre.

Platform.

Business, Michael and geographies.

And as you know we already operate successfully to the aircraft many of these growth mix of.

So we of variable position.

Continue to grow in this macro environment net we believe growth is largely in our own hands.

And our talented employees of team. Thanks again for your question Mike.

Operator next question. Please the next question is from Andrew <unk> with Jefferies. Please go ahead.

Hey, Thank you. This question I guess is.

Really focused on what's happening of Blizzard.

It's great to hear kind of of color around the policies and procedures and creating work safe workplaces and whatnot.

Right I'm sure morale is low.

So I'm just curious how Mike and Jim plan to kind of rekindle the pride that blizzard has been known for.

And kind of just rebuild that morale, but also kind of at the same time as you.

Listen to everyone's stories and experiences and make the necessary changes how does that not affect production.

Going forward. Thank you.

Thanks for the question Andrew This is Jen.

First off there is nothing more important to me than our people and I know, Mike Ybarra, who is partnering with me to lead Blizzard feels exactly the same.

Since I joined the studio at the beginning of the year I've had the privilege of working closer with the Diablo and Overwatch teams I'm seeing great progress on Overwatch, 2 and the multiple games and the Diablo universe.

I'm constantly inspired by our talented teams their creative vision and their commitment to put it in putting gameplay first our.

Our people are passionate about our games they understand our players and in many cases they have come from the player community of themselves and naturally are driven to serve them.

And as Bobby and Daniel have mentioned, we are expanding these teams, we're doubling down on our development recruiting as we expand the scope and vision of our franchises when we come together, we make some of the best games in the industry and we're now seeing that energy of applying to our culture of which is equally important.

A lot of work ahead of us, but the passion and productivity are already here and when our people feel safe and supported the rest is going to take care of itself.

Andrew This is Alan I'm going to weigh in here too.

The passion that our developers have sort of innovation and creativity is what makes blizzard great. It's why we've been able to make so many great games for 30 years now and this has always been of the vision since the very beginning.

I'm excited about our future about the things, we're creating together about building a new culture and renewing that spirit we are.

Tight lipped about it but our new game pipeline has been in development for many years and it's greater than it's ever been.

Our core franchises and mobile new IP and new genres.

Looking forward to our teams launching their already announced new games in the not too distant future and in due course announcing a few new ones that you have yet to hear about thanks for your question.

Thank you.

Yeah. Thanks, Andrew I'll price do we have the next question. Please and the next question is from Matthew Thornton with true of Securities. Please go ahead.

Hey, good afternoon, everybody, maybe this one's for for Rob.

When we think about call of duty I guess, how are you feeling about this year's release just in terms of the title of itself across multi player as well as campaign.

But also the cadence and breadth of content to follow it and then just finally, the competitive backdrop given that it's a little bit of a busier year for kind of AAA releases in the genre just love to get your thoughts there. Thanks.

Hey, Matt it's Rob Thanks for the question and before I get too and I, just don't want to throw in some of the overarching comments, which I think are important as it relates to Activision publishing as well.

Obviously, there is no place for any harassment discrimination whatsoever of any kind of <unk>.

In society in this industry here in this company.

And so making sure we have seen inclusive of an equitable environment for all of our employees is really the only way we can begin to live up to the values, we aspire to and it's the only way we can become the company we aspire to be so that is first and foremost on our minds and our focus at the moment.

Now turning back to answer your question directly we do.

Do you feel really good about what sledgehammer games is leading for release in the fourth quarter of this year.

Studio itself has never been bigger of stronger now with the teams in Foster city in Melbourne, and also now in Toronto and across all modes of play across multi player across campaign across co op.

Development is coming along really well and we're going to be sharing those details with the community very soon.

Content wise.

So really robust game at launch.

Across all of the modes and the good news for US right now as we've gotten farther ahead on our line of ops planning for supporting the community post launch and the community. You should also expect that support to be very very significant we've learned a lot over the last couple of years and that's all in our plans as we go forward.

We also have really exciting new plans.

<unk> zone, which Raven is leading together with our premium release, perhaps some really fun and what I consider the most significant updates planned for the community across the warning zone premium as we head into the fall.

I do want to mention just a huge thanks to all of our major studios have come together in amazing ways to drive the franchise for this year and for this fall and for beyond they are doing incredible work together as a team and also as independent studios.

And finally touching on your question on competition and Nick.

Competition is really out there each and every year for us and I think we consider it a good thing for the industry and for our players and to US it's not a zero sum game at all.

We believe compelling new offerings have the potential to only grow the only grow the industry as we move forward. So our focus is really the same as expand each and every year and that's making sure we provide the most fun.

The most incredible and the most innovative experiences we can do our community as we go forward and when we look at the breadth depth and quality of content and our teams are delivering in Q4 across all of our offerings.

We do like our traditional lot, but thanks for the question Matt.

Yeah. Thanks, Matt Operator next question. Please the net.

Question is from Tyler Parker with Keybanc capital markets. Please go ahead.

Great. Thanks for the question guys. So just touching on King real quick we saw 15% segment revenue growth and a doubling of the AD revenues in the quarter. So clearly still performing well here I just would love to hear how the changes to Apple's ecosystem effect of the business in the recent months both from a user acquisition perspective and in that perspective, and I guess how are you.

That trend going forward.

Thanks, Tyler this is Daniel I'll take that on behalf of all of whom up.

As you saw from our results. The IBSA changes really haven't had much of an impact on our business and actually even less of an impact than we expected.

So firstly on the advertising side, we're still early in building this business and we're just seeing great results as we grow both the supply and the demand on the <unk>.

Hi side, we've been introducing innovative new products and it started letting players watch more ads if they wish to growing our AD inventory in a way that's really consistent with our focus of really not impacting the player experience and thats worked out really well.

On the on the demand side, we're working with more demand partners and more categories of advertisers driving more volume and price competition and this really has been very impactful.

We're also working hard to maximize the consent rates following the idea of pay changes and have seen much better than expected results there.

So as we said last quarter, we really still see a long runway for growth in ads.

Now secondly in terms of user acquisition again.

If you look at the results you can see the ongoing strength of the business most of our installs each quarter, our organic as we benefit from just the incredible awareness that our brands have globally, particularly.

Mike Candy.

And our increasingly frequent live events are also just great vehicles for driving organic installs as well and.

And we have direct relationships with many of our most valuable players and that allows us to reengage them.

They lapse and and to really have a direct connection with them.

Now in terms of paid acquisition, we saw plenty of ways to bring players into the network even of following these changes on 1 particular platform.

And the great growth, we're seeing and player investment really actually enables us to to invest in even more ROI positive marketing marketing.

While still delivering strong profits for each quarter.

So again more than comfortable in king of the ability to deliver sustained growth and in game business. Even after these changes and the results I think bear fruit to what I just said.

Thanks for your question Tyler.

Thanks, a lot of operators, who have the next question. Please.

Next question is from Kunal molded with Atlantic Equities. Please go ahead.

Hi, Thanks for taking the question. So it sounds like call of G. T. Mobile has good momentum could you expand on your comments about its performance and our plans for further growth and related to that is there anything you can say on the recent China headlines and the potential for restrictions in that market.

Thanks, Kunal, it's Rob I think.

Should probably break this up into 2 parts, let me address the first part of your question on Cod mobile specifically and then maybe I'll invite armen or someone else to chime in on a more macro view on China and any potential restrictions there.

On mobile for US, we see 3 key opportunities kind of going forward and I'd say those could be bucket. It is geographic.

Geographic operational and strategic and let me touch on each of those on the geographic front for call of duty mobile we've seen obviously great success in the U S into Europe, and we're also continuing to optimize across those regions, but we are seeing also of great growth in emerging markets, such as Latin America, India, and Southeast Asia, and we're focusing X.

<unk> and investment for local players and so that's something we think can still scale and help grow the business overall on.

On the operational side.

Call of duty mobile is already a great game, and we see opportunity to make it even better our mobile team is continuing to do an incredible job of constantly improving the experience and adding content to players in the west and the team just keeps getting better and better and which is a testament to their passion and commitment to the mobile community in China is just another.

For example, there were the title of itself is often a strong start but still has a lot of opportunity in front of it to be tailored and optimized for the.

Local audience.

The team is also very focused on that as well.

Lastly, as strategic as we think about long term, while we see compelling more compelling growth on the platform.

And overall I'd say, we believe there's an opportunity to better connect mobile to the overall quality of the ecosystem and we are aggressively hiring talent to help on this journey for US we've created our own internal mobile studio and are driving a major of recruiting effort across <unk> and activation of Shanghai to support as well and together.

As Daniel already mentioned on the call. These teams are leading an unannounced new mobile project and the call of duty franchise, which we're very excited about.

So as I think about the business as we start to approach the 2 year anniversary of the launch in the west.

We think theres a lot of both near term and long term opportunities on the platform for us to grow the audience and engage the audience on a broad basis.

Arm and did you want to comment on the China piece.

Yeah. Thanks, Rob.

Thanks for the question again.

With respect to your question on China as you know the rules and regulation in the country do change over time.

And we have been working with our partners for many years now and the changing environment. So what we're doing currently.

King with them and our local team on the ground to assess this situation.

Duration now from a business perspective.

With less than 5% of our net bookings for us last year.

And as you know we have a long history of it.

Adapting and.

Responding to changes in the regulatory environment there.

And of course, we aim to continue to do so going forward. So thanks again for your question.

Thanks, Kunal operator, we'll take 1 last question. Please and that question is from Mario Lu with Barclays. Please go ahead.

Great. Thanks for taking the question. So I just wanted to follow up on a question earlier on mobile advertising.

A number of mobile gaming companies now have both on mobile gaming studio and an AD network all under the same umbrella. So curious to hear your thoughts of the strategy and if it's something that king can potentially implement going forward. Thanks.

Thanks, Bobby this is Daniel again.

But the good news is we're actually already vertically vertically integrated and we have our own in house ads business that supports in game advertising across our mobile games across all of Activision Blizzard and King.

The ads team have organically built our own advertising technology platform.

And this is really made to enable both of demand and the supply of management, which also Leverages third party technology wherever it may make sense.

This approach has actually served us really well and has enabled us to differentiate versus others in the industry through a much higher quality player experience. Both in terms of AD formats, and then also how seamlessly as of our integrated into our games.

And.

And the other the other thing is just the opportunity to be involved in such a premium experience for the player I've actually been very well received by our brand advertisers, who would have both advertisers and players who are benefiting from the experience.

And I'd say that this goes.

Beyond just king as we launch more mobile experiences as Alan talked about earlier.

Across the company.

We're continuing to invest in our technology platform.

That's just to make sure that we have the capabilities to power AD monetization and cross promotional activities across our mobile titles.

No.

I feel we're in a great position, having built these capabilities internally and of course longer term, we have a great deal of Optionality in terms of where we can take the platform and that's why we continue to invest in this area, which is critical to our business. Thanks.

Thanks for your question.

Thanks, Nick Thanks.

Thanks, all again for joining us today.

Your interest and participation.

Look forward to catching up with you in the coming week thing.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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