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Activision Blizzard (ATVI: NASDAQ) Q4 2019 Earnings Call Transcript

Activision Blizzard Inc  (ATVI)

Q4 2019 Earnings Conference Call

Final Transcript

Corporate Participants

Christopher Hickey

Senior Vice President of Investor Relations | Activision Blizzard, Inc.

Bobby Kotick

Chief Executive Officer | Activision Blizzard, Inc.

Coddy Johnson

President and Chief Operating Officer | Activision Blizzard, Inc.

Dennis Durkin

Chief Financial Officer and President of Emerging Businesses | Activision Blizzard, Inc.

Humam Sakhnini

President of King | Activision Blizzard, Inc.

J. Allen Brack

President | Activision Blizzard, Inc.

Conference Call Participants

Mario Lu

Barclays | Analylst

Benjy Scurlock

Arete Research | Analyst

Anthony Duplisea

SunTrust Robinson Humphrey | Analyst

Ben Sharland

Bank of America | Analyst

Michael Ng

Goldman Sachs | Analyst

Colin Sebastian

Baird | Analyst

Eric Sheridan

UBS | Analyst

Mike Olson

Piper Sandler | Analyst

Mike Hickey

Benchmark | Analyst

Presentation

Operator

Good day, and welcome to the Activision Blizzard Q4 2019 Earnings Conference Call. At this time, I would like to turn the conference over to Chris Hickey, Senior Vice President of Investor Relations. Please go ahead, sir.

Christopher Hickey

Senior Vice President of Investor Relations | Activision Blizzard, Inc.

Good afternoon, and thank you for joining us today for Activision Blizzard’s fourth quarter 2019 conference call. With us are Bobby Kotick, CEO; Coddy Johnson, COO and President; and Dennis Durkin, Company’s CFO and President of Emerging Businesses. And for Q&A, Rob Kostich, President of Activision; J. Allen Brack, President of Blizzard Entertainment; and Humam Sakhnini, President of King will also join us.

I would like to remind everyone that during this call, we will be making statements that are not historical facts. The forward-looking statements in this presentation are based on information available to the company as of the date of 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 from those expressed in any forward-looking statements. These include the risk factors discussed in our SEC filings, including our 2018 Annual Report 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 after today, February 6, 2020.

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, the 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 excluded items, and significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or 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 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.activisionblizzard.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. In addition, we will also be posting a financial overview highlighting both GAAP and non-GAAP results. And now, I’d like to introduce our CEO, Bobby Kotick.

Bobby Kotick

Chief Executive Officer | Activision Blizzard, Inc.

Thank you, Chris and thank you all for joining us today. Our fourth quarter results exceeded our prior outlook for both revenues and earnings per share. As we continue to transform the company, we’ve remain focused on the delivery of epic entertainment that connects and engages the world. We believe we can do this with greater speed and efficiency, while maintaining our long-standing commitment to quality and excellence and providing superior returns to our shareholders.

We ended the year with over 400 million monthly active users, strong year-over-year engagement and significant potential in monetization. We are in the privileged position of having a direct digital connection with hundreds of millions of players to whom we can deliver some of the world’s best professionally produced content. And we have the ability to provide our audiences with a variety of ways to enjoy our content with monetization through subscriptions, premium digital purchases, digital native advertising and a variety of other player investment mechanisms.

Each of our large franchises, as well as our new potential franchises have greater opportunities than ever before. Using Call of Duty as an example, with the introduction of Call of Duty Mobile, we grew our player base from 40 million to 100 million players in less than a year. And we expect significant growth in the Call of Duty franchise in 2020 as compared to 2019, as a result of this and from other unannounced Call of Duty initiatives. Mobile, in fact, is now our leading platform. The business model for Call of Duty Mobile is free to play, which enables the rapid development of large community of players with the option to purchase digital items and services, as well as our ability to generate advertising revenues.

Franchises like Call of Duty offer advertisers a very difficult to reach target. And today, the ad load is extremely low as we’re experimenting with the best advertising solutions for our players and our advertising partners. So, we successfully developed great game through Mobile. Our franchises have the power to attract far bigger audiences than previously. We are hard at work on high quality mobile games for all of our most important franchise.

And with respect to e-sports, two weeks ago, we debuted the Call of Duty League with 12 city-based teams. Working closely with our experienced team owners and globally recognized sponsors, we are thrilled to celebrate our players and inspire our community with professional Call of Duty e-sports. And with our new strategic broadcast relationship with YouTube, over 200 million game reviewers now have access to our world-class e-sports content for both Call of Duty League and Over watch League.

Across console, PC, mobile and touch points like e-sports the momentum for Call of Duty could not be stronger. And this success illustrates the larger opportunities we have across our diverse and large wholly-owned library of titles dating back to our founding 40 years ago. Having our franchises on all platforms in all geographies with a constant flow of content and leveraging the additional touch points we have available to us like e-sports and advertising, continues to be our focus.

Another great example of our franchise transformation is what happened with Warcraft. We doubled the size of the active World of Warcraft community in the second half of 2019 by adding Classic to the WoW subscription offering. The remarkable growth of the WoW community represents an important proof point of the value and potential of our established franchises. And it is energized our development team as we develop new content for all of our key franchises. These franchises form the basis for large, engaged communities of players and spectators with whom we take our responsibility to deliver high quality content very seriously.

Prioritization of opportunity and access to more talent are our challenges. But we are meeting these challenges with improved execution, and we expect to grow audience’s engagement and monetization, and provide superior shareholder returns as we have for the last 30 years.

As a final note, we wanted to acknowledge the tragedy of Kobe Bryant’s untimely passing. Kobe was a long-time friend of the company, starring master flee in commercials for Guitar Hero and Call of Duty. He was a tireless supporter of our veterans employment initiatives and always made himself available for all of our veterans events and activities. He will be greatly missed by all of us and our thoughts and prayers are with his family. And now, Coddy will review the highlights of our operations with you.

Coddy Johnson

President and Chief Operating Officer | Activision Blizzard, Inc.

Thanks, Bobby. Strong execution in 2019 on our strategy enabled Activision Blizzard to exceed our fourth quarter outlook and enter 2020 with momentum. That momentum was created by the increased investment and focus on the creative and commercial resources of our biggest franchises and allowed us to accelerate progress against our four key growth pillars.

And our first growth pillar, driving a consistent cadence of major new content to grow our reach, our expanded Call of Duty development team launched a very successful Modern Warfare. The unit sell-through in Q4 increasing by a double-digit percentage versus the prior year across console and PC combined. And the team followed up with great execution on our second growth pillar, live operations for Indian content, services, features and events to drive engagement, recurring revenues.

Modern Warfare’s first season of follow-on content will hit our new, more engaging in game system’s throughput engagement and net bookings up significantly year-over-year. Similarly, the World of Warcraft team followed up on the remarkable Q3 launch of WoW Classic with substantial content updates. We kept the community engaged and the subscriber base well above pre-Classic levels. In Hearthstone, we’ve seen increased engagement on the launch of Blizzard’s latest expansion and the roll-out of the new Battlegrounds game mode in Q4.

As for our third pillar, extending our acclaimed console and PC franchises to Mobile, the October launch of Call of Duty Mobile with one of the most successful in the industry history, driving Activision Publishing to record among the active users. It also highlighted the opportunity for our other large franchises to reach hundreds of millions of new players once they expand on the mobile. And finally, as we build and enhance new engagement models for our franchises, our advertising business again grew rapidly, and we further strengthen our leadership in e-sports. We expect to build on this momentum in 2020 with each of these pillars driving net bookings growth for the company this year.

I’ll now provide more detail on our Q4 results and recent developments across our franchises. Starting with Activision, Q4 was a fantastic quarter. Monthly active users tripled in Q3 to reach 128 million. Call of Duty continued its leadership on console with Modern Warfare driving year-on-year self requests in generating more upfront console sales in any other franchises worldwide the feat franchise had now accomplished for 10 over the last 11 years. Modern Warfare also saw strong growth in full-game downloads with console digital mix at almost 50%.

And we ended Q4 with the retail channel at its tightest level in many years, positioning us well for ongoing catalog sales in 2020. Franchise also expanded it’s audience on PC, the Q4 PC sell-through on Battle.net growing 50% year-over-year. This growing across platform Call of Duty community received in early December, the largest free content offering in franchise history along side of new system for player investment. And as a result, Q4 in-game net bookings grew by double-digit percentage year-over-year, despite a major launch of in-game system and despite the removal of the season pass.

Now the second season of Modern Warfare follow on content launches next week. And the team has more great experiences and surprises in store both for that season and throughout 2020, which we expect to drive strong in-game net bookings growth year-over-year. And of course, the Call of Duty franchise started breakout success in Q4 with the launch of Call of Duty Mobile. The game has received widespread acclaim, and with over 150 million installed has brought a huge number of new players into the franchise, and given existing players, new way to experience Call of Duty.

Engagement is strong, which the teams from Activision and Tencent gaming TV studio intend to sustain for the long-term with a substantial pipeline of features, events, and content, benefiting from over 15 years of Call of Duty releases. The title outperformed our net bookings expectations in Q4, ranking in the top 15 growth communities in app stores, and the third season is already well underway and tracking well. So across console, PC, mobile and e-sports, the Call of Duty franchise has never been better positioned for growth and there is more to come, including entirely new experiences within the Modern Warfare universe.

And then, of course, in Q4 of this year, a new premium Call of Duty release, which is already generating excitement in our play tests. Finally, across the Activision portfolio, we are honored to see the team is focused on high-quality world-class content recognized by the industry, the 2019 game rewards. Call of Duty Mobile won Mobile Game of the Year, Crash Team Racing won best game in the Sports and Racing category, and FromSoftware’s Sekiro: Shadows Die Twice won Game of the Year.

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Turning to Blizzard, monthly active users were 32 million in the fourth quarter. World of Warcraft monthly active users were higher sequentially, reflecting sustained engagement of players from the August launch of World Classic. Blizzard’s recreation of the original WoW from 15 years ago. As you may remember, in Q3, WoW added more monthly or longer-term subscription plans than in any prior quarter in franchise history. That momentum continued in the Q4.

Then Blizzard sustained engagement with robust sale of content for both Modern and Classic WoW, and exited the year with an active community, more than twice the size of its Q2 ending level. That strong cadence of content will continue in 2020 with a great series of in-game releases for Classic and a strong Shadowland expansion coming from Modern WoW in the second half of the year. Shadowlands will have new reasons to explore new ways to customize characters and our revamped leveling systems of on-board of new players.

In Hearthstone, the competitive environment remains intense. But we did see sustained improvement engagement signed their lease of Descent of Dragons expansion and the new Battlegrounds auto-battler mode in Q4. Q4 net bookings were lower year-over-year, but grew sequentially and the Hearthstone team continues to be very quickly. They launched new games store in December, and released a number of new content engagement model enhancements in 2020. Q4 also saw the launch of Overwatch on Nintendo Switch further expanding the community that has now surpassed 50 million of players since the 2016 launch.

And that has begin the Overwatch League returns to 20 teams from around the world competing in the home stand format for the first time. Blizzard’s teams, as you know, are working on the broadest pipeline in its history, including Overwatch 2 and Diablo 4 of PC and console, and Diablo Immortal, a mobile game, developed in partnership that is continues to make good progress, and will move into the testing phase with its first regional test planned for the middle of the year.

Turning to King. Monthly active users were 249 million, increasing 2 million form the third quarter. On a year-over-year basis, we saw a decline in web and smaller mobile titles, but importantly Candy mobile reach was little changed and benefited from growth in King’s largest title Candy Crush Saga. In the second half of 2019, King introduced new initiatives to grow payer conversion targeting last payers as well as converting new payers into the ecosystem. And these initiatives led to encouraging payer engagement trends in the last two quarters.

While these initiatives dampened in-game net bookings in Q4, and we’ll continue to do so in Q1, we believe a broader and more engaged player base positions the franchise for growth over the medium and long-term. And even with these actions, Candy Crush Saga remained a top grossing title in the US app stores and the wider Candy franchise, was once again number one.

King’s advertising business grew net bookings over 80% year-over-year with strong growth in ad-enabled users, volume and pricing. Both direct and indirect sales grew sharply for the full year ad net bookings exceeded $150 million with the business set for robust growth again in 2020. Throughout this year, King will continue to optimize the economy within Candy launching ongoing features, services and events to drive player engagement and investments. And having previously narrowed its pipeline is focused on the highest potential projects. King is investing in several promising new titles, including content-based on Activision’s beloved catalog IP. Regional testing of some of these new titles will begin in 2020.

So in conclusion, our strategy to focus on our growth pillars and investment in creative and commercial resources, and initiatives of our biggest franchises is delivering results. In 2020, we will continue that focus with the releases and pipeline initiatives highlighted today to further expand our reach, engagement, and player investment, and to extend our largest IP across new platforms, geographies and business models. We plan to reach more players on more platforms in more regions than ever before.

To do so, we’ll also further increase investment in our technology capabilities, technology platforms and data analytics, while fund these investments with an ongoing focus on efficiency and organizational optimization to leverage our scale across the business. And we know that some of our investments won’t bear fruit until next year later, but we’re confident in our growth trajectory this year, and our growth plan and we enter 2020 with momentum.

I’ll now hand the call over to Dennis to discuss our Q4 and full year financial results and outlook. Dennis?

Dennis Durkin

Chief Financial Officer and President of Emerging Businesses | Activision Blizzard, Inc.

Thanks, Coddy. Today I will review our Q4, 2019 results as well as our outlook for 2020 and the first quarter. Q4 GAAP and non-GAAP EPS were ahead of our prior outlook reflecting better than expected results for Call of Duty and World of Warcraft and a lower tax rate. To review the quarter, I’ll start with our Q4 segment results. Activision revenue was $1.43 billion led by Call of Duty growth in both upfront and in-game revenues on console and PC, and the addition of Call of Duty Mobile.

Operating income was $696 million with an operating margin of 49%. As expected, Call of Duty Mobile was not a material contributor operating income in Q4 despite a great launch, as we invested to build our player base and position the title for long-term success. Blizzard revenue was $595 million, lower year-over-year as growth for World of Warcraft and Overwatch was offset by a decline for Hearthstone and Diablo. Operating income was $260 million with the revenue decline more than offset by lower costs. Blizzard’s operating margin was 44%, significantly higher year-over-year due to mix and lower costs.

King revenue of $503 million was flat sequentially and lower year-over-year, driven primarily by King’s actions to prioritize mobile payer engagement in the quarter, as well as year-over-year decline in web titles. The ads business grew more than 80% year-over-year. Operating income was $197 million with an operating margin of 39%, 1 point higher year-over-year, driven by high incremental margins from advertising. Across our segments, in-game net bookings were $1.1 billion.

Now let’s turn to our consolidated results. Unless otherwise indicated, I will be referencing non-GAAP figures. Please refer to our earnings release for full GAAP to non-GAAP reconciliations. For the quarter, we generated Q4 GAAP revenues of $2.0 billion, $174 million above our November guidance. This includes the net deferrals of $722 million. Net bookings of $2.7 billion were $62 million above our November outlook. We incurred GAAP only restructuring and related charges of $30 million, and we generated Q4 GAAP EPS of $0.68 and Q4 non-GAAP EPS of $0.62, which was $0.19 above guidance. These figures include the net deferrals of $0.61.

For the year, we generated GAAP revenues of $6.5 billion. This includes the net recognition of deferrals of $101 million. Net bookings were $6.4 billion. We incurred GAAP only restructuring and related charges of $137 million and generated GAAP EPS of $1.95 and non-GAAP EPS of $2.31. These figures include the net recognition of deferrals of $0.06. From a cash flow perspective, our business delivered Q4 operating cash flow of $918 million. Annual operating cash flow was $1.8 billion, higher year-over-year due to lower working capital and cash taxes. Our cash and investments at the end of December was approximately $5.9 billion and we ended the year with a net cash position of approximately $3.2 billion.

Turning to capital allocation. We entered 2020 with a strong balance sheet and significant flexibility. As always, we continue to take a disciplined and balanced approach to capital allocation. And with this in mind, our Board has authorized an 11% increase in our annual dividend to $0.41 per share, payable in May. As we look back over the last year, we are pleased with the company’s operating discipline, commercial execution, and content delivery during a period where we refocused the business and increased investment in key franchises to position us for future growth.

Now let’s look forward to our outlook for 2020. First, regarding our slate and plans for each business unit. Activision enters the year with strong momentum for Call of Duty across upfront sales in-game, mobile and e-sports. Along with the tight retail channel that should benefit catalog sales, this positions us for strong growth in the franchise, particularly in the first half of the year. In Q4, we plan to launch the next premium release of Call of Duty. We can’t wait to unveil what our teams have been working on, and we feel great about the content. Although, as is customary, we are prudently assuming lower sell-in for Q4 versus Modern Warfare this past year.

Turning to Blizzard, which just last week released Warcraft III Reforged. Blizzard will build on World of Warcraft momentum with ongoing content for Classic and the Shadowlands expansion in the second half of the year. The Hearthstone and Overwatch teams will support their communities with ongoing content and services that drive engagement and player investment. And as Coddy mentioned, Diablo Immortal is planned to enter a regional testing towards the middle of the year, but we don’t have any material revenue from that title in our guidance.

King will continue to release content, features, services and events across its portfolio with an ongoing focus on optimizing reach, engagement and player investment for Candy. And the advertising business is set to deliver another year of strong net bookings growth. At the same time, King will continue to invest in several promising new titles in its pipeline. And although, we expect regional play testing for certain titles, similar to Diablo Immortal, our outlook does not include material revenue from these titles. In addition, our business units will continue to tap into our portfolio of beloved IP to bring several remastered and re-imagined experiences to our players in 2020, which we will announce closer to launch.

Bringing all this together, our outlook reflects 5% year-over-year growth in net bookings. We expect Activision to experience the strongest net bookings growth amongst our segments both in dollar terms and on a percentage basis. We expect solid net bookings growth from Blizzard for the year, and our outlook reflects a flattish performance at King with year-over-year trends improving in the second half of the year. From a margin perspective, our outlook reflects GAAP and non-GAAP operating margin increasing year-over-year.

Now let’s turn to the numbers. On a GAAP basis for 2020, we expect revenues of $6.45 billion, including net deferrals of $275 million. We expect net bookings of $6.73 billion. Product cost, game operations and distribution expenses of 22%, operating expenses, including software amortization of 50%, and a GAAP only restructuring charge of approximately $50 million. We expect the GAAP tax rate of 19%, GAAP and non-GAAP share count of $778 million and GAAP EPS of $1.85. For 2020, on a non-GAAP basis, we expect product cost, game operations and distribution expenses of 23%. Operating expenses including software amortization of 44%. We expect a tax rate of 19% and non-GAAP EPS of $2.22, including net deferrals of $0.13.

Now let’s turn to our Q1 outlook. On a GAAP basis for Q1, we expect revenues of $1.64 billion, including the net recognition of deferrals of $365 million. We expect net bookings of $1.28 billion. Product cost, game operations and distribution expenses of 21%, operating expenses including software amortization of 48%, and a GAAP only restructuring charge of approximately $35 million. We expect the tax rate of 17%, GAAP and non-GAAP share count of $775 million and GAAP EPS of $0.55. For Q1, on a non-GAAP basis, we expect product cost, game operations and distribution expenses of 21%, and operating expenses including software amortization of 41%. We expect a tax rate of 17% and non-GAAP EPS of $0.66, which includes the net recognition of deferral of $0.31.

In closing, in 2019, we have come a long way and refocusing the business on our biggest franchises and opportunities. So momentum for World of Warcraft, Call of Duty and our new engagement models highlights the growth potential for our broader portfolio of durable fully owned franchises, when we apply our top creative talent and commercial talent against our biggest opportunities. We are encouraged by our 2019 results, and as we return to growth in 2020, the opportunity set for our business across platforms, geographies and business models has never been greater.

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Going forward, we will maintain our operating discipline and focus, as we execute against a great content line up this year and a pipeline that includes Overwatch 2, Diablo IV and Diablo Immortal and multiple unannounced initiatives, including several mobile titles. We remain confident that ongoing execution against our plan will position us to deliver growth to our shareholders over the long term.

Now, I welcome our business leaders Jay, Humam and Rob as they join us for the Q&A portion of the call. Operator?

Questions and Answers

Operator

Thank you. [Operator Instructions] We’ll take our first question from Mario Lu with Barclays.

Mario Lu

Analylst | Barclays

Hi. Thanks for taking the questions. I have a couple on Call of Duty Modern Warfare. How has not having a season pass effective user behavior thus far compared to years passed? And secondly, any color you can provide regarding its impact on in-game revenue growth, and what we can expect in 2020? Thanks.

Bobby Kotick

Chief Executive Officer | Activision Blizzard, Inc.

Hey, Mario. It’s Rob. Thanks for the question. I think, before I touch on season pass, specifically, it’s important that we kind of step back for a second and look at some of the macro changes that we made, and season pass is one of them. Our intent was just to create a better overall experience for our player community, and we think we’ve done that. The first big thing we did was bring in crossplay and cross progression, enabling friends to play together no matter what platform they are on. In the case of Modern Warfare, it’s just great to see players come back together after so many years of experience in franchise in the past.

Now with season pass, it kind of played a similar role, right? So instead of certain portions of the audience having certain content, we’re focused now on free content for the entire community to drive engagement with the overall community. And I’d say the last big change that we made was really focusing on the new battle pass and item shop system in the game giving players kind of more transparency to the content thereafter and, obviously, focusing more on cosmetic content. And I suppose the best way to judge all of it is just what’s the player behavior and what’s the community saying. And when we look at engagement, you look at daily average unique. Our engagement is up significantly year-over-year, and that’s really great for us to see so many people enjoying and playing this fantastic game.

And then, on the player investment side, I’d say fans certainly seem to be appreciating the new system quite a bit. We mentioned kind of the growth year-on-year, but one other thing, I might, add is that we’re also see an increased attach rates in game to the new system, which I think is a very, very positive sign for us. And for us, this all signals to a really healthy ecosystem within Modern Warfare, one that we think we can build on and create momentum with our community. It’s really on us from now to really build great content, which we intend to do for the long haul on this game, a great pipeline of content is coming starting with Season 2 next week. And we have some surprises in store beyond that. So I’d say overall, what we expect is a healthier Call of Duty in 2020 versus the previous year. And we look forward to sharing more in the future, but thanks for the question.

Mario Lu

Analylst | Barclays

Okay. Thank you.

Christopher Hickey

Senior Vice President of Investor Relations | Activision Blizzard, Inc.

Thanks, Mario. Operator, next question please.

Operator

We’ll take our next question from Benjy Scurlock with Arete Research.

Benjy Scurlock

Analyst | Arete Research

Thanks for taking my question. Just one on King. So when do you expect to see engagement on monetization stabilize, and the King segment start to reaccelerate? Thanks.

Humam Sakhnini

President of King | Activision Blizzard, Inc.

Thanks for the question. This is Humam. So overall growth is impacted by some of our smaller titles and the web platform. We also had a number of initiatives more recently in the driving payer conversion and bringing back lapsed players and that presented near-term trade-off, but it’s the right thing to do for the medium-term and beyond. And we’ll continue to see some of those trade-offs in Q1. But — with all that said, when I look forward, I see a number of growth areas of King.

First and foremost, is Candy. Candy continues to be an incredibly durable franchise. And we see growth just through the slate of new features, all the services we’re releasing and the in-game events that we hold. More recently, we are also thinking quite a bit about our social features. We’ve seen that really work in different battles and in different genres. And when I think about how that could be in Candy, and the size of Candy, that could be a big unlock for us.

Another thing that’s really I look to for growth is our advertising business. So as you heard, that’s really coming along really nicely. And we’ve built a really large and high margin business, and I see growth there. And then additionally, I see growth in our pipeline. We reset our pipeline recently and we’re starting to see some really good results, and our prototypes, and we will start doing some regional testing on some of those this year. So when I put all that together, I look to the medium-term and beyond than I think, we have some really good growth opportunities here.

Christopher Hickey

Senior Vice President of Investor Relations | Activision Blizzard, Inc.

Thanks, Benjy. Operator, can we have the next question please?

Operator

Thank you. Our next question comes from Matthew Thornton with SunTrust.

Anthony Duplisea

Analyst | SunTrust Robinson Humphrey

Hey. This is Anthony on for Matt. Thanks for taking the question. Do you have any color on how successful World of Warcraft has been in 4Q and into 2020 and retaining users from the Classic mode launch? And then relatedly also on Warcraft, there’s been some negative press on Warcraft 3 Reforge lately. Can you tell us what you’re doing to address that? Thanks.

J. Allen Brack

President | Activision Blizzard, Inc.

Hi. This is Jay. I will talk about like the World of Warcraft question first. So, as a reminder, when we designed the model for World of Warcraft Classic, it was important that players have a single existing subscription to support both games. And we think about the WoW community as supporting both even though Classic and Modern are very distinct experiences. And we’re committed to kind of continuing to support both of those experiences over the long term.

Given the content updates for Modern WoW, and the cadence that we have for Classic, we exited our year with the subscriber base that was doubled what it was at the end of Q2. And we also see players remaining engaged in both versions of the game. And we launched Visions of N’zoth, which is a content patch for Modern WoW in January. Engagement with Classic has been, particularly strong in the East, and we see very high levels of player retention there. And our next update for Classic is going to be Phase 3, which is Blackwing Lair. It’s one of my favorites. And we’re planning on launching that on February 13.

Concerning Warcraft III Reforged, honestly, it’s been a bit of hurry. Our community has come to expect really amazing things from us, and we’ve heard from them that we did not achieve that bar. But we stand behind our games and have consistently shown that not only do we support them, but we continue to build on them even after launch. And we’re committed to doing that here as well. And so we’re going to continue to update the depth of the game and we’ll continue to update the community with our plans going forward. Thanks for the question.

Operator

Thank you. We’ll take our next question from Ben Harland [Phonetic] with Bank of America.

Ben Sharland

Analyst | Bank of America

Hey, guys. Thanks for taking the question. You now have about $3 billion of net cash on the balance sheet. You’ve got the annual dividend have done some buybacks in the past some acquisitions. Maybe just an update on the thoughts around capital allocation and uses of cash against the opportunities ahead? Thanks.

Coddy Johnson

President and Chief Operating Officer | Activision Blizzard, Inc.

Yeah. No. Thanks for the question. Obviously, we do view a strong balance sheet as a really important strategic asset for the company and having that gives us considerable flexibility to invest in the business, do buybacks and return capital or pursue M&A when we see attractive opportunities. And our track record probably somewhat speaks for itself as you look at that over a long period of time. We borrowed, I’d say, very fortuitously to finance our Vivendi transaction, our King transaction and then subsequently pay down that debt. So we paid down more than $4 billion since we finance those transactions and actually have climbed our way up the investment grade ratings grid.

And then we’ve returned over the last decade, more than, I guess, around $10 billion of capital back to our shareholders. About $8 billion through share repurchases and we still do have our $1.5 billion authorization, and then about $2 billion over that time period in dividends, which has increased double-digits, I’d say, probably on average over the course of that period, and again this year with the $0.41 dividend, which we announced today. M&A is always something we keep our eye on, and as we have our radar detectors up, and we always look at a lot of things, but we — I’d like to think we’re pretty disciplined about our process. We do have a pretty rigorous process and we try to look for a few criteria of things when we are considering it. We’re always trying to find great franchises of our technology that could add to our portfolio and make our business in our franchise portfolio stronger. We’d like to see a track record of profitability or path to profitability, a strong leadership team that’s aligned around growing the business.

And then lastly, and this one has been more challenging is finding things at a valuation that makes sense. So it’s not easy to find all those things. And so you have to be very disciplined and patient as you think about those inorganic opportunities. So that gives you a little bit of an overview in terms of how we’ve approached it, I think, our past track record and philosophy on this is probably the best indicator of how we think about it and how we will allocate capital in the future.

Operator

Thank you. Our next question comes from Michael Ng with Goldman Sachs.

Michael Ng

Analyst | Goldman Sachs

Hey. Thanks for the question. Could you just give us an update on Diablo Immortal and discuss how that informs your go-forward mobile strategy for Blizzard? Thanks.

Bobby Kotick

Chief Executive Officer | Activision Blizzard, Inc.

Absolutely. So as you know, we’ve been working closely with NetEase on the development of the game. And our goal is to deliver an authentic and deep Diablo experience for mobile. We did show an updated version of the game at BlizzCon last year, and we saw a lot of excitement. We’ve also begun doing internal play tests or additional internal play tests since that time and the results are encouraging. We’re getting ready to move to the next phase of development with some regional Alpha testing later this year. Player feedback is invaluable. And as we continue to work on building the game, we will be looking to that feedback to make sure that we’re making a really a great Diablo experience.

When we think about — when I think about mobile overall for Blizzard, we have our roots in PC gaming. And we’re going to continue to be deeply committed to the PC. But we do think there are opportunities for additional experiences in a different ways for players to engage on different kinds of devices. And we see Mobile is also a way to attract players that we don’t currently reach on PC and console. So we think the mobile opportunity for Blizzard overall is very substantial. And Diablo Immortal will be our first release as a mobile first game. And we continue to work on multiple mobile initiatives across Blizzard in addition to the PC and console games.

Christopher Hickey

Senior Vice President of Investor Relations | Activision Blizzard, Inc.

Thanks, Mike. Operator, can we have the next question please.

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Operator

Our next question comes from Colin Sebastian with Baird.

Colin Sebastian

Analyst | Baird

Thanks. Digging down a little bit more into your relationship with Google. I’m wondering what the key factors behind the decision to partner with GCP. And then as well as YouTube gaming, are there — as well there considerations or implications embedded that could increase your level of support for Stadia? Thank you.

Coddy Johnson

President and Chief Operating Officer | Activision Blizzard, Inc.

Sure. Hey. This is Coddy. I’ll take that. And I’ll take first, as Bobby mentioned in really today in an interview, we’ve had a long-standing relationship with Google that’s been great. We are thrilled to formalize that into a deeper partnership over multiple years. And as you said, there’s really two big pieces to it. The first is on sort of the global IT infrastructure, and then the second is on what really is just a fantastic content platform in YouTube.

On the first piece, what we have the opportunity to do now is have a more efficient and better delivery in the back-end services and infrastructure handled by our partner where that is their great expertise. And what it allow us to do is it frees up our resources and developers and mind share to focus on what we do best, which is making the content in getting it out into the hands of our players at a faster cadence. That is a great balance of trade for us and we feel really good about that partnership, and how that carry us going forward.

On the content side on YouTube, there’s 200 million gamer viewers on YouTube. And it’s just a tremendous opportunity to bring our platform to new audiences there. We think not only just in the way that players can experience it today, put new modes and formats, and also YouTube is a great on-demand viewing platform. And we think viewers might be increasingly interested in viewing our content that way. There are other pieces to this deal where there is real value we think in terms of how we utilize their platforms and how they help us build more reach and engagement in our ecosystem, not in this deal, and you mentioned it as Stadia.

There’s cloud game streaming experiences that are driving to the consumer. We continue to watch with interest and will make appropriate assessments as we go forward to figure out our own next steps there. But I think what it point to is just as the last thought, a broader point, which is over the last two years, we’ve been talking about these large technology players that are coming to our space at scale. What we’ve said is we see this tremendous opportunity as a content provider to take advantage of where we sit in the space. And this we could use an example. It’s just a large amount of value for us as we go forward, and we think we’re only even better positioned for other partnerships as we take next steps. Thanks.

Colin Sebastian
Analyst | Baird

Thanks.

Operator

Thank you. Our next question comes from Eric Sheridan with UBS.

Eric Sheridan

Analyst | UBS

Thank you so much for taking the question. Can you provide us an update on how Call of Duty mobile is trending in terms of engagement retention of users? How we should be thinking about future content as a driver of monetization for that property going forward? And second part, any key learnings that we should be aware of as you’re learning to develop mobile games at that sort of scale and how it might be applied to all the parts of the portfolio? Thanks so much for the color.

Bobby Kotick

Chief Executive Officer | Activision Blizzard, Inc.

Eric, it’s Rob. Thanks for the question. Let me start with the last part of your question on the key learnings, and I apologize for being little redundant on this. But I think a key theme throughout our call is that, we go we learn more anything else is that the market is certainly ready for our franchises on mobile. When we make a great game and kind of stay true to the core tenants of what made the franchise great in the first place, and we execute on that. Now we can reach just millions of millions of people around the globe that may have never experienced our franchise before. And that’s just — that’s very exciting for us as an organization because that obviously is true, not just for just Call of Duty, but also for the many great franchises that we have in the organization.

If I were to turn back and talk about Call of Duty Mobile a little bit in terms of engagement and retention like you asked, look, I’d say it’s still in the early days, but we’ve seen a number of encouraging signs. Obviously, the install at the beginning, which we were reported out have been fantastic, but also in terms of our daily engagement, are looking at our doubts [Phonetic], Mobile hit levels that were multiples higher than any other title in franchise history. So that engagement basis really, really exciting for us to work from. Now for us the content now becomes on the content pipeline to sustain and build on that.

In Mobile, we have a game at a platform essentially that we want to build on for a really long time to come. So we’re hyper-focused on our content pipeline, our monthly, weekly, and daily events as they come into the game to make sure we drive the best possible experience for our player community there. We’re in the middle of Season 3 right now, and that’s tracking really well. And I think what we’re going to see is we’re learning a lot real time, the learnings are great. And you’ll see us adjusting our content and continuing to make the best possible experience we can for our fans as we move forward in the future. So I’d say, right now, we’re off to really a nice start and that I’m excited about. And we’ll be reporting on our progress as we head in the future, but thanks for your question.

Operator

Thank you. Our next question comes from Mike Olson with Piper Sandler.

Mike Olson

Analyst | Piper Sandler

Hey. Good afternoon, and thanks for taking the question. You touched on a bit, but could you update us on anything further related to the status of King advertising? How is it ramp throughout 2019 and what’s your thinking on potential for 2020? Thanks.

Humam Sakhnini

President of King | Activision Blizzard, Inc.

Yeah. This is Humam again. Thanks for the question. So look I think advertising has been a real success story for King as we saw in 2019. We’re really built a durable business here and it’s a high margin one. And the way, I think about it is with our scale of monthly, it really allows us to get the benefit of having such a large audience. As you know, small fraction of them participate in our in-game economy. So now it’s become a needle mover for us. We crossed 150 million net bookings in 2019. And it’s really a testament to a great collaboration between the product teams and the game teams and the advertising team, and really all of them thinking about what’s a great player experience and how do we deliver something very differentiated for our advertisers.

And so when I look to 2020 and beyond, I see continued growth. There are many avenues of that growth. First and foremost, we’re going to continue to roll-out advertising to more and more of our players. And then, I think the teams will continue to innovate. There — we already, as I said, have an incredibly differentiated products that advertisers are really attaching to, but we can continue to make it better. A good example of this was in Q4 was some of the — what we delivered to Sony Pictures on the Jumanji phone launch. And there, we not only had our flagship rewarded video product, but we did something truly differentiated in the marketplace where we put an in-game integration. We put some of the game — the film characters in our game. That was greatly engaging for our players and it delivered tens of millions of views to Jumanji, and it really moved the needle for them too.

So I think about continuing to move down that journey, and as we do that, we unlock more demand and we are working very closely with our agencies, while we also continue to build our direct sales team and continue to build kind of the infrastructure around it. So all in all, I think kind of that strategy that’s been working continues to bear fruit for us. And I think there’s plenty of growth ahead of us on good runway.

Christopher Hickey

Senior Vice President of Investor Relations | Activision Blizzard, Inc.

Thanks, Mike. Operator, we have time for one last question.

Operator

Thank you. We’ll take our final question from Mike Hickey with Benchmark.

Mike Hickey

Analyst | Benchmark

Hey, guys. Congrats on the quarter. Thanks for taking my question. You made a lot of changes, obviously, to Call of Duty this year. You introduced the cross platform. Newer game system, launched Mobile, obviously, has a huge success in e-sports. I guess to what extent we expect to see summer moves over the rest of your key franchises? Thank you.

Bobby Kotick

Chief Executive Officer | Activision Blizzard, Inc.

Thanks for the question, Mike. It’s Bobby. When — I think one of the things that we found with the launch of Call of Duty Mobile with games like Hearthstone, our designers and developers have gotten a lot more excited about reaching bigger, broader audiences. And we’ve seen that across the whole company. And so I think what you’re going to continue to see is a commitment to innovation on all of our franchises and then now includes commitment to innovation with mobile devices. And I think that as long as we can deliver new innovative game play with great user experiences on mobile devices, you’ll see more franchises taking advantage of that as a platform.

I think the other thing, we’ve seen is that people want to reach more customers in more countries and, especially when you look at some of the things that we’re doing in e-sports, being able to build these big inclusive communities around the world and today, our mobile games are played in almost 200 countries. That’s been a real catalyst for us to really rethink the way that we’re approaching our franchise development. So you can expect, as Jay pointed out, obviously, as Humam can attest to and as we’ve been seen in the Activision business with the success of Call of Duty Mobile. Mobile is now our largest platform and you’ll continue to see us with not just mobile touch points, but all the other important touch points that we’ve now added into the business, expanding the reach of our franchises, the engagement of our franchises and the monetization of our franchises.

So we are going to be more enthusiastic about the prospects that we have going forward. We’ve talked a little bit about the challenges, which is prioritization of opportunity and making sure that we have the right talent aligned with those opportunities, but those are challenges we managed for a long time. So it’s a great question. And I think you can expect that all of our franchises are investing in all of these new opportunities.

Christopher Hickey

Senior Vice President of Investor Relations | Activision Blizzard, Inc.

All right. Thanks, Bobby. Thanks everyone for joining us today. We look forward to speaking with many of you this quarter. And if not, we’ll see you on our next earnings call in late April, early May. Thank you.

Operator
[Operator Closing Remarks]

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