Activision Blizzard doubled down today on a Diablo Immortal 2021 global release. Diablo II: Resurrected technical alpha broke viewership records of any Blizzard test ever. Multiple Warcraft mobile games in the pipeline. The press release may be found here.
- Blizzard segment revenue grew 7% year-over-year, led by strong growth in the Warcraft® franchise, with World of Warcraft’s Shadowlands expansion building on the substantial increase in scale seen since the launch of World of Warcraft Classic in 2019. Blizzard had 27 million MAUsD in the first quarter.
- World of Warcraft’s Shadowlands expansion continued to drive strong results following its record-setting release in November, with first quarter franchise net bookingsB growing sharply year-over-year.World of Warcraft saw strong reach, engagement and participation in value added services, along with a particularly high number of new players joining the community for the first time, boosted by initiatives to enhance the onboarding experience.
- Hearthstone®’s latest expansion, Forged in the Barrens, launched on March 30 and is on track to deliver expansion-over-expansion net bookings growth for the second consecutive release.
- Ahead of its launch later this year, Diablo® II: Resurrected saw very positive feedback during early testing in April and online viewership of the alpha test was the highest ever for a Blizzard game test.
- On mobile, Diablo® Immortal entered its second phase of testing and is on track for global release later this year.
- April saw Overwatch® fans around the world return to celebrate players and city-based teams in the opening weekend of the 2021 season of Overwatch League. The league signed a multi-year partnership with Bilibili Esports for exclusive rights to broadcast league games to the platform’s passionate and growing Overwatch League fanbase in China.
Activision Blizzard 2021 Q1 Investors Call Transcript
Daniel Alegre: Now turning to Blizzard, where the teams continue to make great progress on rich pipeline of premium releases and extending key franchises to mobile. MAUs were 27 million. In the Warcraft franchise, the World of Warcraft: Shadowlands expansion continued to drive strong results following its record setting release in November with WoW net bookings growing sharply year-over-year. Shadowlands is building on the momentum (seen since the 2019 introduction of Classic) drove a substantial increase in scale and enhanced financial trajectory for WoW. The team’s work to deliver a high-quality expansion is being recognized by the community.
First quarter reach was sustained at a higher rate than we typically see following expansion launches, accompanied by deep engagement; and Blizzard saw a particularly a high number of new players joining the WoW community in the quarter boosted by its initiatives to enhance the onboarding experience; and World of Warcraft also saw strong participation in value-added services, further bolstering year-over-year growth in net bookings.
Blizzard is building on this momentum, with further content for the modern game and the upcoming introduction of the Burning Crusade, the expansion first launched in 2007 to WoW classic. The Burning Crusade was critically acclaimed at launch and we expect the upcoming release to more deeply engage current subscribers, bring back lapsed Classic fans, and also bring entirely new players into WoW Classic. With the expanded development team executing well against a strong pipeline, WoW remains positioned for much stronger annual financial performance, and it’s typical outside of a modern expansion year.
Now staying within the Warcraft universe, Hearthstone is seeing encouraging trends as the team executes on a strong pipeline of new in-game content, features, and game modes. Hearthstone’s latest expansion Forged in the Barrens was released at the end of the first quarter with a game on track to deliver expansion over expansion net bookings growth for the second consecutive release; and Blizzard expects to sustain this trajectory with more new content, including Mercenaries — an innovative new mode in the popular roleplaying genre planned for the coming months.
The Diablo franchise is nearing the start of its reincarnation. Blizzard announced the launch later this year of Diablo II: Resurrected — the return of one of the most acclaimed titles in PC gaming history. The game received very positive feedback during early testing in April; and online viewership of the alpha test was the highest Blizzard has ever seen for a game test, illustrating the community’s anticipation for this release.
On mobile, after highly successful regional testing last December, Diablo Immortal has just entered its second phase of testing, and is on track for global release later this year. We expect Diablo Immortal to broaden Diablo’s reach ahead of the launch of Diablo IV on PC and Console. Diablo IV development is progressing very well with a significant extended team focused on not only launching an epic new experience, but also following this up with robust in-game content to sustain community.
In Overwatch, the team is making good progress on Overwatch 2 and is looking forward to sharing more frequent updates with the community in the near future. April saw fans around the world returned to celebrate our players and city-based teams in the opening weekend of the 2021 Season of the Overwatch League. The League also signed a multi-year partnership with Bilibili Esports for exclusive rights to broadcast league games to the platform’s passionate and growing Overwatch League fanbase in China.
Armin Zerza: Blizzard revenue was $483 million — increasing 7% year-over-year with very strong growth for World of Warcraft partially offset by product timing. Operating income was $208 million, and business operating margin was 43% for the consistent year-over-year.
Finally, across our segment, in-game net bookings grew 40% year-over-year to $1.34 billion representing 65% of overall net bookings with each of Activision, Blizzard, and King contributing to this strong performance.
Now let’s turn to our overall consolidated results and — unless otherwise indicated — I’ll be referencing a non-GAAP figure. As always, please refer to our earnings release for our full GAAP to non-GAAP reconciliation. Now for the quarter, we generated Q1 GAAP revenues of $2.28 billion, $260 million above our February outlook. This includes the network recognition of the growth of $9 million and net bookings of $2.7 billion were $316 million above outlook, and we generate a GAAP EPS of $0.79 and Q1 non-GAAP EPS of $0.98 — which was $0.14 above our February outlook. These figures include the net work recognition of the growth of $0.14.
Now turning to cash flow and the balance sheet. Our strong business fundamentals also grew substantial cash flow generation in the quarter. We delivered operating cash flow of $844 million — significantly higher year-over-year reflecting higher operating income tax settlement in the year ago quarter and changes in working capital. Our cash and investments at the end of March where approximately $9.5 billion by the end of the quarter with net cash position of approximately $5.9 billion; and as previously announced, this week will pay an annual dividend of $0.47 per share, 15% higher year-over-year.
Now let me turn to output for Q2 and the full year. Regarding the slate, our expanded teams are focused on delivering epic in-game and upfront content. This means that we’ll continue to support our franchises with new in-game content, events and features — all of which are critical elements of our business as we focus on keeping our communities engaged, and drive year-round player investment.
In terms of upfront releases, we will release WoW: Burning Crusade Classic in the coming months, and we’re looking forward to launching Diablo II: Resurrected; and on mobile, we continue to plan for the launch of Diablo Immortal in the second half. Although, as is customary, we do not include meaningful contribution for new mobile launches in our outlook.
Now before I discuss the specifics of our outlook let me provide some context. The year is off to a very strong start. Our growth initiative continues to deliver great results in the first quarter and our momentum has continued across all of our key franchises into the second quarter. Competition for talent remains high and in this context, we have been increasing our investment in creative and commercial talent to deliver even more compelling experiences across our portfolio to the remainder of the year. As a result, we feel great about our ability to continue engaging our communities.
So to close, in Q1 we continue to deliver strong results across our largest franchises, and our momentum has continued into Q2. We are making great progress in our pipeline which includes key content that we expect to deliver another step change in financial performance in 2022, as well as unannounced initiatives that we expect to drive longer term growth for the company.
We have a combination of leading-on franchises best in class developer and commercial talent, and expertise across platforms and business models; all of which create a powerful platform for sustained financial performance. We remain focused on execution and operational discipline; and committed to profitable growth to drive shareholder value over the long term.
Q&A
Ryan Gee: Last quarter you guys talked about the breadth of content in the Blizzard pipelines. It would be great if we could get an update on how the Blizzard teams are progressing on the projects you’ve already announced, namely, Overwatch 2 and Diablo IV; and then if you could talk a little bit more about what else might be in the pipeline?
J. Allen Brack: When we look at the Blizzard development population, we’ve added hundreds of developers across our key franchises over the last few years; and we continue to invest in world-class development working to bring talent in from all around the globe; and the goal here is to execute on the plans that we have to create continuous content for players across all of our games.
Speaking of Overwatch 2, we’ve got some great feedback from the player community around the development progress that we showcased in February at BlizzConline; and we feel really confident in both the game and the team and they’re going to continue to share updates about Overwatch 2 progress, new features in a live game going forward.
With Diablo, there is a lot of strong momentum right now. We have public testing that had taken place in both April and May for both Diablo Immortal and Diablo II: Resurrected; and we also have a lot of community interest around the development of Diablo IV as you mentioned.
We’re also continuing to make progress across multiple mobile titles that we’ve alluded to in the past. We really want to bring authentic Blizzard quality experiences to all the games that we have; and so for us, it’s a pretty exciting time as we continue to work on PC, Console, and Mobile expressions of all of our franchises; and we feel like the IP and the franchises that we have are really full of a lot of potential, and we’ll look forward to sharing more as these projects progress and we make more progress going forward.
Brian Nowak: I want to ask about Diablo Mobile. Curious to hear about any learnings thus far from the Diablo Mobile alpha. Things that are sort of working particularly well versus areas where you see room for further innovation. Then sort of a bigger picture one on Diablo, talk to us about sort of the how you are thinking about the importance of a sequence approach to having Diablo II: Resurrected followed by Mobile followed by Diablo IV to really maximize the gamer interest.
J. Allen Brack: I personally am a massive fan of Diablo. I have put in thousands of hours into various Diablo games over the decades; and we’re all very excited about the overall strategy and the direction of the games that you mentioned. When we think and look at Diablo, we’ve got three upcoming releases that we expect to really expand the audience, and really delight the community and exceed their expectations.
So Diablo II: Resurrected is bringing we think of as really a true classic in gaming into the modern gaming world for both new fans, and fans that really are going to come back and play it again.
Diablo Immortal… the point there or the goal there is to broaden the audience, bring an authentic version of Diablo to Mobile, and then with Diablo IV that’s going to be our next mainline title that we feel is going to advance the art of the action RPG genre.
And so, it’s really never been a better time in the history of Diablo to be a Diablo fan. We’ve seen positive reception to the development progress that we shared this year for Diablo IV. We announced the new class (the Rogue) at BlizzConline, and the team is continuing to progress through important internal development milestones.
With Diablo Immortal, it’s currently in the second phase of testing. We’ve introduced another new class. We’ve introduced new zones, and we’ve also introduced for the first time to the public the high-end in-game and PVP content; and we’ve seen the community respond pretty positively thus far. Particularly around the system’s design; and we’re looking forward to more of their feedback as testing continues.
On top of being an authentic Diablo experience on mobile, Diablo Immortal is also bridging a narrative gap between the events of what happened at the end of Diablo II and the start of Diablo III; and so that’s bringing additional storytelling into the franchise.
And then lastly, Diablo II: Resurrected recently completed its first public test, and the reception that we received was really great. The original Diablo II is a landmark game in Blizzard’s history, and that we’re really happy that we’ve been able to kind of reintroduce this experience to new players, and spark renewed passion in players who really love the original; and so the overall strategy for Diablo is to really provide players with different ways to engage in the franchise on their platform of choice; and we think that this will welcome all kinds of people all around the world into the Diablo player community.
Colin Sebastian: I know you touched on some of this already, but I wanted to follow up a bit more on the broader mobile development strategy including the genres and types of mobile games that you may be exploring both within the existing franchisebase as well as extending out perhaps to new experiences?
Daniel Alegre: Look we believe our franchises absolutely have to be accessible wherever the players are, and that obviously includes mobile, and not only in developed countries but even more so in developing countries. In mobile, this is just the ultimate driver of reach with almost 3 billion smartphones worldwide. That’s forecasted to increase to 4 billion in the next five years.
We are really doing ourselves and a community a disservice if our games are not on those platforms, and that’s why this is so critical to our strategy; and the opportunity is crystal clear. Little known fact is most of the top 10 franchises on mobile worldwide are actually based on existing PC, or console IP; and our franchises are in genres that are particularly well suited for mobile, and they are amongst the few franchises in the industry to really have the appeal around the world including regions where mobile is the main way that people play core games.
As a result, we really want all of our franchises to be on mobile, and in some cases there might be several different ways in which a franchise can be represented on mobile. You may have re-imagination of an IP on mobile — in addition to games that are just more similar to an existing Console or a PC experience; and as a core part of our strategy to make our franchise available across platforms, we’ve done a number of things.
So obviously, we acquired King, and that brought tremendous mobile talent which has proven to be the case through continued momentum in that business exemplified by what you just saw in our Q1 results; and we’ve also as a company, we leverage the learnings from King across the business: platform engagement, live ops, user acquisition, or managing game economies; and across Activision and Blizzard, we started with Call of Duty: Mobile — following up with Diablo Immortal mobile (that Jay was just referring to), and we’re also working on a number of Warcraft mobile titles, and some unannounced initiatives as well, underway.
So players will increasingly be able to enjoy these franchises they love on Console, PC, and on the Mobile experiences we are building. So as you can tell, this is a real priority for us. A lot of investment. We’re hiring hundreds of mobile developers to achieve these targets, and you should continue to see the results of this work in the coming quarters.
SLIDES
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