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Activision Blizzard, Inc. (NASDAQ: ATVI) First Quarter 2019 Financial Results Conference Call, May 2, 2019, 4:30 pm ET
Company participants
Christopher Hickey – Senior Vice President, Investor Relations
Robert Kotick – Chief Executive Officer
Collister Johnson – President and Chief Operating Officer
Dennis Durkin – Chief Financial Officer and President, Emerging Businesses
Robert Kostich – President of Activision
J. Allen Brack – President of Blizzard
Humam Sakhnini – President of the King
Participants in the teleconference
Alexia Quadrani – JPMorgan Chase & Co.
Colin Sebastian – Robert W. Baird & Co.
Kunaal Malde – Atlantic Actions
Michael Ng – Goldman Sachs Group Inc.
Tim O Shea – Jefferies LLC
Michael Olson – Piper Jaffray & Co.
Matthew Thornton – SunTrust Robinson Humphrey
Michael Hickey – The Company of Reference, LLC
Matthew Costa – Morgan Stanley
Operator
Hi, and welcome to Activision Blizzard's 2018 First Quarter Results Conference Call. For now, I would like to hand over the conference to Mr. Chris Hickey, Senior Vice President, Investor Relations. Please go ahead, sir.
Christopher Hickey
Thank you. Hello and thank you for joining us today for the 2019 first quarter call of Activision Blizzard. With us, Bobby Kotick, CEO; Coddy Johnson, President and Chief Operating Officer; and Dennis Durkin, the company's chief financial officer and president of emerging companies. And for questions and answers, Rob Kostich, president of Activision; J. Allen Brack, President of Blizzard; and Humam Sakhnini, the king's president, will also join us.
I would like to remind everyone that during this call, we make statements that are not historical facts. The forward-looking statements contained in this presentation are based on information available to the company as of the date of this presentation. And even if we believe that they are true, they can ultimately prove to be false.
A number of factors could cause actual future results of the Company and other future circumstances to differ materially from those expressed in the forward-looking statements. These include the risk factors described in our filings with the SEC, including our 2018 Annual Report on Form 10-K and those presented on the posted slide. The Company assumes no obligation to publicly disclose revisions to forward-looking statements to reflect events or circumstances that occurred after May 2, 2019 today.
We will present GAAP and non-GAAP financial measures during this call. We provide non-GAAP financial measures that exclude the impact of stock-based compensation expense; the amortization of intangible assets and acquisition-related expenses, including legal fees, expenses and accrued liabilities; debt financing and refinancing expenditures; restructuring and related costs; and the tax benefit associated with these excluded items.
These non-GAAP measures should not be viewed in isolation as a surrogate or superior to our GAAP results. We encourage investors to consider all measures before making an investment decision. Please refer to the publication of our results, which is published on www.activisionblizzard.com, for a full reconciliation of GAAP to non-GAAP GAAP and a more detailed explanation of our non-GAAP measures.
There is also a presentation of the results that you can access with the webcast and that will be published on the website after the call. In addition, we will also publish a financial overview highlighting GAAP and non-GAAP results.
And now, I'd like to introduce our CEO, Bobby Kotick.
Robert Kotick
Thank you, Chris, and thank you all for your presence today. Our first quarter results exceeded our prior guidance, reflecting strong operational discipline. We refocus our resources on our largest franchises to provide the operational excellence for which we are known. As we highlighted last quarter, we are focusing our efforts and investing more on our largest franchises to better execute and unleash their tremendous potential.
By prioritizing our franchises and the player communities we invest in these franchises, we remain true to the approach that has led to the long-term success of our company, doing very well certain things. We continue to selectively invest in potential new franchises, but our goal is innovation with the improvement of the franchises we have a lot of.
In today's content landscape, our franchise-centric approach is more relevant than ever. Players play fewer games longer, creating and maintaining new franchises remains one of the most challenging tasks in the entertainment industry. Only proven teams have the vision, talent, breadth and resources to create new intellectual properties. A smaller number of teams with the ability to manage these games over time and respond to the ever-increasing demand for players in terms of services and streaming content.
We are very fortunate to have some of the most enduring and popular global franchises backed by some of the best teams in the world. More than 0.5 billion users have played Candy Crush over the past seven years since the launch of the franchise. Call of Duty has just celebrated its 15th birthday and is one of the most successful entertainment franchises of all time, with cumulative sales exceeding 300 million games.
Overwatch and Diablo have tens and tens of millions of players, and this year the Warcraft franchise is 25 years old. Over a quarter of a century many players have taken part in experiments with Warcraft, World of Warcraft and Hearthstone. We expect to benefit from the strong growth of the sector and the opportunities specific to each company, which is what we have designed for our own intellectual properties.
There are more players than ever before and more ways for players to interact with our franchisors than ever before. We clearly have the opportunity to increase the reach, the commitment and the monetization of our franchises, notably thanks to brand new business models. We have extensive experience in all business models, including free games, and we are constantly evaluating the most effective models for all our games.
In addition to this opportunity for our core business, we have company-specific growth opportunities as we add new engagement and monetization models to our franchises, including e-sports, in-game advertising and more. digital consumer products, and we are making great strides in these areas.
In eSports this quarter, we launched the 2019 season for the Overwatch league with an expanded list of 20 teams and a strong growth in the number of viewers, with overtime going up by more than 20% over the previous year. last year. Leading brands continue to recognize the opportunity to engage a hard-to-reach demographic, deeply immersed in the most advanced eSport experiences and content with the highest production value.
We are very pleased to add Anheuser-Busch InBev, Coca-Cola and State Farm to our list of top-notch sponsors in the last three months. One of the essential elements of the Overwatch League is its city-based model, with team owners from around the world building communities of fans who share a passion for supporting their local teams.
In the first quarter, we announced that teams would be competing around the world starting in 2020. Highlighting the excitement and atmosphere of this new phase of the Overwatch League at weekends last, Dallas Fuel hosted the first league games in front of the crowd of thousands of fans, who saw them face the Los Angeles Valiant and the Houston Outlaws.
In accordance with the Master Plan, we have established and validated with Overwatch League. We have now launched the team selling process of our professional Call of Duty eSports league. We are seeing a strong demand for teams. We have already sold five franchises. We have recruited exceptional owners for Atlanta, Dallas, New York, Paris and Toronto. In each case, we collaborate with existing Overwatch League team owners, who have first-hand experience of our e-sport vision and capabilities, and who recognize the scale of opportunity for the Call of Duty World League, based in the cities.
We look forward to announcing more details about these cities and other team sales in the coming months. As always, we are grateful for the support of our employees, players, partners and shareholders.
And now, Coddy will review with you the highlights of our operations for this quarter.
Collister Johnson
Thank you Bobby. Concentration and operational discipline enabled Activision Blizzard to exceed our guidance for the first quarter. Candy Crush's good performance, Sekiro's better-than-expected sales and favorable cost synchronization were the main factors behind the increase. We also continue to reposition our business to take advantage of our future growth opportunities. So before delving into the details of our quarterly results, I would like to update you on some of the most important milestones we have reached since our last call.
As a reminder, we have four key drivers of long-term strategic growth: first, a strong rate of major content updates for which we are responding to the growing demand from industry player communities and more frequently disseminate our high quality content; secondly, robust live operations where we ensure we deliver quality content, services, features and events to permanently engage our communities and generate revenue in the game; third, expand our franchises to mobile where we are strengthening our existing leadership in mobile telephony and extending our acclaimed franchises for consoles and computers to the largest and fastest growing platform; and fourth, and finally, expand the reach and monetization of our franchises as we build on the early successes of in-game advertising and consumer initiatives in the field of e-sports.
Strengthening our product portfolio is a crucial step in realizing our growth opportunities. As I said last quarter, this year we are growing by 20% this year our aggregated developers for Call of Duty, Candy Crush, Warcraft, Hearthstone, Overwatch and Diablo, to accelerate the delivery of our pipeline content. to give our communities more opportunities to engage.
To share some of the details of the work in progress, we are organizing expanded development teams to better support initial content delivery and live operations, with more talent working to bring games to our communities, and more again. resources devoted to monitoring the volume and quality of evening games content that gaming communities expect more and more.
We are also significantly increasing the number of developers working on mobile initiatives. Among our core franchises, these resources complement the experienced creative talent and are already working on projects such as mobile expansion of existing games, mobile re-imagining of our franchises and cross-platform titles. These are ambitious projects that will take time, but we are determined to take advantage of the tremendous opportunities they offer us.
We are also investing in our technology platforms, creating tools and cross-platform capabilities that make us more agile in delivering content, increasing collaboration opportunities between our development teams, and enabling us to control our technological future. And we have more resources to work on the optimal business models for each of our franchises, including evaluating the opportunities offered by the free game.
We are lucky to be exposed to all types of commercial gaming patterns in our society. In recent quarters, you've seen us experiment with free-reach initiatives on more of our portfolio. Our internal teams perform tests to understand the content, marketing and timing implications of these different business models and to meet the needs of our players. We look forward to sharing more with you here in due course.
We are now building on the momentum of our fourth strategic engine of new engagement and revenue models, adding resources to our eSports business and continuing to invest in technology and business resources for the first quarter advertising, highlighting progress in these two initiatives.
In addition to these investments and the expansion of our major franchises, we have an important ongoing program to integrate the capabilities of partnerships and sales partnerships and marketing and marketing partnerships in the global, regional and global markets. We hope this project will help us better leverage our talent, expertise, scale and productivity. through our company. Although the work I just described pays off in the future. We are also focused on short-term results. I will now review our first quarter results based on our three key indicators: reach, engagement and player investment.
From the scope, the company had 345 million active users per month in the first quarter. Activision's monthly active users rose to 41 million, about half of the sequential quarterly decline due to the exclusion of monthly active users of Destiny. As you have seen in the past, the scope of Call of Duty has been influenced by a more competitive environment. However, and most importantly, our core player base remains heavily involved in Call of Duty: the total number of hours played by Black Ops 4 is increased by more than 10% compared to World War II.
We continue to publish new content, modes and events to maintain reach and attract new users. But we also recognize that we need to do even more to maintain the breadth of our Call of Duty player base beyond the quarter-finals and the Call of Duty team is working hard to achieve this. The enthusiasm generated by publishing content in the fall is incredibly high. around the organization.
We expect launch and post-launch content to provide our fans with game-changing experiences. Also in the first quarter, we announced that Call of Duty Mobile would arrive in areas such as the United States. North America, South America and Europe. While we continue to carefully plan this new initiative, we expect you to see significant potential for Call of Duty on mobile in the coming years, given the global recognition of the franchise and the growing demand for video games. first-person action on mobile.
The first quarter was also marked by Sekiro's very successful release: Shadows Die Twice, which enabled Activision to create selective partnerships with high-quality developers, in order to leverage our expertise and potential in publication and marketing. We could not be more satisfied with the execution of the collaboration and the response from the worldwide gambling community was critically acclaimed. Blizzard's monthly active users were $ 32 million, a year-over-year decline, reflecting the gap between the launch of the core content and the fact that we are still at the beginning of the expansion. of our content capabilities in games.
Last quarter, we highlighted the fact that the increase in the number and frequency of captivating content in the game and the initial releases was the number one goal of the new Blizzard management team. This process will take time. We have seen encouraging signs of how Blizzard communities have received recent game content.
Overwatch's monthly active users are seeing a single-digit sequential decline in Q1, as the first quarter was relatively quiet for gaming content and consumers had more choice in the team category this quarter. That said, the community's enthusiasm for Overwatch has once again manifested itself in the way it adopted the archives, the storm event in April and the new workshop mode that was subjected to public testing. last week.
For Hearthstone, April announced the launch of its latest expansion, Rise of Shadows, which resonated with the community. The first signs are encouraging, the exit leading to a greater commitment of the players than the two previous extensions. And this year, the Hearthstone team has a lot more in store, including the most important content opposing the actors to the environment in the history of the franchise, whose first wave will be unveiled at mid-May. This year again, Blizzard celebrated the 25th anniversary of the Warcraft franchise and the 15th anniversary of World of Warcraft.
During this time, Warcraft has developed a worldwide audience with several award-winning games in different genres, including more than 100 million accounts created for World of Warcraft and over 100 million registered players for Hearthstone. Later this year, we will be celebrating the special event for Warcraft with highly anticipated releases.
World of Warcraft Classic will be available as part of the franchise subscription this summer, allowing fans to play the game as it began 15 years ago. In addition, a major update to World of Warcraft content called Rise of Azshara is already on test servers and will include new areas, new dungeons and more. And Warcraft III: Reforged due this year is a complete reimagination of our classic real-time strategy rebuilt from scratch for a high-definition PC experience.
King's monthly active users were $ 272 million in the first quarter, up 2% from the fourth quarter. This second consecutive quarter of sequential monthly growth in the number of active users was driven by the Candy Crush franchise, which again saw growth in the number of active users each quarter and year-over-year.
This growth in the monthly number of franchised users seven years after the launch of Candy Crush Saga once again demonstrates Kings' strong ability to expand their audience with new content and live streaming.
Candy Crush Friends, with its accessible gameplay based on the lessons from the Candy series, continues to attract old and new players to the franchise. Monetization and retention trends remain solid in the first quarter, allowing positive user acquisition for ROI, which we expect will continue to contribute to the financial results of the coming quarters.
King continued to boost both reach and engagement through updates, features, and events. In fact, Candy Crush recorded a record daily active user time in the first quarter, which allowed the King network to reach a new daily active user record of 38 minutes during the quarter. m brings to our second key measurement goal.
For Activision Blizzard and King, the time spent per user in our games increased by one year on the other and the total average time spent by the company was about 50 minutes. At Activision for Call of Duty: Black Ops 4, Black Ops' commitment has allowed double-digit growth in the total hours played during the quarter and the time spent per player relative to the number of hours played. last year. Games are just one of the ways our communities engage in our franchises.
As Bobby has mentioned, our city-based professional league initiative, Call of Duty, is well underway. We are delighted to have sold our top five teams to big owners that we already know well through our Overwatch League partnerships. And for Blizzard, the BlizzCon returns to the Anaheim Convention Center on November 1 and 2. Blizzard teams are eager to welcome their community to the ultimate gaming fan event.
The investment of the players is our third key measure. In-game content, features and services generated approximately $ 800 million in net play in the first quarter. King was the biggest contributor, with two of the top 10 most lucrative titles in the US mobile app store for the 22nd consecutive quarter.
Net bookings in the Call of Duty game were down from the previous year, but the team continues to browse the features and offerings of the game in Black Ops 4, testing new ways for them. players to participate in the game content for both this game and future titles.
And as mentioned, we are increasing our number of developers and investing in our platforms to ensure our teams have the resources and tools they need to deliver the in-game experiences their players expect in the future.
In summary, during the first quarter, we made significant progress in rebuilding the foundation for future growth. Increased investment in our largest franchises allows us to better comply with the leases and in-game content required by our communities, and extend our franchises to new engagement and mobile models. We are positioning the company for the long term, but we also continue to focus on our short-term financial outlook and we are off to a good start for 2019.
Dennis will now review the financial results and outlook in more detail.
Dennis Durkin
Thank you, Coddy. Today, I will review our Q1 2019 results, better than expected, as well as our outlook for Q2 and the full year. To review the quarter, I will start with the results of our segment. Activision's revenues were $ 317 million, up 2% from the previous year. The main quarterly contributors were net bookings in the game and Call of Duty catalogs and the successful launch of Sekiro. Earnings from operations were $ 73 million, with an operating margin of 23%, representing a year-over-year decline primarily due to mix effects.
Blizzard sales of $ 344 million were in line with our expectations. Operating income decreased $ 55 million from a year ago due to lower gaming revenue, partially offset by lower costs. Blizzard's operating margin was 16%. King's revenue of $ 529 million is about stable compared to the previous year.
Candy Crush's net bookings increased year-over-year, with advertising activity more than doubling over the same period. Operating profit was $ 178 million, with an operating margin of 34%, down 2 percentage points from the previous year, thanks to a marketing investment in Candy Crush Friends.
Let's move on to our consolidated results. Unless otherwise indicated, I will refer to non-GAAP figures. Please refer to the publication of our results for full GAAP and non-GAAP reconciliations. For the quarter, we generated revenues of $ 1.83 billion under first quarter GAAP, $ 110 million higher than our February forecast. This includes the net recognition of deferrals of $ 567 million.
Net orders of $ 1.26 billion were $ 83 million higher than our February forecast. We incurred a restructuring charge of only $ 57 million under GAAP and generated first quarter GAAP EPS of $ 0.58 and non-GAAP EPS for the first quarter of $ 0.78, which was $ 0.15 to forecasts. These figures include the net carry-forward accounting of $ 0.47.
In terms of cash flow and balance sheet, in the first quarter we generated $ 450 million in cash flow from operations. We closed the quarter with cash and investments of approximately $ 4.8 billion and a net cash position of over $ 2.1 billion.
Let's move on to our list and outlook for the second quarter and for the full year. In the second quarter, Activision will continue to support Call of Duty: Black Ops 4 with content and updates to retain players. At the end of the second quarter, Activision will commercialize Crash Team Racing from nitro on PlayStation 4, Xbox One and Nintendo Switch.
In April, Blizzard released the Storm Rising Overwatch Archive event and its latest expansion of Hearthstone, Rise of Shadows. This will be followed by the most important content ever played by Hearthstone solo, later this month. And the World of Warcraft team will support the game with content, updates and upcoming events. And of course, King will continue to host innovative feature events and live operations across his entire portfolio. In the second half of this year, we will be releasing our most important publication, our new Activision Call of Duty title.
In addition, Blizzard will launch World of Warcraft Classic and Warcraft III: Reforged and we will provide more in-game content for Candy Crush and our other key franchises in the rest of the portfolio.
Now, I will give you a little more context before moving on to our tips. First of all, we are very happy with the alignment of our content, but it is obviously still very early in the year. The launch of our largest and most important card is not until the 4th quarter and the environment remains competitive.
In addition, our profit relative to first quarter performance was mainly related to the timing of expenses. With the bulk of our content range still ahead of us, we are still planning to spend this year, especially as we see an abundance of opportunities to invest and support our franchises, including including the new business model opportunities mentioned by Coddy.
Note that, in line with our previous forecasts, we are not taking any substantial revenue streams for new mobile initiatives for Activision Blizzard this year. Nous ne prévoyons pas non plus comptabiliser les produits importants tirés des ventes des équipes de Call of Duty eSports cette année. Et par conséquent, nous réaffirmons nos réservations nettes, nos produits nets et nos perspectives de BPA pour 2019.
Maintenant, laissez-moi entrer dans les détails. Pour le deuxième trimestre, sur une base non conforme aux PCGR, nous prévoyons des produits nets de 1,32 milliard de dollars, y compris la comptabilisation des reports selon les PCGR de 165 millions de dollars. Nous prévoyons des réservations nettes de 1,15 milliard de dollars. Le coût des produits, les coûts de fonctionnement et de distribution des jeux et des charges de distribution de 25%, ainsi que les charges d’exploitation, y compris l’amortissement des logiciels de 59% et une charge de restructuration selon les PCGR d’environ 35 millions de dollars. Nous nous attendons à un taux d’imposition de 24%, à un nombre d’actions de 771 millions selon les PCGR et non-PCGR, et à un BPA de 0,21 $.
Pour le deuxième trimestre, sur une base non conforme aux PCGR, nous prévoyons des coûts de produits, d’exploitation et de distribution de 25%, ainsi que des charges d’exploitation, y compris l’amortissement des logiciels, de 49%. Nous nous attendons à un taux d'imposition non conforme aux PCGR de 22% et à un BPA non conforme aux PCGR de 0,35 $, ce qui comprend la comptabilisation des reports selon les PCGR de 0,12 $.
Sur une base non-GAAP pour 2019, nous prévoyons des revenus nets de 6,03 milliards de dollars, y compris des reports de GAAP de 275 millions de dollars. Nous prévoyons des réservations nettes de 6,3 milliards de dollars. Le coût du produit, les coûts de fonctionnement et de distribution des jeux et les frais de distribution de 25%, les frais d’exploitation, y compris l’amortissement des logiciels de 55%, et une charge de restructuration selon les PCGR d’environ 150 millions de dollars. Nous nous attendons à un taux d’imposition GAAP de 24%, à un nombre d’actions de 774 millions selon les PCGR et non-GAAP et à un BPA de 1,18 $.
Pour 2019, sur une base non conforme aux PCGR, nous prévoyons des coûts de produits, d'exploitation de jeu et de distribution de 25%, ainsi que des charges d'exploitation, y compris l'amortissement des logiciels, de 45%. Nous nous attendons à un taux d'imposition non conforme aux PCGR de 20% et à un BPA non conforme aux PCGR de 1,85 $, ce qui inclut les reports GAAP de 0,25 $.
En résumé, le premier trimestre a été un bon début d’année et l’équipe a réussi à rester concentrée sur les changements. Nous avons clairement progressé dans le repositionnement de la société afin de tirer parti de l'énorme potentiel qui nous attend. Le contexte concurrentiel reste dynamique, mais nos franchises internes, nos talents de développeur, notre plateforme géographique et la diversité de nos modèles commerciaux constituent une base solide pour une croissance à long terme.
Nous avons encore beaucoup de travail devant nous. Et nous devons rester concentrés sur l'exécution, mais je suis convaincu que notre plan nous permettra de produire de solides résultats pour tous nos intervenants au fil du temps.
Maintenant, je souhaite la bienvenue à nos chefs d'entreprise Jay, Humam et Rob alors qu'ils se joignent à nous pour la partie questions-réponses de l'opérateur, opérateur?
Séance de questions et réponses
Opérateur
Thank you. [Operator Instructions] Nous répondrons à notre première question d'Alexia Quadrani avec JPMorgan.
Alexia Quadrani
Thank you so much. Pour revenir à vos commentaires sur la Overwatch League, comment se comporte votre performance par rapport à vos attentes? Et comment est-ce que cela se traduit par une sorte d'engagement du joueur ou de monétisation du jeu? Et je suppose que vous pouvez donner plus de couleur à la ligue Call of Duty en ville.
Robert Kotick
Sure. C'est Bobby. Comme je l'ai dit, nous continuons à montrer la voie en matière de sport électronique professionnel. Pour nous, le plus important a toujours été de pouvoir célébrer les joueurs professionnels qui s’engagent pour nos jeux et inspirent nos joueurs chaque jour. Mais je pense que ce que nous avons constaté, c’est que, grâce à nos initiatives de sports électroniques, nous créons un attrait beaucoup plus durable dans ces franchises.
Lorsque vous pensez aux sports et aux équipes sportives, ils sont les exemples ultimes de franchises éternelles. Et la raison pour laquelle nous avons créé cette ligue mondiale basée sur la ville est de pouvoir attirer la même passion et la même affinité que seules les équipes basées sur la ville peuvent véritablement encourager à les joueurs ont avec nos franchises.
Enfin, je dirais que, grâce à nos initiatives de sport électronique, nous avons été témoins d’une occasion extraordinaire de créer de la valeur pour nos actionnaires. Si vous pensez aux deux dernières années, les résultats obtenus par notre équipe axée sur le sport électronique sont remarquables.
Si vous regardez le temps qu'il aurait fallu dans les sports traditionnels pour vendre des équipes d'une valeur de plus de 0,5 milliard de dollars, je ne pense pas qu'il soit possible de le faire en l'espace de quelques années.
Le nombre de téléspectateurs sur Overwatch League continue de croître et nous générons maintenant des revenus beaucoup plus substantiels grâce aux droits de diffusion, aux sponsors et aux titulaires de licence. Donc, d’un point de vue commercial, la ligue se porte très bien. Entre Overwatch League et les cinq équipes Call of Duty que nous avons vendues, nous avons plus de 25 équipes qui ont généré des revenus de 0,5 milliard de dollars. Les prix des équipes Call of Duty étaient bien supérieurs à ceux des prix initiaux. les équipes de la ligue Overwatch.
Nous avons donc de très bons propriétaires. Nous avons beaucoup de dynamisme commercial. Je pense que nous avons une excellente saison pour Overwatch League avec une augmentation substantielle du nombre de téléspectateurs. Et dans l’ensemble, je pense que nous continuons à diriger nos initiatives en matière de sport électronique professionnel. Et en ce qui concerne le jeu, je laisse à Jay le soin de répondre à la question sur le jeu.
J. Allen Brack
Yes. Je pense que le sentiment du jeu, le sentiment du joueur pour le jeu reste positif. Nous continuons à avoir une base de joueurs active même si nous approchons de notre 30e anniversaire. Les équipes continuent d’ajouter des fonctionnalités pour le contenu et l’engagement du support.
La semaine dernière, nous avons publié l’atelier Overwatch sur le monde des tests publics. C’est un mode qui permet aux joueurs d’être vraiment très flexibles et très créatifs et de créer leurs propres modes de jeu en donnant une partie de la puissance que les développeurs ont aux joueurs. Les premières réactions ont été positives et je pense que nous sommes impatients de voir ce que les joueurs sont capables de créer.
Le reste de l'année, nous continuerons à ajouter de nouveaux héros, de nouvelles cartes et de nouvelles expériences. Et le trimestre dernier, j’ai expliqué à quel point l’ambiance Overwatch était ambitieuse et son évolution possible dans le temps. Et pour nous, le travail sur le jeu existant sera équilibré, de même que l’équipe qui se concentre sur son travail.
Overwatch est une énorme franchise pour Blizzard et nous continuons à y consacrer les ressources et l'attention nécessaires pour continuer à développer la communauté et la franchise au fil du temps.
Robert Kotick
Merci Alexia. Opérateur, pouvons-nous poser la prochaine question, s'il vous plaît?
Opérateur
Absolutely. Nous allons répondre à notre prochaine question de Colin Sebastian avec Baird.
Colin Sebastian
Awesome. Thank you. Je voudrais juste faire un suivi sur les commentaires sur le jeu gratuit et compte tenu du succès rencontré sur le marché du titre gratuit et de la bataille royale, je me demande si vous pourriez fournir un peu plus de mise à jour sur la société. stratégie pour tirer parti de ces tendances? Thank you.
Collister Johnson
Sure. C'est Coddy. Merci Colin. Pas de mise à jour spécifique aujourd'hui, mais je pense que vous avez raison de demander comment nous pensons au contexte plus large. Et comme vous l'avez souligné, cette industrie connaît actuellement une croissance dynamique. Je pense qu’il est d’abord utile de prendre du recul et d’examiner en gros comment nous envisageons cette croissance, car c’est la raison pour laquelle nous repositionnons la société que nous avons. But we see real growth taking place in in-game revenues, in mobile, in Asia, in free-to-play and in eSports, I just mentioned and in in-game advertising.
And so for us the repositioning is really about setting up the right resources to be able to dedicated to those growth initiatives and take advantage of them as we head into the coming years. I specifically know about one of those growth areas in the industry where you see Battle Royale free-to-play coming together.
And as we mentioned, we did see some reach impact in our franchises from competitors, who combined that approach in the space. But I think just as importantly, we see real opportunity for our franchises, where we can expand the reach of our ability to go to consumers as we look at that opportunity across our portfolio.
I need to start, though. Our north star is always compelling content and great engaging gameplay. It has to start there. It is why we have multiple business models in the company because different gameplay lands itself to different kinds of monetization, and what we're always trying to do is to make sure we have a growing ecosystem of a great player experience in the ecosystem of reach, engagement and monetization. But we are constantly re-examining these ecosystems.
If you just look at Call of Duty for instance, over the last decade, we've done multiple things to really evolve that model with evolving player interest from different upfront pricing, to different passes, to different post-launch content approaches and offerings, and we continue to consistently examine those ecosystems.
And part of coming to this year and the repositioning of our resources to make sure we had enough available not only to do what we've traditionally done, but to be able to test new approaches to look at the data, to understand what consumers really want and to be able to take advantage of some of those growth opportunities.
I do want to make one thing clear that just in closing, which is – we know that the upfront content that we sell for a premium has significant appeal to players, and that they're very pleased by the AAA experiences we can provide as an upfront sale. So we will continue that model. But our additional resources allow us to really look at a number of additional opportunities to take advantage of these kinds of growth areas.
Robert Kotick
Thank you. Operator, can we have a next question please.
Operator
Absolutely. We'll take our next question from Kunaal Malde with Atlantic Equities.
Kunaal Malde
I want to ask about King MAUs, because we've now seen two quarters of sequential growth. So how are you thinking about the outlook for the King Player base going forward?
Humam Sakhnini
Yes. Hey, Kunaal. It's Humam. Let me take that one. So as you saw, we had monthly active users of 272 million across King network this quarter, and it's kind of worth just remarking I think of how strong that network is and I'm really pleased to see that we have two quarters of sequential growth. It's really the first time we saw that since Q1, 2015, which was the quarter after we launched Soda.
And I'm equally pleased that that growth didn't come at the expense of average engagement. As you heard, we had record time spent for daily active user. Now it's about 38 minutes. You might have heard us last year we talked about that we're going to put more focus on our reach initiatives, and clearly we're seeing some of that pay off.
And as I think about we also had some really strong marketing opportunities that we've been able to capitalize on, you should bear in mind we're a very, disciplined marketer. So we're always looking at positive ROI user acquisition opportunities and those do vary from quarter-to-quarter.
But within that framework, what we do is, look at ways that we can always unlock more marketing investments and we do that by introducing new features in our pipeline, which drive engagement and monetization and that now includes advertising, which then enables us to invest more in user acquisition and feed the network.
And as an aside, we saw strong momentum in advertising in Q1. So overall, really happy to see that stabilization and we're going to continue to be disciplined in how we balance reach and user acquisition cost in the coming quarters.
Robert Kotick
Thanks Kunaal. Can we have a next question please?
Operator
Thank you. We'll take the next question from Michael Ng from Goldman Sachs.
Michael Ng
Thank you so much for the question. I just have one on Hearthstone. It seems like that's a property where bookings may have been declining for several quarters now. Is there anything specific to point to that's been driving that weakness, whether that's been competition in digital collectible cards or just a normal revenue curve for a game that's been very successful over five years? And are you assuming any sort of inflection in the Hearthstone trajectory following the launch of Rise of Shadows in April? Thank you.
J. Allen Brack
Hi, this is J. I just wanted to kind of say that Hearthstone is a great franchise for us. The game launched a little over five years ago and it's got over 100 million players. We also feel really proud that the game has such a large global appeal.
For engagement in the game it's moved around from year-to-year depending on where the Meta game – the Meta of the game that set at being one-time. How the latest expansion is landing and sort of resonating with the community. And what sort of new features are have been introduced in the game.
We do think that Hearthstone can be larger in the future. We have a lot of confidence in the team in both, leadership of the team and in the kind of direction they're taking for the game. We're adding more developers in the Hearthstone to create more of a content that the community really wants. And we also have some ideas for innovation that we want to accelerate.
You mentioned Rise of Shadows. We launched that in April. And we're really happy that it drove engagement above the previous two expansions. Throughout the rest of the year you'll continue to see different things that we add into the game.
The next thing up is our highly re-playable venture. That's going to come out this month. And it has substantially more content than we released in any previous P2P experience. And so overall we feel great about the surprises that that the team have and everything in some of sort of large player community.
Robert Kotick
Thanks Mike. Operator, can we have the next question please?
Operator
Thank you. We will hear now from Tim O'Shea with Jefferies.
Tim O'Shea
Yes. Thank you for taking my question. With Dennis returning to the CFOC, I just thought it made sense to hear if there's going to be any changes in terms of the philosophy around M&A and capital returns. Thank you.
Dennis Durkin
All right, Hey! Tim. Thank you. I appreciate the question. This is Dennis. Well, you covered us for a long time so you obviously know we have a long track record of trying to be balanced, and disciplined in how we allocate capital across investing in the business strategic M&A or returning capital to shareholders via buybacks and dividends.
And the core component of that is always ensuring. We have a strong balance sheet. And we for a long time viewed that as a really strategic asset for the company and that gives you a tremendous flexibility as you think about making big bets. And when we find those compelling opportunities, we're not afraid to follow-up on them.
You've seen the benefits of that approach over time in both our Vivendi buyback in 2013 and also when we acquired King in 2016. In both cases we were able to deploy balance sheet cash and borrow in a disciplined fashion while we moved our way up the investment-grade credit rating grid.
And with rapid change in our industry, we think it's really important to maintain this kind of strategic flexibility and be disciplined about what's best for the company for the long-term. So yes, nothing has changed in terms of how we think about capital allocation philosophy and you should expect a continuation of our disciplined balanced approach going forward.
Robert Kotick
Yes, and I'll just add Tim because I'm off to Omaha for I don't know probably the 20 time for the Berkshire Annual Meeting that as you think about it's worth well for us as a philosophy over 29 years, we're going to always be the guys that wait for that – pitch. And when you think about that it's baseball analogy, we're not going to veer from the discipline that we had for that as a guiding philosophy.
Operator, can we have the next question, please?
Operator
Thank you. We'll now hear now from Mike Olson with Piper Jaffray.
Michael Olson
Hey, good afternoon. And thanks for taking my question. I was wondering, how you're feeling about the upcoming version of Call of Duty that's coming this fall. And also what's the latest you can share related to the prospects and potentially timing for Call of Duty mobile? Thank you.
Robert Kotick
Hey, Mike, it's Rob. Thanks for the question. So we continue to feel incredibly good about this year's game coming from infinity wars. The game's going to be revealed later this quarter. I think it's going to be really clear then why we're really so excited about the release.
On the mobile part of your question, obviously, we see significant potential for Call of Duty. We're starting to see first-person action games on the platform to track really potential audiences and we feel that with Call of Duty's global appeal, we can obviously see some powerful results.
Now as we've discussed before now approaching the mobile opportunity in two ways really both through internally developed content and through partnerships. And in the case of what we recently announced the Call of Duty mobile, we're working with Tini one of Tencent's top studios. And Tencent's putting a ton of resource behind the game and it continues to shape up really, really well.
The results from all the regional tests that we've had have been really encouraging as is the interest in the community. And after we announced the Call of Duty mobile is coming to region outside of China, we saw over 10 million pre-registrations on Google Play for the game, which is a really strong and significant result for a new title.
We're also pretty encouraged by the resumption of our approval in China. So we're not taking anything for granted here. As stated you can assume we're planning particularly prudently for that country and mobile overall. And to sum it up honestly, we feel just really good about the games that we have in the pipeline for the Call of Duty franchise this year and we're excited for their prospects. Thanks for the question.
Operator, can we have the next question, please.
Operator
Thank you. We'll now move on to Matthew Thornton with SunTrust.
Matthew Thornton
Hey, good afternoon, everyone. Thanks for taking the question. Maybe coming back to King and Candy Crush in particular, you talked in the past about how the franchise grew through some of the network disruptions last year. And my question here is, is that growth sustainable than we've seen recently? And can we expect some acceleration as we look forward here as we start to comp some of those network disruption issues? Thanks, guys.
Humam Sakhnini
Hey, it's Humam again. We've had a really strong quarter for Candy franchise as you heard. And yes, the network disruption in Q2 last year did cause a step-down in reach and monetization. So when you think about the year-on-year net bookings growth it really illustrates the durability over the long-term of the franchise. I will say that since that disruption, we stepped up our internal initiatives to build more direct connections with our players.
But on the durability point, I just want to highlight how evergreen the franchise is that we've created there. The Candy franchise bookings grew year-on-year in 2017, again in 2018, and now continued into Q1. Shows kind of the strength of this franchise, which first launched in 2012. And ever since Soda was launched in 2014, Candy has had two of the top 10 grossing titles, and the U.S. app stores.
In my mind it comes down to our ability to do a few things here within the franchise, first is successfully developing market new titles within the franchise. So we launched Candy Crush Friends in 2018 – October 2018, and the monetization trends on that continue to remain strong. And we prudently invest in our marketing opportunities to bring in former players and new players, and I discussed that earlier. We take a very disciplined ROI approach to that.
And third, we constantly innovate within our live titles and deliver players fresh new content and features. And we really think very thoughtfully about those pieces of content that we're putting in our live titles. So, I feel really good about our ability to continue executing in these areas and to deliver ongoing growth in the Candy franchise as a result of that.
Robert Kotick
Thanks, Matt. Can we have the next question please, operator?
Operator
Thank you. We'll take our next question from Mike Hickey with The Benchmark Company.
Michael Hickey
Hey, guys. Thanks for taking my question and congrats on a strong Q1, good start of the year. I guess I was just hopeful that you could provide some additional color or maybe some – a little bit more visibility within your Blizzard pipeline. Thank you.
J. Allen Brack
Salut. This is J. Thanks for the question. This is an important topic for everyone, and it's super important to me personally. I said consistently that the Blizzard pipeline is larger and richer than ever before. It includes PC and console releases.
It includes ongoing content for World of Warcraft, Overwatch, Hearthstone and a couple of mobile initiatives. It's critical that all these products meet the Blizzard quality that we're known for. We want to give the teams the space to really create excellence and release games at a better and more consistent kids.
We're pretty impatient to get all those content in front of the community and it's a reason that we have significantly increased our developer head count as we talked about last quarter. The teams are highly motivated. We feel we've got a lot to prove, both to our players and to ourselves. And lastly, we just talk about – Coddy talked about earlier announcing BlizzCon and the show is returning November 1 and 2 to the Anaheim convention center and working really hard to make it great event.
Robert Kotick
Thank you. Operator, we have time for one last question.
Operator
Thank you. We'll take our last question from Brian Nowak with Morgan Stanley.
Matthew Costa
Salut. This is Matthew Costa on for Brian. Thanks for taking the question. Just on the cloud gaming opportunity, there's obviously been a large number – number of large payers going into the space between Steadier from Google and now Microsoft with Project X cloud. Can you contextualize that opportunity in your view and give any thoughts on those new platform entrants? Thank you.
Robert Kotick
Yes. Thanks for the question. It's Bobby. When you own 30 years of IP like we do, there's probably never been a better time to be in the games business. And that's when these big well-funded companies are building out platforms that they have limited amounts of content to actually serve up to customers. I'd say that there's a great opportunity for a company like ours.
I think for starters they will all try to broaden the audience for gaming and make big investments to commit to doing so. And that's just helpful for a growing market. But in each case none of these platforms can succeed without great content. And truthfully, they don't really know how to make it.
So, when you think about what will be required it will be support from us to allow them to actually build audience. And I think that we have a better opportunity than most to capitalize on all these new platforms that will be there.
In addition, to the fact that we have almost 350 million direct relationships with our own customers today and so distribution is evolving and changing in the way that we actually connect with our own customers. So in that I would say as you think about the next five to 10 years, there will be more ways and places to engage players and that serves us better than almost any other company.
Christopher Hickey
All right, thank you everyone for joining us today. And we look forward to seeing many of you I guess in L.A. for E3 perhaps next month then if not then see you on the call next quarter. Thanks for the time.
Operator
Thank you. That does conclude today's conference. Thank you all for participation. You may now disconnect.
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