Activision Blizzard CEO Bobby Kotick delivered the following remarks during the company’s Q1 2021 earnings call on Tuesday, May 4, 2021:
“Thank you, Chris, and thank you all for joining us today. For more than a year now, amid very challenging conditions, the teams at Activision Blizzard have played an important role in supporting and serving our community of 400 million players in 190 countries. Our teams have kept players connected using our platform to comfort, inspire and draw people together. Their hard work and dedication enabled us to deliver significantly better than expected first quarter results.
First quarter net bookings increased year-over-year by 36% to $2.1 billion. Non-GAAP operating income grew 38% and non-GAAP earnings per share increased by 29%. Year-over-year performance was driven by our three largest franchises, Call of Duty, Warcraft and Candy Crush, with each delivering strong double-digit growth in net bookings.
This overperformance was well ahead of our expectations and confirms that our multiyear franchise strategy and continued execution is delivering value to our shareholders. With momentum continuing across our business, we're raising our financial outlook for the year.
In the last 20 years, we've delivered 21% compound rates of return as compared to the S&P 500 which delivered 8% compounded rates of return. $1,000 invested in Activision in 2001 would be worth over $45,000 today as compared to $4,900 in the S&P 500.
This performance is possible because of our deep library of franchises. We own some of the most enduring and popular global entertainment franchises supported by the very best creative teams in our industry. Our strategy centers around our long-held view that wholly-owned entertainment franchises offer the opportunity for limitless innovation. We continue to increase investment in creative and commercial resources for our franchises and potential new franchises to deliver new compelling experiences for players and superior financial returns for our shareholders.
With free-to-play entry points across mobile, PC and console, Call of Duty experienced an increase of over 100 million players in a little over a year. Call of Duty is the template we're applying to our proven franchises as well as our new potential franchises as we attempt to grow our audiences to 1 billion players. Our increase in live operations is reflected in last quarter's results and our forward outlook as we've seen our business shift from a seasonal focus with a holiday emphasis to an always-on business model with far less seasonality.
This quarter also marked the five-year anniversary of our acquisition of King and the Candy Crush franchise. With the Candy Crush team delivering more year-round content to over 200 million monthly players, King's business is delivering excellent results. Segment revenue grew over 20% year-over-year to reach a new record in the first quarter. It's especially noteworthy that of the top 10 mobile franchises worldwide at the time we announced the acquisition of King, no other game has grown in-app revenues over the period or matched Candy's compound growth rate. King's advertising business continues to deliver spectacular results too with revenue growing 70% year-over-year in the first quarter.
As we look ahead, demand for our content has never been stronger. We continue to ramp our investment in creative and development talent, especially with increased competition from Chinese companies and platform providers. And this will allow us to better serve our players. From the start of 2020 through the end of next year, we intend to hire more than 2,000 developers. We plan to triple the size of certain franchise teams compared to those team sizes in 2019. And we have aggressive hiring plans around the world including new studios or major expansion in Poland, China, Australia and Canada.
And as our shareholders expect, we remain laser-focused on finding and retaining the best talent in the industry and always aligning performance and reward. From the extensive shareholder outreach we conducted this past year, reaching well over 60% of our shareholders, we are pleased that our company-wide pay-for-performance compensation philosophy and ESG initiatives are aligned with the expectations of our shareholders.
This quarter, we'll release our first ESG report highlighting our commitment to the environment, human capital management, social good, the very best governance practices and their direct connection to the creation of shareholder value. While the report is new, our commitment to these practices and shareholder value creation is not.
In particular, we've long appreciated that the creation of broadly appealing games requires diverse views, diverse voices and diverse skills and an environment that fosters inclusion. And importantly, our ESG report will include our commitments to help ensure that our scale serves our players, our employees, our communities and especially our shareholders and that those commitments are embedded into and across our business.
Also in the service of our shareholders, I'm pleased to introduce Armin Zerza as our new Chief Financial Officer. Armin's deep experience as a global finance and operations executive and his contributions as Chief Operating Officer of Blizzard and Chief Commercial Officer of the company make him especially well suited to serve as our next CFO.
In his six years with the company, Armin has been a central figure in the company's continued growth and record financial results. He has the commitment to profitable growth and operational excellence that our shareholders have always recognized us for. And Armin comes to the role with an incredible team assembled by Dennis and Thomas over the last decade.
Dennis has been a key contributor in some of the most value-creating moments of our history including the buyback of control from Vivendi in 2013 and our expansion into mobile through the acquisition of King. Dennis' contributions have meaningfully shaped our culture, leaving the company in a much stronger position than when he joined 10 years ago. Dennis, on behalf of Brian, Thomas and our board of directors; I thank you for your friendship, your partnership and your leadership.”
Our earnings release and a full transcript from the call can be found here.
Use of Non-GAAP Financial Statements
As a supplement to our financial measures presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), Activision Blizzard presents certain non-GAAP measures of financial performance. These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for, or as more important than, the financial information prepared and presented in accordance with GAAP. In addition, these non-GAAP measures have limitations in that they do not reflect all of the items associated with the company’s results of operations as determined in accordance with GAAP.
Please refer to the tables at the back of our earnings release for a reconciliation of the company’s GAAP and non-GAAP results.
Cautionary Note Regarding Forward-Looking Statements:
The statements contained herein that are not historical facts are forward-looking statements including, but not limited to, statements about: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow, or other financial items; (2) statements of our plans and objectives, including those related to releases of products or services and restructuring activities; (3) statements of future financial or operating performance, including the impact of tax items thereon; and (4) statements of assumptions underlying such statements. Activision Blizzard, Inc. generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “aims,” “believes,” “may,” “might,” “expects,” “intends,” “seeks,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming,” and other similar words and expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risks, reflect management’s current expectations, estimates, and projections about our business, and are inherently uncertain and difficult to predict.
We caution that a number of important factors, many of which are beyond our control, could cause our actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to: the ongoing global impact of a novel strain of coronavirus which emerged in December 2019 (“COVID-19”) (including, without limitation, the potential for significant short- and long-term global unemployment and economic weakness and a resulting impact on global discretionary spending; potential strain on the retailers and distributors who sell our physical product to customers; effects on our ability to release our content in a timely manner; the impact of large-scale intervention by the Federal Reserve and other central banks around the world, including the impact on interest rates; and volatility in foreign exchange rates); our ability to consistently deliver popular, high-quality titles in a timely manner, which has been made more difficult as a result of the COVID-19 pandemic; concentration of revenue among a small number of franchises; our ability to satisfy the expectations of consumers with respect to our brands, games, services, and/or business practices; our ability to attract, retain and motivate skilled personnel; rapid changes in technology and industry standards; competition, including from other forms of entertainment; increasing importance of revenues derived from digital distribution channels; risks associated with the retail sales business model; the continued growth in the scope and complexity of our business, including the diversion of management time and attention to issues relating to the operations of our newly acquired or started businesses and the potential impact of our expansion into new businesses on our existing businesses; substantial influence of third-party platform providers over our products and costs; risks associated with transitions to next-generation consoles; success and availability of video game consoles manufactured by third parties; risks associated with the free-to-play business model, including dependence on a relatively small number of consumers for a significant portion of revenues and profits from any given game; our ability to realize the expected financial and operational benefits of, and effectively implement and manage, our previously-announced restructuring actions; our ability to quickly adjust our cost structure in response to sudden changes in demand; risks and costs associated with legal proceedings; intellectual property claims; changes in tax rates or exposure to additional tax liabilities, as well as the outcome of current or future tax disputes; our ability to sell products at assumed pricing levels; reliance on external developers for development of some of our software products; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; the seasonality in the sale of our products; counterparty risks relating to customers, licensees, licensors, and manufacturers, which have been magnified as a result of the COVID-19 pandemic; risks associated with our use of open source software; piracy and unauthorized copying of our products; insolvency or business failure of any of our partners, which has been magnified as a result of the COVID-19 pandemic; risks and uncertainties of conducting business outside the United States; increasing regulation of our business, products, and distribution in key territories; compliance with continually evolving laws and regulations concerning data privacy; reliance on servers and networks to operate our games and our proprietary online gaming service; potential data breaches and other cybersecurity risks; and the other factors identified in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.
The forward-looking statements contained herein are based on information available to Activision Blizzard, Inc. as of the date of this filing and we assume no obligation to update any such forward-looking statements. Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of our future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.