2017 Annual Report a Record Year in 2017
Total Page：16
File Type：pdf, Size：1020Kb
2017 Annual Report A record year in 2017 up 8% 1 record net bookings $ 7.2 billion year-over-year 76% of total net bookings1, record digital net bookings1 $5.4 billion up 4% year-over-year record in-game net bookings1 $ 4+ billion record non-GAAP EPS2 $2.21 record operating cash flow $2.2 billion Cover: Activision Blizzard has the most talented, passionate and 1 Net bookings is an operating metric that is defined as the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others. dedicated team in entertainment. 2 Non-GAAP reconciliations are in the earnings release dated February 8, 2018, which is available on www.activisionblizzard.com a virtuous cycle the media company of the future es riv D n E nt tio pi le va ity c a o ativ R C T nn re ea o I C Pl c n d ay h te n e a n r t a s n a d a n n E d d n S g E p a x ® g p e e c e C r t M i ® a e F a R t n o r p o a e c ® r a r e n e i s b n c s i v l h i e t i i s s e e t s s i , , n S C E h o n a m d r u e m s d ri e e n iv s P r g r e la c D u t ia nt n w fo l e e lo r gem ev F m Enga R h s ring as Recur C ng and Stro building blocks for growth Core Interactive Esports Digital Advertising n Bigger audiences n Franchises become n Largest untapped digital n Increasing engagement even more enduring, ad opportunity n Growing monetization like professional sports n Fuels growth across n Driven by franchise mobile and esports innovation, always-on gameplay, and mobile expansion 1 The first global city-based esports league ® ® 2 40 million registered players globally ® ® 3 7th expansion, Battle for Azeroth, launches in 2018 ® ® 4 Record levels of MAUs1 and time spent in 2017 ® ® 1 MAUs defined as number of individuals who accessed a particular game in a given month averaged across the number of months in a respective period. Refer to the definition included in the fourth quarter 2017 earnings release for additional details. 5 ® ® ® ® ® ® 6 Top grossing console game worldwide in 20171 n n n Top franchise globally for 8 of the last 9 years1 ® ® 1 Based on data from the NPD Group, GfK, GSD and internal estimates. 7 Second highest grossing console game in North America in 20171 ® ® 8 1 Based on data from the NPD Group, GfK, GSD and internal estimates. Number-one-selling remastered collection in PS4 history1 ® ® Skylanders Academy animated show with two seasons on Netflix ® ® 1 Based on blog.us.playstation.com 9 2 of top-10 grossing mobile games for the 17th quarter in a row1 n n n Candy Crush Saga and Candy Crush Soda Saga at #1 and #2, respectively in Q4 20171 10 1 Publisher ranking for U.S. Apple App Store and Google Play Store per App Annie Intelligence for Q4 2017. 11 MAJOR LEAGUE GAMING A leader in creating and streaming premium live gaming events and serves as the foundation for Activision Blizzard’s esports broadcasts Devoted to creating original content based on the company’s extensive library of iconic and globally-recognized intellectual properties C O N S U M E R P R O D U C T S Dedicated to providing our passionate communities with new ways to experience our franchises and characters in their everyday lives 12 to our shareholders Achieved record Since 1991, when Brian Kelly and I purchased our stake in the company in-game net bookings1 and were given the privilege of managing it, our book value per share has of $4+ billion, driven by grown at a rate of over 31% compounded annually. $100 invested in our live services, features, company 20 years ago would have been worth $4,650 at the end of 2017, and content updates over 11 times more than the S&P 500’s $401 over the same period. In 2017, our share price increased 75 percent, 56 percentage points above the S&P 500. Our future prospects probably had more to do with this rise than our 2017 operating results. In 2017, we had net bookings of $7.2 billion dollars, non-GAAP EPS of $2.21 and annual operating cash flow of $2.2 billion dollars (to truly understand all of these measures requires a careful reading of our Form 10-K, this is especially true for net bookings which is a new term for us). While some of these results were records for the company they also highlight areas of opportunity. If we had owned King (creator of Candy Crush and one of the world’s most successful mobile game companies) for a full year in 2016, our segment operating income would have been roughly flat year- over-year. Our non-GAAP EPS only grew 1% in 2017, while the S&P 500’s EPS grew 12%. This includes benefits we received from foreign currency adjustments and lower interest expense which make the comparisons even less favorable. The markets we serve grew faster than we did last year, but we are determined to change that over the next few years. We have the most talented teams in entertainment, and they are hard at work creating exciting and innovative new content and experiences. We know there is more we can do to serve our players and spectators, and in turn, more we can do to drive growth for our stakeholders. 385 million people in 196 countries All figures included in this letter are non-GAAP unless otherwise stated. For full GAAP to non-GAAP reconciliation, please see tables at the end of this annual report. are deeply engaged with our franchises. Our players are spending almost an 1Net bookings is an operating metric that is defined as the hour a day playing our games, and that doesn’t include time spent watching net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others. our games. 13 Record Net Bookings1 Record Non-GAAP ($ billions of dollars) EarningsThrough Per Share the 3strength of our deep library of intellectual property (perhaps Up 8% the biggest in our industry and one of the oldest – dating back to 1979), Year-Over-Year we have unique opportunities to further engage and expand our player and $2.18 $2.21 $7.2 spectator communities. We have just begun offering more traditional linear $6.6 content, including professional esports programming, and we have much more interactive content to create and share with our players and our audiences. Harnessed as a global network, we have far more monthly active users2 than ESPN and Netflix have subscribers. There are very few networks larger than ours and even fewer with the diversity of investment options for our audience members. Today we support subscription billing, pay-per-digital download, microtransactions like virtual item sales, virtual item sales in broadcast streams 2016 2017 and 2unique016 digital 2017 advertising. We do this in almost every country in the world. Our core games business is our engine for innovation and growth. Historically, Record Digital Net Bookings1 ($ billions of dollars) our consumers – numbering in the tens of millions – have been in developed 76% of Net Bookings 2018countries Dividend and largely reliant on expensive personal computers and video game Up 4%An increasingly ($ per share) Year-Over-Yeardiversified business, Up 13%consoles. Mobile gaming meaningfully expands our reach, potentially unlocking Year-Over-Year with over $2 billion billions of players around the world and new opportunities for our consumers $5.2 $5.4 in annual revenues to play games$0.34 outside of the home. Mobile devices are the main reason time $0.30 on each of three spent gaming is expected to grow faster than time spent watching videos, interactive platforms – listening to music, and even on social networks. console, PC, and mobile As the size and engagement of our communities grow, so does our opportunity to better serve them. More frequent content releases provide opportunities for our players to engage with our content more regularly and for longer. This 2016 2017 creates new high-margin recurring revenue streams, which in turn enable us to invest 2017 in more 2018 compelling content. In 2017, we generated ~$4 billion of our ~$7 billion of net bookings from digital in-game content, and we believe this number will continue to increase. There is substantial room for growth given 1Net bookings is an operating metric that is defined as the net amount of products and services sold digitally or sold-in the passion and ongoing engagement of our players and given our focus on physically in the period, and includes license fees, merchandise, and publisher incentives, among others. delivering unique value and continually exceeding player expectations. 2Monthly Active Users is defined as number of individuals who accessed a particular game in a given month averaged across the number of months in a respective period. Refer to the definition included in the financial review herein for additional details. In addition to the growth profile of our core business, we also have meaningful 14 Users now spend new opportunities to expand our franchises in areas like esports, in-game 50+ minutes per day advertising, consumer products and linear media.