King Digital Entertainment's (KING) CEO Riccardo Zacconi Discusses Q1 2015 Results - Earnings Call Transcript

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King Digital Entertainment plc (BATS:KING) Q1 2015 Earnings Conference Call May 14, 2015 4:30 PM ET


Alice Ryder - Vice President, Investor Relations

Riccardo Zacconi - Chief Executive Officer

Stephane Kurgan - Chief Operating Officer

Hope Cochran - Chief Financial Officer


Douglas Anmuth - JPMorgan

Justin Post - Bank of America

Rohit Kulkarni - RBC Capital Markets

Chris Merwin - Barclays

Lloyd Walmsley - Deutsche Bank

Arvind Bhatia - Sterne Agee

Nick Bertolotti - Credit Suisse


Hello, everyone and welcome to King’s First Quarter 2015 Earnings Conference Call. My name is Chris and I will be your conference operator today. At this time, all participant lines are in listen-only mode and we will be opening up for the question-and-answer session. At this time, I would like to introduce Alice Ryder, Vice President of Investor Relations. You may begin.

Alice Ryder

Thank you, Chris. Hello and welcome to King’s first quarter 2015 earnings conference call. Joining me today to talk about our results are Riccardo Zacconi, our Chief Executive Officer; Stephane Kurgan, our Chief Operating Officer; and Hope Cochran, our Chief Financial Officer.

The format for today’s call will be as follows: Riccardo will lead off with an overview, Stephane will update you on our operations, and Hope will discuss our financial results and outlook. We will then move to a question-and-answer session.

Before we get started, I would like to remind you that our remarks today will include forward-looking statements and actual results may differ materially. Factors that could cause these results to differ materially from those contemplated by our forward-looking statements are set forth in today’s press release and our Form 20-F filed with the SEC on February 13, 2015 and our Form 6-K we expect to file on May 15, 2015. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.

During this call, we will also present both IFRS and non-GAAP financial measures. A reconciliation of IFRS to non-GAAP measures is included in today’s earnings press release. In addition, all mentions of EBITDA and EBITDA margin during this call refer to adjusted EBITDA and adjusted EBITDA margin respectively. The press release and an accompanying investor presentation are available on our website at, where a webcast replay of this call will also be available.

And now, I would like to turn the call over to Riccardo.

Riccardo Zacconi

Thank you, Alice and thanks to all of you on the call for joining us today. I am pleased to have the opportunity to discuss our first quarter 2015 results with you. We had a strong Q1, gross bookings of $604 million exceeded the high-end of our guidance range and were up 3% sequentially or approximately 7% on a constant currency basis. In particular, mobile gross bookings reached an all-time high of $491 million in Q1 despite the adverse currency fluctuations. This milestone reflects our successful efforts to grow our mobile games portfolio.

We have seen continued increases in the number of titles our mobile players have played, which reaffirms our strategy to retain and build a loyal player base through a portfolio of high-quality games. We also grew our player network to a record 364 million monthly unique users and for the second consecutive quarter set new quarterly highs for our network reach metrics and average daily game plays. And we were very profitable. We generated $250 million of EBITDA during the period and our EBITDA margin was greater than 40% for the seventh consecutive quarter. Our strategy for 2015 is first, to strengthen our leadership in casual games; second, to leverage our massive network and marketing capabilities to enter new game genres beyond casual; and third, to expand our reach to new geographies and new platforms.

Let me talk first about how we are expanding our leadership in casual. Our global franchises are a key part of our casual game strategy. Our strong first quarter results stem from our continued focus on delivering new content and features in these games and our success in marketing these titles. In Q1, we had three of our franchise games Candy Crush, Candy Crush Soda and Farm Heroes in the top ten top grossing games charts for both the Apple and Google Play app stores in the U.S. This marked the fifth consecutive quarter where we had, had at least three top ten grossing games in one or both of the stores. It highlights our ability to create and market hit games and operate them at scale as well as the high quality of our games, which the King brand stands for.

Our franchises represent a solid base of revenues for our business. This serve as a foundation for us to build upon with the new games we had in development. And we currently have more games in production than ever before. In Q1, we were very active in advancing our development initiatives. In our existing games, we focus on new extensions and levels in addition to biweekly releases of new levels in our games. We also continue to develop new casual games, which are planed for release throughout the year and into 2016 and green-lit additional game prototypes to feed our development pipeline. One result from this effort was the release of AlphaBetty Saga on Facebook last month. As our first word game, AlphaBetty expands our game catalog to offer our players a new casual games subgenre. The game challenges players to link letters to create words within a limited number of moves and we expect to launch it on mobile before the end of Q2.

In terms of new categories beyond casual, we are focusing on genres of wide appeal and higher monetization where we can leverage the size of our network. We have in development several titles in the resource management and mid-core categories. In February, we also closed the acquisition of Z2, our new studio in Seattle, which will accelerate our ongoing and non-casual development efforts. The first title we expect to launch from this studio, Paradise Bay, will be our first resource management game and offers a strong narrative allowing players to create a tropical island and trade with friends and other characters. The game is currently in soft launch and we look forward to releasing it soon.

So we are starting to see the increased activity from the R&D investments we have made over the past year. As we mentioned in February, the timing of this year’s launches will be weighted towards the second half. Our strong production line up of casual and new genres, our massive player network and our marketing capabilities make us confident about the future. In addition, we have made progress in terms of new platforms and geographies. We released Candy Crush Saga as our first game for the Windows Phone operating system in December and recently we expanded this partnership to include Windows 10 and Candy Crush Saga and other King game games will automatically be installed for customers that upgrade or download Windows 10 for periods of time following our game launches. And in Asia, we have shortened the gap between the initial launch of our franchise games and to release of localized version with the recent launches of Candy Crush Soda in Japan and Korea during Q1. Last month App Ape names King as the number one game developer in Japan for Android by reach, which reflects our efforts over the past year to build an audience in Asia.

And with that, I would like to turn it over to Stephane for a discussion of our operations.

Stephane Kurgan

Thank you, Riccardo. We are pleased to see the continued strong performance of both Candy Crush Soda and the original Candy Crush Saga during Q1. Both games remain top five grossing games in the U.S. and we are at top 10 grossing games worldwide on iOS and Google Play for the period. With Candy Crush Saga celebrating its 3-year anniversary last month, this performance emphasizes the strength and longevity of the franchise. In addition, we believe the fact that the sister title Candy Crush Soda now runs higher than Candy Crush Saga on Google Play further validates our strategy of developing and operating global mobile gaming franchises.

In Q1, we finalized and rolled out a multi-year strategy for four franchises that can be summarized as follows. First, we will continue to release new content biweekly or even weekly. Second, we have initiated the deployment of live ops events. During Q1, we offered these time based events in Candy Crush Saga as well as Bubble Witch 2. As an example, in Candy Crush, players were challenged to crush 1,000 red candies over Valentine’s Day weekend to earn a bundle of gold bars and a booster. We have since launched our first live ops in Farm Heroes and expect to launch shortly the first Pet Rescue event. Finally, we have begun to raise the frequency and to localize events.

The third pillar of our franchise operating model is to deploy one to two extensions per year for each franchise title. We launched Farm Club Companions on Farm Heroes mobile in Q1 and supported it through a TV campaign. We will soon be releasing the Sugar Truck extension of Candy Crush Saga, which is currently in soft launch. The final and most important pillar of the model is the development and launch of new franchise apps as we did with Candy Crush Soda and Bubble Witch 2. We are now working on new titles for all four franchises and we expect to release at least three new franchise apps by the end of 2016.

With respect to other casual games efforts, in April, we launched on Facebook our first word game, AlphaBetty Saga, which is available in nine languages and we are looking forward to releasing it on mobile by the end of Q2. We also began piloting our new mobile testing envelope and soft launch Blossom Blast, our first title in that format. This is a new mobile first envelope, which lets players compete against each other. It allows us to test casual ID to obtain rapid feedback on new game plays in a similar way to our skill website. Successful games in this envelope will then be considered for further development into fully fledged target games. The primary purpose of these games is innovation and experimentation.

In terms of new game genres, we expect Paradise Bay, our first resource management game, to move soon from soft launch to hard launch and we also expect to launch our first mid-court title in the second half of the year. Overall, in 2015, we plan to launch one to two titles on mobile each quarter starting later this quarter and we intend to sustain that pace in 2016 and beyond. Our investment in scaling our studio infrastructure to 12 studios is showing impact as we have more games in preproduction and production today than ever before. As a result, we feel we are strongly positioned to build on the casual leadership that forms the foundation of our business to deliver mobile growth by diversifying into new game genres. Having said that, we expect to see the impact of not launching a new title in Q1 this year. Last year, we launched Farm Heroes on mobile in January, which helped sustain a strong bookings trend into Q2. This year, our first launch will come later in the year in the back half of Q2 and we expect to see some softening of our bookings as a result. However, we expect the upcoming launches of AlphaBetty mobile, Paradise Bay and other 2015 titles to stabilize and then reverse these trends in the latter part of the year.

From a platform perspective, our business is increasingly mobile. In Q1, 81% of our bookings were from mobile players, up from 75% in Q1 ‘14. This is partly due to mobile bookings growth, but also to a 30% year-over-year decline in our web gross bookings. Substantially, all of our web gross bookings are from Facebook players. Over the past year, we have been experiencing a decline in web players each quarter, which we believe reflects the decline in the desktop users, Facebook has referred to as a driver of the decline in its payments revenue. Our mobile players, on the other hand, have increased year-over-year more than making up for the declines in our web player base and driving our network reach to record levels again in Q1.

As a result, our mobile gross bookings grew 2% year-over-year and approximately 9% on a constant currency basis to reach our highest ever quarterly mobile gross bookings in Q1 ‘15. Our success on mobile reflects a number of factors, including our accelerated pace of launching hit games on mobile platforms throughout 2014, additional market networks, the introduction of additional titles in Japan and Korea, and increased content on newer mobile partners, such as Amazon and Microsoft. As a result, we expect our future growth to be driven by mobile, but temporarily held back by web business in secular decline.

I will now turn the call over to Hope to discuss our financial results and outlook.

Hope Cochran

Thank you, Stephane. Our strong business performance during the quarter has translated into record operational and financial metrics and we beat the top end of our gross bookings guidance range by $4 million. Gross bookings were $604 million, which represents a 6% decrease compared to Q1 2014 and a 3% sequential increase. Currency fluctuations continued to impact the non-U.S. dollar denominated parts of our business. Removing estimated FX impact, gross bookings would have been slightly higher than in Q1 2014 and would have grown approximately 7% sequentially. Given our robust mobile game portfolio as well as an ongoing shift to mobile usage, Q1 was a record quarter in mobile gross bookings. Mobile gross bookings were $491 million, representing 2% growth from the prior year and 7% sequential growth and continued to increase as a percentage of revenue to 81% in Q1.

Revenue and adjusted revenue in the first quarter were both $570 million. The new EU VAT rules that went into effect at the beginning of 2015 resulted in higher sales tax in Q1 than last year and we expect to see that going forward. EBITDA was $250 million, a 1% increase from Q1 2014 and a 5% sequential increase from Q4 2014. First quarter EBITDA margin was 44%. During Q1, we generated profit of $164 million and adjusted profit of $197 million. Diluted and adjusted earnings per share were $0.51 and $0.61 respectively. We generated $163 million of net cash from operating activities and ended the quarter with $661 million of cash and cash equivalents.

Now, let’s talk about the business drivers of our performance. With the mobile launch of Candy Crush Soda in November 2014, Q1 represented the first full quarter of Soda bookings. The strong performance of the game continues to highlight the power of our network, longevity of the franchise and strength of our brands. The game brought new players and revived lapsed players. In addition, we saw an overall uplift in the activity in our network. These effects also drove network reach metrics to new highs in Q1. All the while, the original Candy Crush also remained one of the top performing games in Q1. The game which launched on mobile in 2012 remains a top five grossing app in the U.S. and top 10 grossing worldwide on iOS and Google Play. In addition, our results reflect the benefits of executing live ops events in Candy Crush Saga and Bubble Witch 2 and the mobile launch of the Farm Heroes franchise extension during the quarter.

Next, I will discuss our network metrics. Our network metrics grew to record highs for the second consecutive quarter. Our massive user reach grew to a record 364 million monthly unique users in Q1, up 3% year-over-year. Monthly active users were a record 550 million, up 14% year-over-year and daily active users in Q1 were also a record 158 million, up 10% compared to last year. In addition, in the first quarter of 2015, average daily game plays set a new high for the second consecutive quarter at approximately 1.6 billion game plays per day.

With respect to monetization, Q1 monthly gross average bookings per paying user grew for the seventh quarter in a row to $23.64, an increase of $0.22 from Q4 and an increase of $5.62, or 31% since Q1 2014. Monthly unique payers were 8.5 million in Q1. This is a sequential increase of 2% from Q4 2014. We attribute this increase in payers to the continuation of what we saw in the fourth quarter with Candy Crush Soda bringing new and lapsed payers into our games as well as increasing the group of players who pay in more than one game. This effect highlights the ongoing power of our business with the launch of a new game and an existing franchise boosting the fundamental drivers of the business. Given the timing of our release slate and overall seasonal trends, we do not expect the increase in monthly unique payers to continue into the second quarter.

Now moving to the bottom line, our Q1 EBITDA grew to $250 million, an increase of 1% from Q1 2014 and a 5% increase from Q4 2014. On a constant currency basis, adjusted EBITDA grew approximately 7% year-over-year and 9% sequentially. From an FX perspective, the business has somewhat of a natural hedge on the expense side given our largely European operations. Therefore, the year-over-year FX headwind was $38 million on gross bookings and $16 million to adjusted EBITDA. Our Q1 EBITDA margins of 44% can be attributed to the strong bookings and lower marketing expenses compared to the prior quarter, which supported campaigns for the holiday and a major game launch.

We continued to have among the highest margins in the industry, particularly since they are based on adjusted revenue which we book on a gross basis. Expanding the portfolio to new genres may impact margins going forward, but we expect that our scale will help sustain margins at healthy levels. In terms of our corporate taxes, our effective tax rate was 22% in the first quarter of 2015. From a liquidity perspective, we ended Q1 with $661 million of cash and cash equivalents. During Q1, we generated $163 million of cash from operations and CapEx was $8 million. Other cash usage in Q1 included $45 million for the Z2 transaction that closed in February and the $298 million special dividend we paid in March. In addition, our $150 million open market buyback program was activated at the end of January following shareholder approval and we repurchased 7.4 million shares for $111 million over the course of the first quarter.

Turning now to our outlook, during the first quarter, gross bookings were positively impacted by the recent launch of Candy Crush Soda in the holiday period at the beginning of the quarter. Looking towards Q2, we are taking into account release schedules, FX fluctuations, reduced players on the web platform and seasonal patterns. With the upcoming launches of AlphaBetty and Paradise Bay, we expect to spend more in marketing during Q2. But based on the timing of these launches, the associated gross bookings benefit will not scale until the second half of the year. In addition, we expect seasonal reductions in player activity as we experienced last year and our outlook incorporates a 9% decline in FX rates that impacted our non-U.S. bookings the past quarter. As a result, we expect Q2 gross bookings to be in the range of $490 million and $520 million. And with the increased marketing spend and lower gross bookings, we anticipate margins in the mid to high-30s.

When looking towards the remainder of the year, we are applying similar dynamics. As we discussed in February, we expect the mid-year period to be softer and then to stabilize as we start seeing the impact of our new game launches. Then we expect to return to growth trends in the latter part of the year with the strength of our pipeline and the holiday period. We anticipate that our mobile business will remain strong, while we see headwinds from the web business. In regards to EBITDA margins, we continue to expect that they will move according to the timing of game launches and holiday periods and that EBITDA margin for the full year will be a few points lower than in 2014 due to VAT changes, investments in R&D and marketing for new genres games.

We are excited about King’s pipeline, outlook and opportunities in the coming year. I will now turn the call back over to Riccardo for some closing comments.

Riccardo Zacconi

Thank you, Hope. In Q1, we continued to execute on our strategy to leverage our massive reach and marketing capabilities to maintain our leadership in casual games. We demonstrated that we can successfully and very profitably operate mobile gaming franchises, which have longevity and provide a solid base of revenues for us to build upon for future growth. We had invested considerable resources in building a strong launch pipeline for the future. With more games than ever before in production, we are making progress in expanding the portfolio to enter new genres, while also developing new franchise apps and other casual titles.

I look forward to updating you on our progress next quarter. And with that, I would like to open up the call for questions. Thank you.

Question-and-Answer Session


At this time we will be opening the queue for our Q&A session. [Operator Instructions] Your first question comes from the line of Douglas Anmuth from JPMorgan. Your line is open.

Douglas Anmuth

Great. Thanks. And a couple of questions, first just on the 2Q guide, if you look at the numbers, it looks like the high end of it is down about 14% sequentially and that compares to the down 4% I believe in 2Q from last year. So I hope maybe you can just explain how much FX you are building in there on a sequential basis that would be helpful. And then secondly, is there anything else that we should really be thinking about kind of beside the timing of new games you are thinking about where Soda came in this year and obviously late last year, but relative to Farm Heroes, which was January of ’14. And also just to clarify, I thought that you said that Paradise Bay would be launched in the second quarter, is that correct or did you just say soon, if you could clarify there? Thanks.

Hope Cochran

Thanks, Doug. I will take the overall question on guidance first. And you are right to point out the decrease from – compared to last year to this year. There are several impacts this year that we are taking into account. The timing of the releases, the FX impact and acknowledgment that the web platform is decreasing quarter-over-quarter and then also the seasonal patterns that we saw last year. Last year, we saw a less of a decrease from Q1 to Q2 primarily due to the fact that we have launched Farm Heroes in Q1 and that was still scaling in the Q2 timeframe, which mapped the seasonal trends a bit. This year, we launched Soda more in the November timeframe. And, therefore, that was a bit before the Q1 timeframe and we don’t have that pattern that we have last year going into Q2. In regards to the FX impact, what we saw over the past quarter was approximately a 9% decrease in the non-U.S. currencies. Those impact about half of our business on the gross bookings side. So if you are going to look at that from a numeric perspective, I would say about $20 million to $25 million impact to the Q2 guidance as we look forward to Q2.

And then the seasonal patterns, we saw them last year, we saw them hit about the April-May timeframe and we see that same pattern this year. So we are being very cognizant of that in our guidance. And in regards to your question on Paradise Bay, we did say soon. We are excited about the game. It’s currently in soft launch. And we are enjoying experiencing that game ourselves and ready to see the world experience it as well, but we do anticipate it will be soon.


Your next question comes from the line of Justin Post from Bank of America. Your line is open.

Justin Post

Great. Couple of questions, it does look like you are going to start executing on your plan on new genres, what gives you confidence that you can succeed there and what is the successful game for King in the new genre, is it getting to the top 20, just tell us how you would measure success. And then Hope, getting into your guidance, so the way I kind of read it is, 3Q will still have seasonality and could be maybe flat to down year-over-year, but by Q4 you expect to be growing, are we reading that right? Thank you.

Stephane Kurgan

Hi, Justin. This is Stephane. Very food question, so as we said that we are – we will be entering by the end of the year two new genres. So we have Paradise Bay, which is our first resource management game, which is in soft launch, which is the first game out of our Seattle studio and the second game, which is a mid-core title, which will be launched before the end of the year. Now for both of these, we are – the development of these two titles has been led by teams that have deep and proven experience in the two genres and that’s essentially a reflection of the acquisition strategy over the past few quarters, number one. Number two, we hope we can leverage the know-how that we have acquired over the years, both in terms of player acquisition through the leveraging of our massive player network, but also in terms of paid use acquisition, that’s one thing. And the second thing is we have done a lot of work as you know over the years in terms of game balancing and optimizing the economies of the game and we hope a good part of that work can be transferred in optimizing the economies of games in other genres.

Hope Cochran

In regards to your question, Justin, on guidance kind of the shape of the year, what we are seeing is the seasonal patterns start to kick in, in this Q2 timeframe with the launches coming later part of Q2 and to Q3 and Q4, I would expect Q3 to be a bit more stable with Q2 and then to see a growth trend continuing into the Q4 timeframe as we enter into the stronger seasonal period as well as with a good amount of launches behind us. We can take the next question.


Your next question comes from the line of Mark Mahaney from RBC Capital Markets. Your line is open.

Rohit Kulkarni

Great, thank you. This is Rohit Kulkarni filling in for Mark. Two questions please. Can you talk about how your monetization of new titles is trending, particularly for Soda as it compares to your older, more successful games? And secondly, in terms of web traffic or engagement, is there anything you can do in terms of acquiring traffic or increasing engagement on your web games to reduce the headwinds you are seeing or is that just a secular shift that would be kind of a slow bleed over time?

Stephane Kurgan

Thank you. This is Stephane here. So, first, with respect to Soda, it is an extremely strong performance from a monetization standpoint. As you can see from the top grossing charts, it’s gone within a few days of its launch to the top 10 grossing and actually even to the top five grossing on all the key platforms. It’s also the only game to have made it to the top 10 grossing in the last 12 months. There was very little rotation in the top 10 grossing on iOS or Google Play or even Facebook. I think the average age on iOS is 26 months and on Facebook, it’s even 41 months. And so there is one game that’s cracked that in the last 12 months and that’s Candy Crush Soda. And actually, it’s got not only the top 10 but the top five, so we are very proud of that. It’s actually beaten Candy Crush Saga in taking the number three spot in the top grossing on Google Play. So, very strong monetization and very sustained performance, which we have seen with most of our games. I mean, the franchises have extremely good longevity. And if you look at Candy Crush Saga, which was launched almost 30 months ago, it’s still the top five game today. With respect to the web and to Facebook, I think Facebook has been very transparent in their earnings call about the fact that they are seeing a decline in the number of desktop users. And therefore, we are seeing a decline in the number of desktop players and they do not expect that trend to reverse. So, therefore, we do not expect that trend to reverse either and you will see a continuous sequential decline quarter-on-quarter of the web business.


Your next question comes from the line of Chris Merwin from Barclays. Your line is open.

Chris Merwin

Thanks for taking my question. I just had a follow-up on the outlook. Given the headwinds that you called out for the 2Q, is the full year outlook that you gave at 4Q still consistent? I know you can give a specific number, but I just was curious if it’s roughly unchanged. And then secondly, you have been in China now for some time and I think you launched Candy Crush Soda Saga there as well. Are there any updates on China in terms of the bookings contribution from that market or just how you see the opportunity there developing over time? And do you have any plans to bring some of your other games to China through Tencent as well? Thanks.

Hope Cochran

Thanks, Chris. In regards to our outlook for the year, I don’t think our outlook has changed that much, except for we have become more aware, I would say of the currency adjustments in the year. As I indicated before, we have seen about a 9% decline in currency rate over the past quarter. That affects about half of our gross bookings. So, I think that is something that we are definitely taking into account as we look forward. And other than that, it’s the other items that I referred to and I don’t think this is a change at all, it’s what we anticipated, but it’s the fact that our launch timings are back year weighted. We have got the seasonal patterns that we experienced last year and we are trending those in the business and just an acknowledgment that there is less activity on the web platform. So that is what we are taking into account as we think through the year. In regards to your question on Asia and China, I will turn that over to Riccardo.

Riccardo Zacconi

Hi, Chris. So, basically, as you know, we defined three key markets in which we want to grow, China, Japan and Korea. We have taken different approaches in those markets and we are learning as we speak. So, I think that in Japan, we took an interesting approach which was to focus on managing directly the marketing. We have done local marketing TV campaigns there. And we have been driving the traffic at our pace. And this has been a strategy which we think is the right strategy. Year after launch, we have now I think Ape App has announced that we are the number one game developer by reach. In China, it’s the newer of those three markets in terms of us being there. We are currently building up the team. We are also there focusing on building a marketing capability, direct marketing capability and we have learned a lot in terms of what is required to be successful. Some of these learnings have been implemented in the global products. We have now live ops, not only in China, but in all the countries. And we are know, as we speak, enabling the local countries to do live ops locally. And China is work in progress. So, I think that we have recently announced the launch of Candy Crush Soda directly with on iOS and so the target there is to have the releases more in real-time with the global product, so that the game novelty is the same as one of the global products, making in brackets coping more complicated and more difficult and having the original game stronger over there. So, this is work in progress. And from a revenue point of view, the revenue contribution is still negligible, but ours is a long-term view and so we are putting the required resources behind to succeed in the long-term.


Your next question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is open.

Lloyd Walmsley

Thanks. Riccardo, you mentioned earlier in the call that the benefit you have enjoyed from sitting at top the game charts in the App Stores. And just wondering your thoughts on what kind of impact you all might see in terms of download volumes or acquisition costs from Google’s plans to sell app install advertising in the Google Play store? And then, I guess more broadly any other changes that you see on the horizon to how the App Stores work that could be good or bad in your view?

Stephane Kurgan

Lloyd, this is Stephane. I will take the question. We have been working with pretty much all existing channels and we have been very aggressive in the emerging channels when those were proving to be highly value accretive, right. At some point, we were the largest advertisers on the Facebook platform then when we moved to mobile, we were the largest advertiser in the mobile display in 2013 in the U.S. Then we realized that TV was an unknown medium and there was a lot of value in TV and we were the first mobile gaming company to go back to TV. And since then, I am sure you have noticed a number of our competitors have followed in our foot tracks on the TV side. And we are working with tens of different channels in more than 20 markets right now. So, we welcome the Google initiative. Google is a great partner. We are working very closely with them and we will obviously be experimenting with that channel as well as the other ones. And if the channel works well and we can create value by using it, we will become a very heavy user. At this stage, we don’t have any specific insights into any changes to the way the app stores would work and therefore we don’t see how that could impact us in one way or another.

Riccardo Zacconi

If I can only add one thing to what Stephane just said. You have to consider in terms of what impacts our result, the vast majority of installs when we launch a new game comes from our own network, from our organic installs. And so if you remember Candy Crush Soda, that’s what we announced at the last earnings call, became a top five grossing game in I believe two days from launch and this was before we started doing any marketing.


Your next question comes from the line of Arvind Bhatia from Sterne Agee. Your line is open.

Arvind Bhatia

Thank you for taking the question. I was wondering if you would be willing to provide the contribution from Soda as a percentage of revenue, clearly it’s more than 10% at this point. And if not, wondering if you could confirm that most of the increase that we saw in the other bookings categories sequentially came from Soda. And then just wondering you provided some color on 3Q bookings, I was wondering Hope, if you could maybe also provide some color on EBITDA trends from second quarter to third quarter? Thank you.

Hope Cochran

Sure. Thank you. It was great to see Soda do so well in Q1, as we know it launched in November and we definitely saw it on a nice growth trajectory through the first quarter and become a strong part of our portfolio. We don’t separate that out as a percentage of revenue. But overall, it was nice to see that the power of the franchise really proved out as we now both have Soda and the original Candy Crush in the top five grossing on all the charts. So it really proves the power of the brand. I think what is interesting is the fact that if I talk about the original Candy Crush, that was 38% of our Q1 bookings, and that’s down from about 67% in Q1 of last year. So you can see how our revenue base is really diversified in the course of one year.

And as I look to the color of Q3 to Q4 in regards to EBITDA trends to address the second part of your question. And it really is dependent on when we have a lot of activity and I mean both from a launch perspective and from a promotional holiday perspective. So in Q1, you saw that our marketing was a bit lower in terms of percentage of revenue, it was a quieter period from a launch perspective. I would anticipate with the launches of new genres, such as resource management and mid-core that we will throw more marketing dollars behind those and we will see the EBITDA percentages be slightly lower in that period. Last year, we saw EBITDA margins in the 41% range. I would expect in 2015, the EBITDA margins will be a few points below that and that’s due to marketing in these new genres as well as some of the tax implications we are experiencing this year and in some investment in R&D, but only a few percentage points lower than the prior year.


We have time for one last question. Your final question is from Stephen Ju from Credit Suisse. Your line is open.

Nick Bertolotti

Hi, guys. It’s Nick on for Stephen here. I think Riccardo mentioned in his remarks that there is – you guys are kind of rolling out a mobile mode similar to the web business, are you going to – and with the decline of the web business are you going to fundamentally change how you launch games with the mobile first launch as the desktop business continues to decline or is this something you would do in tandem with your web testing? Thanks.

Stephane Kurgan

Hi, Nick. This is Stephan here. That’s something we are going to do in tandem. We still have the web business. We are still turning out one game or more every month there. We still have a very loyal base of players. They have been with us for more than 10 years. And that’s a great test but for coming up with new game IPs. But at the same time, we are aware that there is a transition to mobile and so we want to be ready for the time where the web business will be in further in the decline. And so we will be testing mobile-first games more and more in parallel with the web business.

Hope Cochran

Thank you for joining us today. We appreciate your interest in King and we look forward to speaking with you again.


This concludes today’s conference call. You may now disconnect. Have a good day.

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