Grand Warszawski
Overview
Founded in 2010, Playtika (NASDAQ:PLTK) is a leading mobile gaming company known for its diverse portfolio of popular games. The company made its initial public offering (IPO) on January 15, 2021, with an initial valuation of approximately $11.4 billion. Headquartered in Herzliya, Israel, Playtika has established itself as a prominent player in the global gaming industry. Facing challenges including the Israel-Gaza conflict and decelerating revenue growth, shares have tumbled nearly 80% since its IPO price.
Amidst challenges in the mobile gaming sector, the question arises whether Playtika can bounce back similar to the trajectory seen by AppLovin (APP). Despite recent setbacks and external pressures, Playtika holds the potential for a rebound. With a solid market presence and growth prospects, Playtika now trades at a steep discount to competitors. Thus, it is worth exploring whether Playtika can overcome its challenges and reward investors.
Earnings Snapshot
In Q4 2023, Playtika’s revenue reached $637.9 million, representing a 1.2% sequential increase and a 1.1% year-over-year increase. Here, Direct-to-Consumer (DTC) platforms revenue increased by 7.6% year over year to $161.6 million. While the top line saw modest growth, net income for the quarter was $37.3 million, down 1.6% sequentially and 57.4% year over year. Furthermore, the company’s Credit Adjusted EBITDA decreased by 8.1% sequentially and 6.8% year over year to $188.9 million.
Playtika announced its first-ever quarterly dividend of $0.10 per share and plans to allocate $600 million to $1.2 billion for M&A over the next three years. However, due to ongoing uncertainty in Israel and Ukraine, the company has paused its evaluation of strategic alternatives.
Overall, Playtika reported revenue of $2,567.0 million in Fiscal 2023. Notably, the company generated free Cash Flow of $436.4 million, compared to $383.7 million in the previous year. However, operational metrics showed mixed performance, with Average Daily Paying Users increasing by 2.3% sequentially but decreasing by 2.2% year over year.
Looking ahead to FY2024, Playtika expects revenue between $2.520 billion and $2.620 billion, with credit-adjusted EBITDA forecasted to range between $730 million and $770 million. The company also anticipates capital expenditures to be between $110 million and $115 million, including $17 million in accrued capital expenditures from Q4 FY2023 that will be paid in FY2024.
Cheap Valuation
As shares have dropped nearly 80% since its IPO, Playtika’s valuation substantially deflated as a result. Thus, considering its market cap. of just $2.6 billion against nearly the same revenues, Playtika trades at just 1 times forward sales. This is especially cheap for a tech company with high EBITDA margins, such as Playtika. Here, its EBITDA margins stand at an impressive 26%, while its Free Cash flow margins reached an impressive 28% in the last quarter. The company therefore trades at just 7.6 times annual earnings (P/E), a steep discount to competitors. For instance, AppLovin trades at 15 times earnings, while Take-Two Interactive (TTWO) trades at over 20 times P/E.
Nevertheless, it should be noted that AppLovin holds higher growth rates, with revenue picking up 35% from last year. It also holds higher EBITDA margins of nearly 35% in the last quarter, pointing to a more capital-light business. Similarly, Take-Two Interactive trades at a higher valuation, as it’s expected to grow revenues by 33% in 2025, due to its anticipated release of the game GTA 6, which could bring in almost $3 billion in sales.
Overall, Playtika’s valuation is mostly tied to concerns arising from the Israel-Gaza conflict. As Playtika is headquartered in Herzliya, Israel, the conflict raised uncertainties regarding its operations and potential disruptions. The geopolitical tensions and associated risks weigh on sentiment, despite the company’s otherwise strong performance and market presence. Furthermore, the significant layoffs at Playtika have further dampened sentiment about its future.
Takeaways
Despite facing significant headwinds, Playtika maintains strong fundamentals and possesses the potential to return to growth, particularly as the underlying market size for mobile gaming is projected to expand steadily in the coming years. However, substantial risks persist, including intense competition and geopolitical unrest, such as the Israel-Gaza conflict, which has adversely affected investor sentiment. These factors continue to exert downward pressure on Playtika’s shares, despite the company’s low valuation. While these challenges represent significant hurdles going forward, a shift in sentiment could potentially pave the way for a rebound in Playtika’s shares.
