Playtika IPO | Future for The Leader in Mobile Social Casino

hey everybody welcome today we're going to be discussing platika's ipo and future prospects pletika develops and publishes some of the world's most popular social casino games such as slaughter mania slots house of fun bingo blitz and card games like world series of poker in our discussion today we'll be talking about number one the ipo and current valuation two current business and sources of revenue three growth opportunities four key risks five competition and six future prospects and here with me to talk about all of these issues we have first of all matthew conterman from bloomberg intelligence welcome matthew and we also have my fellow co-hosts from the deconstructive fund podcast eric kress from gossamer consulting welcome eric yoyoyo so let's start with the discussion in terms of the ipo right so platika went public last friday and january 15th offering 69.5 million shares at 27

a share which was above its estimated range of 22 to 24 thereby valuing the company at nearly 11 billion then since the ipo the stock has jumped immediately as trading began and as of today which is thursday january 21st almost a week later the stock is trading at 31 a share or 13.1 billion in market cap matthew i know you've written about platika for bloomberg and i just wanted to highlight a few points from your uh from your analysis i'm just kind of jumping over to that all right so first of all uh one of the things that you noted is that uh with respect to competition platika is the market leader in terms of social casino relative to other competitors like aristocrats i play double down zynga i think one other thing that you noted is that from an ebitda margins perspective relative to zinger that they

are certainly higher and then when it comes to some of the some of the comps and especially with things uh with um for example price earnings and things of that nature that currently it would seem that platika might be being given a premium or might be more highly valued could you speak to maybe starting with you matthew in terms of like talking about the current valuation what you think could you speak to like what your thoughts are yeah i mean this is a business that as it stands today it prints money the ebitda margins are really strong and that was you know as you just mentioned from the chart um you know and so that's probably reflected somewhat in the valuation but given the run-up in the stock after the pricing of the ipo it's now trading at a at a big premium to zynga and zynga is probably the best listed comp it's it's a diversified portfolio of companies that's you know in the casual to mid core space and that's kind of where platika sweet spot is also they also both geographically overlap well so in

general it's a very good comp and you know at some point you have to question what premium is justified and as it stands today it's trading you know five and a half 5.7 times ebitda depend you know we'll see where the final share count is after the ipo closes they still have the option to sell more shares um you know so when all is said and done it's trading at a premium to zynga um you know although those those margins are fat you know it's not as it's not growing as fast and so you know what are you paying for growth versus what are you paying for cash and that's kind of the big question for investors right now got it eric what do you think yeah i mean i think the uh ipo has actually uh pushed some of the other games in the space up a bit uh there was some rumors about tencent acquiring zynga today but even before that when they went public we saw some movement on glue and we saw a movement on zynga and uh so it's it is there's a halo effect as they as people are valuing this company and reevaluating how they

value other companies um but what he says is true they are more profitable they are sitting on more established long-term franchises um i would argue that they are not as diversified not even close to zynga so in that sense they should be worth less in in some ways but i don't think people really understand that nuance per se or maybe they do i don't know um so that from a valuation perspective in my opinion they should be trading at a discount to zynga to some degree uh but uh that's not the case right now so we'll see how it all nets out over time got it so i thought maybe what we could potentially do is talk about their current business and um let me actually kind of jump on the screen here and to your point like when you talk about eric the concentration in terms of like for example the the apps um so certainly when we look at the amount of revenue that a few of the apps like slaughter mania

as you can see um in uh bingo blitz for example and house of fun are so a few games comprise the bulk of their revenue for example but um and then from a geo perspective to your point i mean when we look at the concentration in terms of terms of country we see that you know 72 percent sorry maybe i can squeeze that up a little bit 72 of the revenue is from the us and then much lower percentage of revenue from other countries and so right and if you actually look at tier 1 english it's going to be like 90 probably right yeah now what to your point though uh eric one of the things that we've seen is that when we look at some of the titles further down like june's journey which was the woo acquisition and best themes which was a seriously acquisition what you were talking about in terms of they're trying to get away from being highly concentrated in terms of titles in terms of uh geo so yeah what do you guys think in terms of

the current business well again i think the lion's share social casino and the lion's share is the u.s and while best fiends salt are grand board kings pirate kings i think those are the big games i think all are june's journey obviously the biggest one sorry um you know they're sizable games but they don't necessarily mitigate the risk of being concentrated in social casino right uh but they're they're they're moving that direction right unlike sciplay right side play doesn't has as nothing right they have social casino great social casino games and that game is bull those games are bulletproof i said it's like the ea sports of mobile is [ __ ] social because people stay there forever right these 55 year old ladies never go right so anyway i love it i mean i i love the business per se but they do need to continue to diversify and i think we'll get into it a little bit why that might be a challenge for them going in later but uh i think diversification is still an issue with these guys yeah i agree i mean when i said

diversification i guess it's across titles but you're right you know most of the titles are social casino and so if you just lump those together um which many people do because you know who really differentiates between slaughter mania and you know caesar slots it's all slots game at the end of the day right and so if you do if you look at it that way then yeah you know you're totally saying this is mostly a slots business with some other you know basically call options um you know built into the business um and then you know you know again on the on the regional split you know yes most the revenue is the us so you know i mean it's the best market to be in in terms of rpoos and you know ltv of customers you know but um you know obviously there's a huge opportunity for them if especially in europe i mean social casino you know you know we can we can dive into more of the numbers but you know it's not as big in asia for for a lot of reasons i think i think there there's more prevalence of more hardcore games over here and so be interesting to see you know if they can get any sort of footprint in asia over time but europe is definitely an opportunity potentially well okay yeah so so here's the thing is like okay let's let's be real here social casino is not

a growth business outside of the u.s right so in europe i've said this before but the europe they they have real gambling on iphones and and mobile right around phone and and computers there's no way people are going to be spending money for the insanity of winning virtual courtesy that's [ __ ] ridiculous like even the notion that people are spending thousands and thousands of dollars to to buy virtual currency to earn virtual currency or lose virtual currency is is is mind-blowing to me just in general like how big this industry is that's like the first thing right but there's no way in japan korea even uk why would they ever buy play social casino games it makes no sense right because they could do the real thing right and so then to that point you know it's and it's not just something i've thought about holistically but you know as we legalize you know sports gambling first and maybe eventually other sorts of gambling in the us you know what does this business look like in five years if we go down you know deep

down the rabbit hole just making mobile gambling in general legal yes and that yeah that is a huge threat for them going forward and not to mention this covet threat covet comp too is impossible for them going forward on more on the short term but before i get into like the real super kind of like eric negative rants here for a second like so the one thing i want to be clear about this company is that every single person i've talked to said these guys are bulletproof like these guys are the most amazing managers these israelis i guess that are just absolutely amazing and these are people i really respect that don't necessarily have high opinions of even people like frank chabot or like nick or red glue or others like i get a lot of mixed sentiment around those people ea ceo certainly activision blizzard but almost universally everyone that knows these guys says these guys are amazing right so let's let's give them that cred right that they know what they're doing um the other thing is that they are completely data driven these are not like unsophisticated

operators right they are super super hardcore digital you know uh data-driven guys that have the ecosystems and the infrastructure really to support fighting this idfa fiasco that we're getting into uh going forward and i think the other strength they have or potential weakness depending on you look at it is they are truly like worldwide right they have operations everywhere um and in some parts of the world that maybe you wouldn't want operations but you know potentially but uh but i think that's actually about a benefit and as i said earlier smartly and i think these guys are smart operators they went after non-social casino companies so they could diversify their portfolio which is something that i really respect because that's hard to do when you're doing so well in something else like this innovator's dilemma thing like king and king who has never diversified outside of this these puzzle [ __ ] right and they're look what that what's happening to them they are losing share non-stop every year it's just getting worse and worse right for them so

so in some sense like they have a lot of things going for them and they are amazing team um and and i and they have the i think they do have the the street cred and the capability of actually uh building that and we'll get to the risks in a minute and i think the other thing you have to keep in mind from an acquisition perspective now that they're public they have currency right so one big part about going public in general is that you now have stock right and stock is super valuable when you're doing acquisitions because you can pay a lot more than you could with just cash no matter how much cash you have right you have almost unlimited stock which is not true but you know what i'm saying um so that that really does help them on the m a front to scale the size of what they can do on the m a side so those are kind of the quick like you know things strengths that they're going for them and and then finally just to put a button you know nail this down is that social casino is software as a service like out of all the [ __ ] genres in this business i think in some ways these people stick around for a long time and i think people are starting to understand

that this is like a sas model in some ways for for these type of genres these type of like come on you know forever franchises and i think slothmania is a good proof of that a lot of their casino games are good proof of that so anyway that's my quick positive take i'll get to the negative all right um now maybe we could speak in terms of like the growth prospects now i think there's like to your point eric they've got a lot in terms of liveops technology they talk about that in s1 they have a very data-driven culture and things of that nature but you know when we talk about growth and i i kind of worry because there has been like a lot of their growth has come from m a and when we think about how they will continue to grow this year next year when so many m a targets have already been taken by companies like you know the consolidator still front and razer group uh and even the bigger company public companies like zynga etc uh you know they haven't yet proven that they can build out in the other categories that

they have started to enter into so what do you guys think from a growth perspective like will they be able to continue to grow or will just even industry-wide are we going to see a pullback i think organically you know 2021 will be tough just because of cops there will be some you know headwind to the sales this year but looking forward yes i mean this can organically grow somewhat um inorganically is the big question mark what are they going to do with all the money the equity currency and we talked about the valuation when you have a really highly valued equity currency you can do even more with it you know when zynga bought peak that was half stock that makes the deal a lot more affordable for them right and so um with idfa and we don't have to belabor all the nuances of idfa because you guys have done that for six months now um but you know i think there's going to be opportunity for these bigger publishers with large player networks because of the idf v concept to go out there and acquire some struggling smaller players and so you look at zynga raising capital you look at platiko raising capital

other companies are coming in the ipo pipeline i think they're seeing that they're going to have an opportunity to scrape up small stuff here and basically give themselves cheap call options on future growth got it i i i think there's there's two things i think i i i someone agree with what you're saying i think there's opportunities for them now that they have more currency as i said earlier the big challenge for them is going after really good businesses that that have either core particularly core uh may be a challenge to grow because of idfa and and the headwinds associated with that so are they gonna be able to find good companies that that that have the potential for growth given the challenges that we have ahead of us right so um you know what zynga did with both uh you know all their acquisitions for that matter with let's agree with peak is that they took them and just kind of doubled down on them right and that was because they had the capability and the

resources in order to do that execute against ua but if that becomes more challenging and the efficacy is is is decreased and that that that type of growth reaction could be probably it could be problematic now what i will say is this is that um that oh sorry and also sorry they have a lot more competition too in terms of acquisitions as well uh going forward um i totally lost what i was going to say oh for their core business though i think i think their biggest strength is their core business right so they should be able to maintain if not grow that slightly at least uh for the foreseeable future although the kovic comp is pretty tough but whatever but yeah i think personally that this thing kind of lives or dies by the next acquisition they do right they just need a good acquisition to layer on similar to what zynga's done so that's what i'll be watching out for is to what they acquire and and and that will be a huge indication of whether or not they can maintain you know growth so and and i would just note you mentioned the

competition for m a you guys interviewed a former zynga exec a few weeks ago months ago now chris and he kind of late yeah he laid it out very nicely that as a public company the threshold for getting deals done is a lot higher it's a lot harder to execute deals because you have other things to worry about it has to be accretive to your shareholders you can't you know look five years out you need to think about next year what is this going to do to eps and so um you know now that they are public although they have the currency and they have more cash on the other side now they got you know idiots like me to you know you know say night you know bad things if we don't like the deal and so um you know it kind of goes both ways in that sense yeah i do think that i mean it's going to be a challenge right there's just so many players out there with lots of money trying to acquire and so they do have five internal studios but to the point eric made before which is that this is a data driven data oriented company now the problem with that is that it's both a blessing and a curse the blessing is that when we talk about

these long payback windows games with long lifetimes games as a service they they're very strong in those areas but when it comes to developing new games that culture sometimes there's there's a conflict right and so i think that they're going to have to prove their ability to like if they can't go external can they build internally which should be which potentially could be a very big problem for them but uh you know i mean at least they're gonna have capital and things of that nature to give it a shot yeah i i was actually spreading their numbers and then looking at their products and none of their products most of their products are more than five or six years old right like they haven't come out with a new game that's been successful ever right like not in the last like eight years you know i think i find the way if i'm looking at this correctly what's besides their acquisitions who are more more new but they're they're they're their biggest games are all like super old right so so they have no track record of building new games that was

actually my biggest criticism of zynga back in the day was that zynga has absolutely no capability of building new games now they proved me wrong with this [ __ ] god dang harry potter game which i look like an idiot but um but in terms of it's like a new game or is that more of uh you know a brand slap well like the willy wonka game was their first tat and i and i completely dismissed that game out of hand because i knew they were going to screw that up right because they had no experience doing it whatever but they learned from their mistakes and they threw the harry potter license on it and it's killing it right now right it's insatiable need for puzzle games it's just like it's it's it's insanity but whatever anyway so they're doing well with that so but we haven't seen anything like that from these guys um so anyway okay that's that's so maybe moving on to the next topic and we've already kind of discussed some of the risk here in terms of their ability to continue to grow but if we look at some of the risks listed in their s1 for example they mentioned debt levels they mentioned idfa deprecation they also mentioned that the owner of

giant this guy named yuzu xi who controls alpha frontier which was a consortium that acquired platika from caesars and which basically controls almost any decision platika can make right there was also talk about chinese ownership potentially impacting m a due to the potential conflicts given cyphus the committee for investment in the us although now under a biden administration maybe that's not such a big deal but of all the risks kind of mentioned are there any other risks that we should be thinking about that may have been missed uh you know i mean okay well the two risks that you kind of mentioned there is i i actually mentioned this last a few weeks ago and i felt like an idiot because i'm not not an idiot but an [ __ ] because the way i said it but there's tons of geopolitical risk with this company because it's a chinese-owned you know israeli-made ukrainian developed i mean like there's so much [ __ ] going on that like any of these type of things like start to fall in any way or some kind of

political problems then then that creates some issue with uh with with their business and a lot of people in the investment community see that and they see that as a risk and they don't want anything to do with it right and so that is a challenge for them to get attention from some of the biggest investors out there that's what i'm trying to say not that i care whether or not they're ukrainian or not it has nothing to do with that it's just a question of what risk are they willing to bear by owning a stock like this okay so that's one thing um the regulation risk you know these guys are freaking evergreen targets in in western territories generally speaking for regulation because frankly their monetization design on these social casino games is freaking egregious right you know it's just the same as the slot machines in vegas right it's exactly the same people that make the same exact games and as i said earlier you're doing it not even for real money right so this is going to be constant like focus on people in in in the us now do i think that's real a real risk not really because they're not you're

not cashing out you're not really it's not gambling by any stretch but it's it's still there is some risk there to some degree um and i think the other m a issue that i tried to articulate before is kind of a huge risk for them is that idfa is going to create problems with their existing portfolio to some degree in terms of acquiring new users particularly for social casino because that's a super aggressive like you know ua arbitrage type stuff to the extent that apple or google or both uh start doing policies which hurt re-engagement campaigns like collecting emails doing logins like all these things that may or may not happen i p tracking etc that may cause issues with them in terms of retargeting their audiences you know the things but it's also i think creates a lot of heart potential risks for uh m a strategy right so anybody they acquire any type of new games that are in the pipeline you know could have risk in terms of scaling so those are the those are the big ones i see totally agree i would just add on on

joe's point about the chinese ownership you know we we've we've done work on this in regards to like tencent and their you know network of investments and ownership abroad the the real question mark is data collection and in data sovereignty and as long as you're not sending user data player data back to china which it's just a financial owner it's not it's not like tick tock where you know they were sending data to singapore servers as they said but who knows where that goes from there um you know the trump administration would allege that it wouldn't go back to china and that's what they were worried about um you know and so i i don't think the risk is super strong there but you know it in in the current environment and it's not like the binding administration has come out and said anything positive about china they've been awfully quiet on china actually janet yellen in her senate hearing this week was actually saying they're going to continue to be tough on china so you know i i think people that are expecting a different stance on china overall and how that affects the games industry i think you're being a little bit misguided does it get worse i don't

think so but i don't think it gets any better anytime soon got it all right maybe shifting to competition i mean you know the market leaders i i think we've seen that especially in certain markets where you know like the app store for example generally being the market leader accrues additional benefits and things in economies of scale and things of that nature but who should you know who should play tikka be most worried about with respect to their current market and social casino the social casino industry doesn't seem very dynamic by that by almost by definition like it's a trench players that maintain audiences they move back and forth between one and the other but if you actually look i've looked at these things a lot and they all seem pretty well i mean there's gonna be no new entrance into the market after this idfa thing so like i think i think they're relatively protected you know with their existing games yeah i think so anyway but i i i don't know as much

about the social casino space as maybe i i should but um but it seems like so stable generally speaking that um that i'm not really too worried about the competition from from a social casino perspective again i'm more concerned about the competition from acquisition so would you rather be part of zynga which is a western operated western company or would you be rather pop you know a part of something like uh platika which is questionable like who's running the show like do you you're reporting to israel you're reporting to china you put the ukraine you know like like what what's going like you know i mean like that that that could be more of a challenge for them going forward from a competition perspective is on acquisitions still front embracer or whatever these guys have lots of money so that's the i think that's the thing i think we'll see what the space looks like post-idfa because i think it's a big question mark in terms of the u.s you know the ua efficiency but like moon active is probably the one that

jumps down and says these guys kind of came out of nowhere um and surged up the ranks and you know as we're talking about social casino we also have huge games which is polish you know they file for an ipo in warsaw so they're going to list in a few weeks also so you know um everyone's raising capital and i've always said you know raise money when you can not when you have to the window is open you know things are good right now numbers from last year are great before you know stuff hits the fan with idfa you know maybe this is just the right time to be raising money and so um you know i but i so i think moon active is kind of like the only one that like these guys came from nowhere everyone else is like the usual the usual suspects right but they they came at it from a different angle right like i even have trouble considering moon active a social casino company in the sense that i'm sure there's a lot of affinity yeah i really want sensor tower to pull them out of that it's more of an invest express game than a social casino game right i i think that's a just a misclassification

theoretically they could try and compete in that space by making a product assuming there's enough affinity between their current audience and then no that's true that's true maybe all right just to wrap this up future prospects okay given everything that we know given you know the risks that we talked about uh the current valuation what do you guys think what is the future prospect for platika is this is it a buy eric you tell me matthew i'm gonna let you go first on this because yeah go ahead um i think where the valuation is currently at you know such a premium to zynga when you couple in the risks around they've never done large m a that's been successful um because that's kind of what you're you're basically buying that they're going to be successful with mna all of a sudden with all this money um plus you as you mentioned you have the geopolitical stuff you have some other stuff you have the idfa stuff

plus you just have a hangover in 2021 you know it's everything is priced to perfection in the gaming space right now multiples across the board of every company are at peaks or at records right now and so it's it's tough to sit there and say that anything is necessarily a buy um particularly something where you where you can identify all these risks now i'm going to say that in september we sat here and said the same thing about unity and the stock has gone up 300 or whatever so you know maybe i'm just stupid wrong and i don't understand the markets anymore which is entirely possible because we've seen companies with zero revenue now getting 70 billion dollar market caps but um you know we'll see what happens with this one for sure yeah i mean i you can always be correct on the fundamentals and wrong on the valuation right that's the hard part right sometimes but here's here's my concern with this company right at this moment and if i were on the fundamental side i think there is there's a reason to be concerned right first of all they've had sequential declines for the

last two quarters right according to sensor tower right which is not a good good deal going into an ipo right so they will have to reverse that in order to grow next year because they do have a tough comp in the first half of net last year right so therefore they're in a they're in a trajectory to really underperform in the first half of next year even without idfa and without the comp itself per se well with the comp and with idfa um so that that's something that needs to be reversed and and it's a little scary that they're going out with a sequential down revenue um according to censor tower of course there could be some inaccuracies but they tend to track well the second thing that i would say is that i don't know the answer to this question but what i do know is that zynga and other companies like zynga have been doing m a forever right they've had people in on on board you know boiling the ocean for years and years and years and and

doing that and i don't think platika necessarily may have that type of capability i could be wrong right i could be wrong they may have like lots of things lined up waiting for capital to buy right um so that would be the question and i think that's my biggest fundamental question is like they ca they are not worth this valuation based on the current business that they have the only way that they can justify this valuation is that they can continue to grow through m a and i and again i do not think they can actually grow through um um organically and justify these evaluations fundamentally so i agree i mean i i would say i just go back to you know the interview you guys did with the wazinga as former exec because i think that was he laid out you know kind of how they built their m a expertise over many years it doesn't happen overnight you just don't suddenly know how to buy and integrate companies you have to have a long-term plan in place and and gain that knowledge by simply making mistakes along the way and so they started small i think they

got lucky with natural motion but other other than that they started small and working naturally was a disaster dude by the way just to be clear csr2 is still doing okay but other than that yeah other than that it's been a funny pit but yeah but you know the other deals they've done recently they've continued to get bigger and bigger and they've done better and better with those and so yeah so i think that uh you know that that takes time to hone that expertise you don't do that overnight yep and and and this is not like tucking in acquisitions that are like 20 to 100 million these are acquisitions that are material to a business that has billions in revenue right so that's what we're talking about we're not it's like buying coin what's the coin yeah you just said it i just totally forgot who's the coin oh moon active moon active acquire something like that or play t play play ricks or or you know bigger companies that like that that's what we're talking about integrating that sort of thing so all right great well i think that basically does it thank you very much for your time guys and that's our take on platika

thanks guys [Applause] [Music] [Music]