Playtika Holding Corp. (PLTK) Earnings Call Transcript & Summary

Sure. It's a great question. Historically, as we go back sort of 8, 9, 10 years, our biggest issue with new games was we had these top grossing franchises and are you going to take some of your best and brightest off of a top grossing franchise to put them on a game that's secular in nature? And then if you look at where the company is based in Israel, there weren't -- there was not a ton of product people. There's a lot of online marketers, a lot of technologists, a lot of cybersecurity, some other areas at that time, but not necessarily product. And through all the various acquisitions we've done, we've brought in great product teams, where they have a track record and a DNA as a studio of making new games. And so now as we look around the world in places like Wooga, Jelly Button, our studio in Montreal, a studio we built out in London, we really have a variety of teams making new games. And I think it's also great from an HR perspective in terms of moving people around in the company and giving them different experiences as well. So I think now we have a good mix on the company of new titles that are in development. And we'll have to see over the next year, kind of what's commercially viable. I think the real advantage that we have is that all of the titles are being built on the Boost platform. And so if one tile isn't commercially viable, we're able to sort of take, whether it's a meta game or a product feature that, that can add that it was sort of known for and bring that innovation into our other titles of our existing top grossing games. And so for us, we were what we call the accelerator internally because it really is an R&D tool that creates new games, but if it doesn't create a new commercially viable game, great. We have all these product features we're going to use throughout the rest of the portfolio.

When you're doing M&A as sort of capacity for pipeline, is that an important factor that you guys are considering?

It's not necessarily. I think we are focused on great product teams, with great people that make great games. And we have $1.5 billion of liquidity now. $1 billion in cash in the balance sheet, $600 million in revolver. So I feel very good about our positioning in the marketplace. And we're able to do bigger deals now than we could have looked at as a private company based on expansion of the balance sheet and the options available to us. We just refinanced our debt in March as well. And so brought down our cost of capital significantly. So with $80 million of interest expense savings year-over-year. So I feel like we're really in a good position for that. And I'm pretty active in the marketplace now, meeting a lot of folks. So I'm happy that the world is reopening.

Definitely. When you think about mobile gaming, or do that gaming generally, right, sequels have always been a big factor, but less so in mobile gaming because of your ability to innovate within an existing title as opposed to having to create a new one. All over and we have seen some of the big franchises like Candy Crush have had to kind of spin-off games. I think they have kind of increased the total TAM of those franchises, maybe you get people who like the franchise you play multiple versions of the game. Is that something -- when you think about something like Slotomania, which obviously has been around for 10 years and has a huge following. Is that an attractive direction for you guys? Or are you really looking for in your pipeline like completely new IPs?

So for us, each game because we view it as its own platform, the innovation that takes place year-to-year is pretty tremendous. And if you look at the game 5 years ago versus today, or any of those titles that we've had over 5 years, they almost look entirely different, right? So I think we've never gone with the sort of franchise approach. We've gone with more of the platform approach, where we're constantly adding on new things you can do on the platform rather than the idea that you need to migrate or those move your experience. If you look at it, and when you look at our 5 oldest titles, like something like -- we shared this during the IPO road show, like something around 45% of the revenue came from the 11, 12 and 13 cohorts. So you think about how long these users have been engaged in the game and playing the game. And they worked so hard playing the game and engaging in it to kind of get to where they are to now say, hey, you have to now start over in this new game rather than get all this new content. I think that's -- it's been a tricky model for us. So for us, we haven't gone with sequels. We've tried to continue to just drive that experience through great new content and engaging folks. And I think that's one of the advantages around our core competency of live operations as we found a way to really constantly introduce great content to engage folks rather than have the game at some point end. And I remember as a kid games, you get to the end, you beat a game, you're really proud, you're ready for the next version. And I think here, it's that endless loop of not knowing where the story ends. And -- some of the titles are really story driven as well. If you look like at June's Journey, it is very much a story driven game. And so how do you keep that story going for a very long periods of time is a challenge.

Yes, yes. So we can't really talk about gaming right now without at least not to the impact of the pandemic and shelter in place on engagement monetization. To what extent do you guys have a view on whether this is a permanent lift or when it's going to fade? And what is your experience in sort of markets that have been impacted by COVID differently tell you?

Sure. So we saw the biggest impact in April, May, June of 2020. And then we -- so we saw the big lift in Q2, and then we saw it sort of fade into Q3 into Q4. And then we saw strong growth again in Q1. And some of that is road map driven and when we introduced new product features. And I think some of it was just normalization of behavior, right? It was a very unfamiliar times for a lot of -- for everyone having -- when their stay at home orders were there. And people chose to engage in gaming as well as a variety of other forms of entertainment in the house. And because similar -- all of our games are on mobile, and they're also casual in nature, I think what we're seeing is people will be playing while watching their son or daughter, playing their soccer game or while watching a movie on TV because our games aren't first person shooters. They're not meta versus where you're completely immersed in the experience. You can, but you can also kind of casually play while doing something else. And I think what we're seeing is people are getting out, even in Q1, we saw U.S. at 71% of revenue versus 70% a year prior. So U.S. in Q1 was probably the best example of just opening up more so than other markets. And so with that, we actually saw continued engagement or increased engagement in that example. So I don't think there's any evidence thus far that as things open up, these trends will change. I think we already saw that in our business. But I think every game's -- every business is different, right? Our customers are typically 35-plus, a variety of them still older female, a game like World Series of Poker, [indiscernible], but we don't have any games in our portfolio that are targeted at children. And so I think that really is a difference in that. I think with children, they were probably impacted even more so in terms of being stuck at home more so than adults in their behaviors. And so I think it's already worked through our numbers and what we're seeing. And we have confidence in the year and that we just raised guidance for the year as well. And we took up our revenue, $160 million top line, $80 million in EBITDA to now $2.6 billion. And revenue for the year and $1 billion in adjusted EBITDA. So I think we wouldn't have done that had we not had the confidence, have seen the trending we saw in Q1 and beyond.

Yes. I think that seemed to be a pretty common thing we saw across the industry where people came into the year, sort of being a little cautious. But as we got through Q1 and in the beginning of Q2, I think people have felt a little more -- a little more conviction about kind of the direction of the business, that the comps in Q2 wound up not being maybe as bad as people were worried about even going back to last year when we first started talking about what are the comps going to look like. To the extent you can talk about it, I'm curious to hear your view on the epic Apple suit. And maybe more broadly, talk about platform commissions and whether you see those changing in the next 2, 3, 4 years?

Sure. So we will not comment on others litigation. What I would say is that Apple and Google are partners for us. We continue to support them. And I think the platforms offer organic traffic, there's a lot of benefits, obviously, to acquiring customers on those platforms. And if there is a change in fees, it would be tremendous for us, given 97% of our revenue is in that purchases. And so much of our revenues is from older cohorts. And then if it does change, obviously, I think it's a tremendous benefit to your current business. But on a go-forward basis, I think the value of a customer goes up and say you'll see higher customer acquisition costs. I'm not sure how long that benefit will last. But clearly, it's a tremendous tailwind to the business, given for us going to the year, $2.6 billion of revenue, with 82% of it on third-party platforms. There's definitely a lot of upside from every basis point shift if those rates were to come down.

Yes. Another frequent topic of discussion with investors has been the changes to IDFA that Apple has enacted. And now they've been in the market for a while, although I think that the kind of the rollout has been kind of a creeping as consumers update their operating system and make their choices. Have you seen any impact on the market? I know you don't have a ton of ad revenue, but certainly, on the customer acquisition side, I think you have some visibility on kind of what it's doing to CPIs and the effectiveness of advertising on Apple's platforms.

We haven't seen an impact. When we did our earnings call, we spoke about it. It was only just over 10% of the people that had adopted in. And we really haven't seen any changes, anything material. And I think we have 18% of our revenue on our own platforms, 33% of our revenues on iOS. And so I think we're sort of more insulated than others in that expense, as you mentioned, only 3% of our revenue comes from ads. And so I think on the UA front, as I look at it, we guided to 38.5% margins for the year, but we had 40.4% margins in the first quarter. And so we definitely left ourselves room to be more aggressive if we see opportunities in the marketplace and prices come down. As folks that maybe don't have as advanced attribution models as we do, maybe pull back in advertising.

We talked about M&A a little bit earlier. How do you view the market right now? Obviously, there's been a lot of capital markets activity in gaming. There's been a lot of acquisitions that have happened. You've had like yourself company that have gone public, there's been spacs. What's the attractiveness in the market? And then when you're looking at targets, are you looking principally at sort of your ability to grow your scale? How important do you think scale for scale's sake is? What else are you looking at as you're looking at targets, that's really important?

Yes. So I don't think scale for scale's sake matters at our scale that we have today, I would say that every title that we do under the Boost platform, has a network effect, right? And the value of that network becomes greater and greater as we bring those on. Because as we're able to not only grow a business we acquire, right, by bringing through our Live-Ops skill set and bringing them features that can help drive growth. We can also take either technology that they have or features that they have and bring it to the rest of our portfolio and lift everything. And so I think that's where scale benefits really happen is by leveraging the Boost platform. So that's our advantage in the marketplace. And it's always been our business proposition to everyone, all entrepreneurs and sellers has been that we can be helpful in growing their businesses and help maximize earn-outs as well to really make entrepreneurs more money with us than they could with someone else. And so I think the market today feels like it's normalized a bit. It was a little crazy. I feel like when the spec craziness was going on because people thought they had these spec options that were just at crazy valuations. I think some of that's normalized a bit. And so now people I think are reasoning or they want to sell before they feel like the market gets more air let out of it. So I think there are a lot of opportunities in the marketplace today. We commented on the call that we feel good about our road map and pipeline that we're looking at, and we'll update when we have something to share.

Do you think that the market ultimately is going to consolidate down to a relatively small number of major players like we've seen on the console side? Or do you think it's going to be -- remain kind of a more -- a more competitive market?

The market is still fragmented in a lot of ways. And there's so many different genres in mobile gaming and so many different players that have expertise in these various genres. So I think you'll continue to see consolidation. It's clear with some of the scale players that you can drive greater margins in these businesses as you grow them. I mean our focus is always on revenue growth, but with a -- in our purchase business model, 70% on a third-party platform drops to the bottom line as you grow via Live-Ops, and so we're able to grow profitability. And so I think with that, you'll see larger players that really understand that continue to consolidate. It's hard to say that I think it's a little bit different than the console world, where there's years of development, much greater development costs and there's larger marketing expenses well ahead of the launch. So it's a different business model, mobile games, but I think what's been proven and why you're seeing valuations to go up now where you're seeing such so many franchises, 10-plus years in the marketplace and continuing to grow. And I think if you look back kind of in the first mobile gaming companies went public, one of the biggest knocks on them was but what's the sustainability of these games? Will these games be around? And I think now that you're seeing folks like ourselves being popular with so many titles, with such long duration to the titles that it's giving people a lot more confidence. Like a title even just Bingo Blitz being a 10-year old title, growing at 40% this past year. I think it really has shown people that it's not just about new titles to drive growth in the game world.

Absolutely. Well, I think we run against our time limit. So Craig, thanks so much for being here today. I really appreciate it.

Thanks for having me, Doug. Good to see you.

You too. Bye-bye.