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

Thank you, everyone, for joining today's fireside chat with Playtika's CEO, Robert Antokol. We're going to have a discussion on Playtika's growth strategy and the current state of mobile gaming. Robert co-founded the company in 2010 and has served as its CEO since founding and as Chairperson of the Board since June of 2020. My name is Mike Ng. I cover video games and Playtika here at Goldman Sachs, and I have the privilege of moderating this discussion with Robert. We have 40 minutes today, inclusive of audience. So if you'd like to ask a question, you can submit your question through the webcast, and I can ask it on your behalf. First, Robert, thank you very much for making yourself available. We're so excited to have you. Maybe just to start, Playtika is a best-in-class mobile game publisher, and that's evidenced by its track record of having top games across a variety of genres. It's also a company that's undergoing a transformation from being a pure-play social casino publisher to becoming more diversified. Why don't we explore this narrative in a little bit more detail. So to start things off, could you just give a brief overview of Playtika and what you see as the key growth initiatives from here?

First, thank you for having me. I'm really excited about it. For me, this is my biggest conference until now. Usually, I'm not joining this conference, but I felt that this is the right time to start my new journey as the CEO of a public company. So thank you, and I'm really, really, really happy to present Playtika. And to show the world to show everyone what is the strategy of Playtika, what is the future of Playtika, why we're different than other companies, why we see the future faster than our competitors. So I'm here for everything. So I will do a short intro about Playtika. As you said, I founded the company in 2010. We actually, up to 6 months, we launched Slotomania on Facebook. This was actually our first game on the first platform. And from this moment, our journey started. So we were one game on one platform. And actually, we are the first company that saw what's happening with the App Store. And we took Slotomania to App Store. And then we started to move to Slotomania to Android. So actually, Playtika in the beginning was growing by looking and searching for new platforms. And we were like in 1.5 years, running the game on 5, 6, 7 different platforms. Until now, we are in the top growth of this platform. So this was Slotomania. From this point, we started working in 2 directions. First direction, growing our current games, Slotomania, Caesars Casino. The second direction, M&A, as you mentioned. So we found out that M&A, it's an amazing way to grow our business. It's an amazing way to bring talent to Playtika, amazing way to grow faster than our competitors. So actually, in 2016, we are growing -- acquiring 4 different games on the social casino channel. And from 2016 until now, we started to move to other channels. And we took all our knowledge and all our experience from the casino side, we took it to the casual side. So actually, when you look at Playtika in the last 10 years, today, we have that 9 games in the top grossing 100 games in the U.S. And actually the more interesting stuff, we are leading 5 different categories, 5 different categories, and this is unbelievable. And so until 2021, until this year, we were a private company. We were working under -- we have always been a very low profit company. We never were looking for publicity, we never were looking for, okay, we are here, we're better than others, no. We came to work. Mainly execution was always our main goal. How we're doing execution? So from 2021, our life changed and we become a public company, and this is a different ball. So what happened in the last year for Playtika. First, we've becoming a public company. We've been the biggest IPO in the Israeli market. So this was one success for us in Israel, it's probably Israel. The second, we acquired a new game, a new category. Redecor is a new game that's combining together combining home design games, and I'm sure we'll speak about in a few minutes. Second, we announced we're launching a new game. This is our first launch of a new game, Switchcraft and we will speak about it later. And the last important stuff, we grew organically in 2021. When you look at Q2, we grew Q2. When you compare it to last year to 2020 when it was the COVID year and everybody said, no one can do the numbers more than Q2, we did it. So we had amazing success. And when you look at the future, this is directly where we're going. New games, we build a new department in Playtika called New Games. We have New Games, M&As and of course, our internal growth, and this is where we're going to grow in the coming 2, 3, 4 years. And this was a short introduction. I can speak another half an hour on Playtika, but I will give you an option to ask some questions.

Thanks, Robert. And I know that was a great introduction. We hit several key things that I want to explore, the Reworks acquisition, Switchcraft, the organic growth and the pipeline. Maybe just starting out. To your point, the growth was impressive more recently, particularly given the tough comps, right? Mobile games have benefited from elevated levels of engagement in the past 18 months because of stay at home. As the world continues to reopen, how should we think about engagement for Playtika games? And can you talk about some of the more recent engagement trends that you're seeing is reopening and affecting engagement at all for the games?

So I really like this question because I know that everybody is telling us this is a amazing question, but this is an amazing question because we look at our players different than other companies. When we become a public company, everybody is starting to ask us what is your BU, what is your MEU,what is the BEU, why you're not growing? What [indiscernible] All this around BEU because why? Because this is what the investors in the market used to see from other companies that become public a few years ago. We look at our players like members. They're not the only BEU for us, they're not a number. Our relationship with our players is much different than other companies. And the example with some -- when you look at Slotomania today, we have 3 events in a month, Zoom event is with our players. Every game has Zoom [ amount ] in the last 2 years, more than 2, 3 times a week. We're doing that outside of offline even before the COVID, of course. So our relationship is different. We know our players. We know what kind of content they like. So to say engagement are going to change, not for Playtika. Yes, of course, we got a bump in Q2. People are playing more. They're more at their home, they have more time. Yes, yes, yes, yes. But look what's happening right now. Still, we are growing. In Q2, we grew our numbers. We bought more players. We bring them the right content. When players getting the right content, they have the reason to pay. So it's different. We see right now in some channels that there are less players. We see that, yes, people have more option to do. But still, for us, it's not a big difference. Still for us, we know how to grow, and it's not something that's new for us. Okay, what are we going to do now with our players. No, we know them very well.

And as you mentioned at the onset, you have leading games in 5 different categories. Playtika has been diversifying its portfolio into casual games with titles like June's Journey and Best Fiends. Can you talk about the progress that Playtika is making in casual and some of the opportunities that are created in the casual genre that might make that genre particularly compelling relative to social casino?

So we started, as I said in the beginning, with one game on one platform, social casino game, very simple. And then in 2016, we decide, okay, you know what, we are doing so well in social casino. Why we cannot explore ourselves? Why we cannot go to other channels? So -- and we find out something like very surprising, game is a game. Doesn't matter if it's social casino or match free or hidden object. It's a game, very simple. So when we acquired our first casual, how we call it, casual game company, Jelly Button or Wooga we saw something very interesting. These guys, most of the casual guys are growing their revenues by UA acquiring users all the time, spending tons and tons of money of bringing revenues from new users. Why? Because they always were focusing on product and marketing. They never were focusing about monetization, operation, relationship with the player, never. So when we acquire these companies, we did 2 major things. We build the operation department and we lower the user acquisition amount, very simple. And when we are not trust your growth on user acquisition, you need to be more creativity. You need to think outside of the box. You need to say, okay, just a second, how can I grow the game now. I need to think to be new content, fresh content is something that the user will -- it's forcing the companies to think differently, and this is what we are doing. So in the end of the day, when you look at the casual game at Playtika, in a few years, it will be held exactly as a social casino game. I don't see other reason.

Okay. That's -- that makes a lot of sense. And you talked a little bit about launching a new game in casual, which is Switchcraft. So why don't we talk a little bit about that? It's a match free game. It's coming in the fourth quarter of 2021. So imminently, how has the game been testing to date? Can you help us think about how you would measure success for Switchcraft? What does success look like?

So I will start from a different approach. So Playtika has never been an amazing company of launching new games. I'm not hiding this. I'm not saying we are good in everything, no. Our focus was only to grow organically and to do M&A. I think when we move to casual, we found ourselves acquiring companies with an amazing history and talent of making new games. And when -- and let's take Wooga, by example, a studio that was established 11 years ago with huge experience of making new games and good games, not only making new games and good games. So we said to ourself, okay, this is an opportunity. This is the big opportunity. We're not going to miss it. So Switchcraft, we actually tested this game for 3 quarters. And we changed many things in the last 3 quarters. And the guys in Germany did an amazing job there. Because we said we have our parameters and our KPIs, and we're not moving from this KPI. And until a new game will not get to these numbers, we're not going to launch it. Now 2 months ago, we said to ourselves, okay, the game, go to the right number, the right KPI. Now we're ready to launch it. And it's very interesting, this launch, because it's combining between match free and telling stories. So Wooga, #1 company on this genere of telling stories. And together with match free, this is very interesting experience. We see amazing numbers around it. We are really excited. It's our first game that we are launching. It's something big in Playtika. And when you put in a target, I think the right target is to bring $100 million in our third year. I think this is something that will move the needle. Something that we said to ourselves, okay, we did a good job. So this is what we are focusing, and we are really excited about it.

Well, I'm excited to see it come out shortly. Thinking beyond Switchcraft, can you talk a little bit about some of the other potential games that you might have in the pipeline. I know you guys have said in the past that you want to launch another game in 2022 and Switchcraft wasn't a pull forward of that game. So we're getting 2 for 1, so to speak.

So I spoke about it 2 minutes ago, and I will tell you a few things. So Wooga is not only on studio with the experience of making new games. We have in place a few studios. And we built a new department set in the interim of making new games. And we put one of our best guys to run this department. And the guy who's experienced in running a studio, making amazing job there. So we are now really looking differently than the last time that we tried it. And I think right now, we have a new games, several new games that we're developing, some of them in Canada, some of them in Israel, Germany, Finland. Different teams, different talent, different experience, different channels. Yes, we are going to launch a new game in 2022. We still don't know when. When we will know when we see the right numbers, we will announce it. We are going to build -- as I said before, we're going to build a new channel for Playtika, this new channel of new games. We are going to succeed here. It's not an option for us. As I said, we're going to have 3 directions to grow Playtika: organic growth, M&A, and new games. This is where we're going to be. And until now, we always succeeded in what we are doing. And I believe we will do the same here. It's not an option, not to succeed.

So at the onset, you talked about how you guys acquired a game, combining home designing games, and that's the acquisition of Reworks Oy. I think you guys did that acquisition on August 31. Reworks Oy has a design entertainment app called Redecor. I think in the press release, you said the acquisition was supposed to contribute about $30 million for 2021, which when I do the math implies an annual run rate on revenue of $90 million. Could you just help us explore the rationale and the strategy behind the acquisition of Redecor? Obviously, it looks very different from some of the existing games in your portfolio.

So we will become a public company, we got a pressure to do M&As. And actually, we didn't need this pressure because we had this pressure already inside the company. We -- I always said that we go into the M&A, but it's not going to be another game studio that will not add anything interesting to Playtika. Because we're not looking only for revenues. Every M&A that we did in the past give something to Playtika; technology, talent, people, marketing, customer support. We learned from every acquisition. So we were looking for the right one. And when we started to look at Rework, we found something that combined everything that we are believe. We believe that play can be in every entertainment category. And what these amazing guys did, they took home design category, it's a nice one, it's a huge one, yes. By the way, it's a huge category. And then combine it with game, and this is exactly when I saw it. And when we started to look at it, it make me so exactly because I said this is exactly where we want to be. This is exactly what we want to do. We want to bring the play, the playtification to everything. And here, it's amazing example for us to do it. Amazing. So yes, it's important, we will add another $30 million. We'll do $90 million. Doesn't matter. More important for us is that now we have a new direction to show ourselves and to the market that we can grow content in different category not even related to what we did in the past. And success here, it's a huge game changer to Playtika. It's something that they bring to Playtika different kind of things. And of course, when you look at Rework, it's not only the game, there's the platform. And on this platform, we can run a different kind of category, not only home design, fashion, car designs, other kind of stuff that the imagination only can think about it. So it's a game changer for us. And another important stuff. We are from day 1 already bringing them our most in talent people. We're bringing more developing power. We're going to help this guy to grow it dramatically. We're going to help these guys to understand operations. They know content. They know everything. They know home design, but we know operation. So this is a big thing for us, and this was really the M&A -- the build that I was looking for.

Okay. And I'm particularly excited about Reworks and your acquisition of it just because Playtika has a really successful track record of M&A. And I think if you were to look at Wooga or Supertreat or Seriously, I think time and time again, the company has demonstrated a meaningful ability to accelerate payer conversion and monetization for these titles. And to your point, a lot of that is probably because of the operations team. So can you talk a little bit more about your approach to tuck-in M&A? And then separate from that, do you see any content genre or technological gap that Playtika could execute against to strengthen the company? To your point, when you do a deal, you always try to get something else out of the acquisition to strengthen your capabilities.

Yes. So first, I like your word tuck M&A because this is exactly what we are doing. I like it. I want to take it from you. Thank you. Because this is actually what we are doing. We are not a holding company. We're not acquiring games the same to the [ self ], wow, we acquire you now, you can stay at home and do whatever you want and they grow the gain, good luck to you. No, we come with tools regarding the portfolio, saying to the guys, guys, this is our portfolio, this is our experience, this is our technology. How can we help you? So actually, every M&A that we did in the past, as I said, brought something interesting to Playtika both -- it's a win-win situation. And every M&A connected to that another M&A. It's like dots. They are connected to each other. It brings something different to Playtika. And when we acquire a company, it become part of Playtika, getting from us everything, everything that the game of course needs. If he has already operation, we will not get operation. But we -- and this is a good point to speak about Playtika Boost, and I know that we're going to speak about it in the future, but Playtika Boost actually bring -- this is the tool that's connecting the dots. This is the tool that connecting the studios to Playtika. So we -- as I said, we have a different approach. We are looking at different channels. We are very open-minded. We are looking always to the right point. And before we do the M&A, we are checking the teams to see their DNA, if it's the right DNA. We're checking the technology. If we can help them. If we cannot help them, why we need to acquire them. How we can grow though. How we're preparing everything before the -- we're doing the M&A. We are ready -- when we are doing the M&A, we are already coming with the tools to grow it. And the beautiful example, we have so many examples, but we acquired 19 months ago, a game from Austria, a -- solitaire. Small studio develop a solitaire game. We acquired this game. We are -- we did in this game more than 300% growth in 19 months. And how we develop [ magician ]. We brought all our experience from other game to this game. We localize this game to Germany. We localized this to other countries. So it's not a miracle. It's not happening and we cannot trust other companies to say, okay, we acquire you. Now you do whatever you want. And no, we are coming. And you know what? There are some companies that don't like it. So they're not going to be part of Playtika. We are here to work with people that we like. We are building a different environment of working. We're not here for a fighting. We are here to enjoy the role. So this is why we are checking every M&A very, very carefully and not jump in saying, okay, the KPIs are good. The numbers are good, let's buy it. No, this is not our approach.

I wanted to shift gears a little bit and talk about industry developments. One, I want to start out with is just IDFA, right? Apple has made -- opt in a requirement for tracking through IDFA. So how does this effective deprecation of IDFA impact Playtika's user acquisition strategy, if at all? And then how is Playtika differentiated relative to what many of us know as traditional mobile game publishers in user acquisition?

So this is the question that everyone is trying to understand the right answer for it. But I think we'll start from the beginning. Every few years, something happening in the market. And this is a process of the market. Every period, something dramatically happen and everybody says, oh my God, how we can leap forward. And they're finding the way to work in it and everything is okay in the end. So this is one situation. And you know why? I think this is actually a good advantage for Playtika because we -- like the others, first, it's not our main growth tool to grow our business user acquisition. So this is one. Second, we are in the last 2 years doing a lot of activities outside of the traditional UA. We are doing off-line, campaigns, events, TV, radio. So we're doing so many of them. So it's not like a dramatic one. And the third, we have our AI technology, and I spoke about it a little bit, and I will speak right now. The AI technology is helping us to understand the right channels for user acquisition. We are working this. And I will tell you something that will surprise you. And everybody is thinking about Apple and about -- and Facebook spoke yesterday about the channels and everything. I still think Apple channel are very good channels. And the Facebook is a very good channel. And yes, because today, they loop -- if you cannot close the loop because you don't know who is the players. So people think the campaign are expensive, but you're getting the same amount of users. They are not -- you cannot color them like it came from Apple or came from this campaign still getting the same amount. And we're actually bringing more budget for running campaigns on Facebook with Apple users. So it's not that it's such a big change because if you have the right technology to measure it, if you have the right technology to follow it, you can find a good way to grow your business. But the last point, as I said in the beginning, this is not our main channel to grow our business, and this is a very important thing.

And I guess while we're on the topic of new developments in the ecosystem in Apple. They have -- there are some potentially upcoming changes to steering, right? There's been some discussion about how the anti-steering provisions that existed on iOS can no longer be in effect. How is that going to change Playtika's approach to monetization, if at all? Are you going to try to direct more spending off the platform onto Playtika's proprietary platform, for instance?

So again, I don't want to speak good things about my company. But Playtika was thinking before everyone about -- outside of the box here as in other channels. And we build our propriety platform that right now, it's around 20% of our revenues. And we are speaking about a huge advantage of the plate. So actually, we are ready for every scenario that can happen. And for us, it's a big advantage because we are already few years running with our payment method. We're already few years running with our proprietary platforms that give us amazing advantage of being close to the players, understand the players and, of course, not paying 30%. So it's a huge, huge, huge advantage. I think it still very early stages to understand what's going to happen with the App Store. I think we don't need to jump to any conclusion and say, okay, you can go inside, you can go out side. It will take time. It will take time. But we, as a company, it's advantage for us because we as a company are ready for every scenario. And again, 20% of our revenues is on our platform. It gives you a big, big, amazing independent ways.

I want to talk a little bit about the existing portfolio. A big portion of Playtika's games are in the social casino category, Slotomania, House of Fun, Caesars Casino. Can you talk a little bit about the social casino category overall? And the outlook for that genre? What's going to continue to drive player conversion and spending per payer? And if you want, could you talk a little bit about some of the differences of each of those games within the portfolio?

So I said in the roadshow, we are looking to take our games a little different than our competitors. We are looking at our games as a platform. So today, let's say, Slotomania. Slotomania, you have more than 1 million players coming every day to play. And you have a huge community of players on Facebook and other social networks that give us amazing connection to our players. So actually, because we understand our players so well, we can bring in the right content. We can grow these games 10 years in a row. So -- and I said in the beginning that at the end of the day, game is the game. It doesn't matter if it's a social casino game, or match free or it's other game. Today, we're giving fresh new content to our players, every week. Every week, they're getting something new. Today, if you go into Bingo Blitz, it looks different than regular Bingo. You will be shocked. You will see so many different kinds of features, so many kind of new exciting things that's not even related to Bingo. So it's called Bingo Blitz, but actually 50% of the activities are not related to Bingo. The same with -- yes, the same with Slotomania. We started with slots game. There was one slot game which you can play. You know how many different categories and content you can find Slotomania. And this is how we found this content because of the amazing relationship with our players. We know exactly what they want. And together with them, we know how to grow content. So it's a different approach. It's a different -- yes, when you compare Slotomania to solitaire games, it looks, okay, this game is already 11 years, this is going already 1 year. So what? So what? Still, the conversion is very low, monthly conversion. Still there's a huge place to grow the conversion. There is a huge place to bring new content. There is a huge place to grow these games. It doesn't matter if the game is 10 years. This is our approach. It's like we -- every year, when we are building the budget, we're saying to ourselves, oh, now we need to grow again in the 29 years. So what? Luck is not easy.

So we talked a little bit about the proprietary platform. As you said, it's 20% of your revenue. I think there's a long-term target to get that to 30%. Could you talk a little bit about what's really driving growth on the proprietary platform? What's the value of this platform relative to mobile? Obviously, there's no platform fee from the mobile platforms. And could you just talk a little bit more about how you get people to sign up for the proprietary platform? And who does it? And is this something that is unique to social casino, into Playtika because you guys are using so many nontraditional channels? You mentioned TV and radio and events and offline that lets you do something like this. Just would love your thoughts there.

So a few years ago, we understand very clear that we need to have some independent tool if we want to feel much more secured in Playtika. And we started to think about our platform. Of course, we have amazing relationship with Apple and Google and Facebook. But we said there's a world outside of this platform -- these platforms. Not everyone are in the same on the Apple and Google. So we build out our platform, and we put all our new technology there. We put all our experience there. And slowly, slowly, we are like putting more and more games. Today, only 5 games of our portfolio running on our property platform, and we have 20% of our revenues already there. Only we launched a Bingo Blitz this year on this platform and we grew it. So still there is a huge potential to grow this platform. And of course, to give you key advantage. First, you're growing your EBITDA. Very simple, your net revenues are growing, you're paying less. And this is a fact you cannot avoid it. Second, you have an amazing relationship with the players. You can do tests, you can do service, you can try things, you can roll back things if you made a mistake. You can roll it in a second. You don't need to say, okay, now I have to wait for somebody to approve it. This is very powerful. And it helps us, it happens to grow. Third, we can put all our technology there. We have so much technology, especially on AI. We're doing all the marketing test or marketing channel test. So this is an amazing tool. And now, going to the previous question, what's happening with [indiscernible], it can give us a big advantage on our competitors.

And we touched on this a little bit, and you talked about the Playtika Boost platform and how it helps drive synergies for M&A. I was just wondering if you could talk a little bit more specifically about what is the Playtika Boost technology. What's the operational expertise that you mentioned earlier that you're able to leverage and drive a lot of synergies very quickly out of some of the companies that you acquire?

So I will start from beginning. Playtika is a technology-driven company. Technology driven company. Yes, we are doing video games, and we are in this category, and we'll love it. But still, our base is technology. This is the base. We're looking to Israel, one of the biggest hub technology and AI. So this is the base of Playtika. This is how we grow our business. We understand our players. What is it exactly what they want. We understand exactly the funnel. Well, I always say that we have so many guys sitting in our building in Herzliya, Israel. And all they're doing, they're looking at numbers, very simple, looking at numbers. And taking decision because this is actually what they're doing. Here, this is much more easier, of course, and it's around entertainment and fun. But this is what they are doing, technology, numbers, decision. This is how Playtika is built, very, very simple. So after a few years, we said to ourselves, we're a little bit missing here something. We're acquiring so many companies. We have so many teams. And now we want to teach the other games, it's really hard for us. And then we develop the Playtika Boost platform. it took us time to build the right technology, simple technology. Today, when we're going to acquire and we're acquiring a company, it will take us 3 to 6 months to connect the new game to Playtika Boost. 3 to 6 months, it's not a lot. And with Playtika Boost, the game is getting the basic thing, the tournament, the community, the connection with the players. The basic things that we're getting from Playtika Boost, helping him to grow the numbers. I will give you one example, a simple example. We acquired one game, and the game has showing the same payment page to every players, if you are a player that playing one game or player that play 5 years, you're getting the same. It's not fair, not to this player, not to that player. So we build segmentation. Today in our games, we have 100 different segmentation. So when we connect Playtika Boost to a new game, it's getting in 3 months an option to do segmentation in its payment page. This is amazing for the players that can pay get exactly what they need to grow themselves in the game. So we have so many examples. And actually, this is the future of Playtika. When I look at it, everything will be in the Boost, everything is there. Every new feature that we are developing right now, we're developing it on the Boost platform. So it's going to be much easier. So again, I can speak more and I have so many examples, but this is the future of Playtika.

Great. So I know we're approaching the end of the session. So I just wanted to get one more closing question in. I was just wondering if you could talk a little bit about the technology-driven aspect of the company. What's the secret sauce? I know that Playtika as an organization has always been like a highly coveted place to work for in Israel, in particular. For somebody who may not be an Israeli, could you talk a little bit more about that aspect and the engineering talent that you're able to tap into that help make the company what it is?

I think we had a big challenge in Playtika, especially in Israel, to bring talented technology guy to work in the gaming industry Think about it. Israel was always around security, around other kind of categories. And games was for the -- hey, guys. games was like, it it's not serious enough. So it took us time to teach the market that, guys, you want to work on technology, want to work on the high-end technology, Playtika, this is the right place for you. And we did the amazing companion, we gave this guys opportunity. Today in Herzliya, we have around 1,000 employees and more -- and I cannot say what kind of project, but a lot of them came from special units of the Israeli army. And this guy, as I said, they are working the top, top, top technology. This is one. Second, this -- in Playtika, it's very important to know how to take a decision. I don't like people that not taking decision. You can take a decision even if it's a wrong decision. It's okay, but you are moving. Playtika is a company that you need to move. You cannot stay. You cannot say, okay, maybe. No maybe. Take a decision. No problem, go back, take another decision. Go fast. So we are thinking first. We are working first. We are working as a company together. Our DNA is always to win. We are winners. We are not here to say, okay, maybe we want to be #3. No, we are focusing to be #1. We always did. Always in every move that we did in the last 11 years, we said to ourselves, we want to be #1. And now as a public company, it's a new challenge. And here, we are going to take the challenge and we're going to win.

Great. Well, Robert, we're just at time. It's always a pleasure speaking with you, and it's a privilege to be able to share the stage with you. Thank you so much for all of your time. This is great.

Thank you so much, and I'm waiting to another invitation in the future.

It's coming. Don't you worry.

No problem. Thank you. Bye-bye. Thank you.

Thanks, Robert.