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

Thanks, everybody, for joining us at our second annual Global Interactive Media Conference. I'm Andrew Uerkwitz, senior U.S. analyst covering interactive media. With me today is Playtika. It's my pleasure to introduce Craig Abrahams, President and CFO. He's been the CFO and President, I believe, over 5 years now. He has overseen many of the company's acquisitions, including Buffalo Studios, EA Mobile Montreal, Pacific Interactive. Previously, he served as CFO of Caesars Acquisition Company from 2013 to 2017. And prior to that, he was Co-Founder, President and CFO of Caesars Interactive Entertainment, which actually led to the purchase of Playtika back in 2011. So he's been intimately involved with the company for quite some time. Craig, thank you for joining us today. Appreciate it.

Thanks for having us here today, Andrew.

It's been a very busy 2021, I'm sure. You went public earlier this year. You're probably well known by most. But could you just give us a brief history of Playtika and ultimately where the company is positioned in the gaming market today?

Sure. So Playtika is a mobile games and technology platform company. We've been around for just over 10 years now. We started off in casino-themed games. And in 2016, when the company was acquired out of Caesars, we pivoted to casual titles. Casual now represents 49% of our revenue. And so done a great job accelerating that growth, both through M&A and organically the last 4 years and went public earlier this year, have a balance sheet with over $1.5 billion in liquidity and recently just acquired Reworks, which is our first application that's going beyond games to design entertainment applications. So today, we have about 10 games hovering around the top 100 in the U.S. App Store in terms of top grossing. And we have a technology platform, which is our Boost Platform, which really allows us to cross-pollinate features and functions very efficiently across the titles and accelerate organic growth. Live operations is really what we're known for in the industry. We're one of the pioneers there. That really is delivering content to consumers on a daily and weekly basis such that the game experience is just as exciting a year after you first downloaded the game as well when you first started playing it, and that's really what we endeavor to do. If you look across our portfolio today, the games are all really evergreen in nature, right? We try to think of game categories that people have been playing in the off-line world for the last 20 or 30 years and they're going to play online and digitally for the next 20 or 30 years. And it's really been our mantra in terms of how we select genres. And today, we're in everything from match-3 games to hidden objects to solitaire to bingo to slotting games to poker, and so quite a variety there. We're really excited that -- to be here today and talk more about our future plans. We just announced recently on our last earnings call that we're launching another title as well next year with Merge Stories. We recently just launched Switchcraft from Wooga studio. And we're going to launch a third title in soft launch towards the end of next year as well. And so in terms of delivering on our strategy we outlined earlier this year in the IPO, very excited where we are from both M&A and new game perspective.

Yes. No. So I mean it's funny. It's been a busy '21, but I just looked at your transcript, and it seems like the next 12 months might be just as busy. One of the things that I find interesting about this space is that it seems like the companies that are successful are technology companies, not traditional gaming companies and mobile. But yes, Playtika has been around for quite some time. And what was -- what did you see in the market when this company kind of started to make it realize that it should be technology-focused as opposed to just writing the generic wave of mobile growth and just making games? Why the -- like when was that focus on technology happening? And what did you see there?

Well, I think first is because the company was founded in Israel. And if you look back in the landscape in 2011 in Israel, there really weren't any other game companies, right? There were online marketing companies, cybersecurity companies, online gambling companies. And so the talent pool that we had to pull from really was data analytical people with technology backgrounds, data analytics backgrounds. They had been an online marketing background, cybersecurity. And so when we first -- when the company first launched Slotomania, it was on Facebook and mobile was sort of the next platform. And what we realized was the product wasn't necessarily as good as other products in the marketplace. But we really understood how to acquire customers, how to retain customers, how to communicate with those customers, give them customer support. And over time, we acquired content studios and got better and better at the product side, but we realized that we never -- especially when we first went into slot games, weren't going to be competitive in terms of having a product that sort of kept up with off-line brick-and-mortar slot companies that were getting into the space. We'd be better than everything else. We have better online marketing, better at analytics, better at how we communicate with our consumers, better monetization and improving the funnel. And so with that over time, we started to build that out. And I think it was just about 5 years ago, we started to realize that we couldn't scale our business if it was just based on people, right? We couldn't go from a portfolio of 4 or 5 games and get to 10 games efficiently if it was every time we wanted to launch a new feature, it was hiring new developers and putting them on the task of creating that feature and integrating it. It had to be that we had some scale. And so that's really where -- and also the fact that we got -- our business growth strategy is really dependent on M&A. We weren't launching new titles. We really were acquiring great products and great teams and improving monetization and dramatically growing those businesses now with our strategy. And you couldn't do that if you took a consultative approach. If you were just taking your best people from various products and putting them on the project of helping an acquired studio or helping another studio with a problem they're having, that doesn't scale. But if we can solve these difficult problems and create using technology, so whether it's game economy management or how to do media buying or how to handle customer support using AI and machine learning, we acquired 2 studios doing AI, and so all of those things contribute to what's in the Boost Platform now. So if you look at what's being launched, whether it's a new album launch or a new tournament feature or a team feature, our studios are pulling it from the Boost Platform. So it's already perfectly configured. It's already optimized for the game. It's already been tested. So when it rolls out into a new game, it's already now having that much more of an impact. And that's where we're really seeing the benefit. I think as a company though, we can't just rely on taking the best features within the portfolio and cross-pollinating them because over time, there just won't be innovation. And I just sat through 2 days of meetings at our company off-site for both our divisions around casual and casino and really excited about what's on the road map for the next 12 months and a lot of innovation there. And that's what gets me really excited because those innovative features are what can really drive upside. When you have an innovative feature that really works well, you can then cross-pollinate that throughout the portfolio. And so really excited what's on the road map for next year. Also doing a lot of interesting things in terms of off-line, both using television and influencers to really drive a lot of customer demand. And so a lot of good things in store for '22.

And before we kind of move into some of those, you reported earnings earlier this week. What do you think are the 1 or 2 key takeaways you want investors to walk away following your latest quarter results?

Sure. So we had earnings last week. We had 4% growth over last year. We had 12% growth year-over-year in the casual division, and we saw a 4% decline in the casino division. And I think as we think through kind of and sort of peel back what happened, we had made a lot of infrastructure investments in the quarter, both from a technology perspective as well as building out new features that are rolling out in the fourth quarter and first quarter of next year. And so by having comparatively fewer new features to the consumers, some of the features that we had didn't work as well as we thought they would. And so there was an impact in the quarter. I think as we look forward though into the fourth quarter and the first quarter of next year, I think we're very excited about what's on the road map and what's coming. And then I also think as a new public company, when the road maps were designed, we weren't as thoughtful around how do you spread out the content throughout the year. We had a lot of the content baked into the first quarter and the second quarter and then the back half of the year was more infrastructure planning for '22. And so I think as a public company now, there's expectations, even though we're guiding annually and we manage our business year-to-year for 10 years now, there's an expectation to have a better cadence throughout the quarter. So that's something that I saw today in the road maps, and hopefully, it will be more reflected in the next year. But otherwise, the big announcements coming out of the quarter were that we're launching an additional game with Merge Stories coming to market. We also have good progression in terms of having launched Switchcraft in October and accelerating marketing into the first quarter of next year for that title as well. Reworks also is going well. Teams are working on integration now, integration with the Boost team as well. And we're going to take over marketing in the first quarter next year as well. And I think that's a key area where we can help drive growth. Smaller companies post-IDFA really struggle with, if they're just buying on Facebook or 1 or 2 other sources, how they can scale UA in this environment. And given the diversity of our sources and experience around marketing, we're really hoping to accelerate our advertising activities next year and excited about that.

And there's a lot of questions that come out of that answer. So let me start with IDFA. How is IDFA -- like the impact from IDFA moderate? Are you more comfortable with how to -- with what it means for UA? Where are we at kind of in the dealing with the IDFA issues that seems like the entire industry has been fighting?

Sure. So just as a starter for folks, I mean, who may not be as familiar with our company, 97% of our revenue is in-app purchases, 3% from ads. So there's a muted impact in terms of top line impact as a result of IDFA. I think second, we realized years ago that CPIs were going up and there was a need to really diversify the sources, invest in artificial intelligence to help our media buying as well as start doing more things with off-line TV and influencers and branded celebrities and things of that nature to really drive traffic. And we're seeing the results of that today, the diversity by sources. We have shifted some budget to Android. The off-line activities have driven great results. And the combination of the television with the influencers with the performance marketing, we're seeing good results. And our effective CPIs, we've seen now been stable for a couple of quarters now. So I think even though there's a lot of changes, I think part of the mantra on Playtika is the cheetah and moving quickly and acting fast. And I think we did just that around those changes and able to even see this past quarter that installs were up. And so we're able to start scaling as well, which is a great sign.

And then you mentioned Switchcraft. It's funny because like you actually pulled forward that game. I think it was originally slated for next year launch. Was there something in the data you saw? Was it you getting more comfortable with IDFA? What allowed you to pull that game forward?

Sure. So as we look at the pipeline of gains that we've had, there's a couple of games that have been in the pipeline for a long time. Switchcraft has been in development for 4 years now. So that game has a lot of content. It's been very carefully curated in terms of its development, and it just didn't have for a long time the right retention and monetization metrics to take it into soft launch. And then there were changes made over the last year that really gave that product the ability for us to sort of bring that to a soft launch. And then those metrics are validated and, in fact, improved and even done better now as you look at the retention and monetization curves post global launch. And so the fourth quarter isn't a great quarter to trend through marketing dollars at scaling the game, but I think we continue to progress, and we look to be more aggressive from the start of the year with that title. But thus far, everything looks great, very, very much unique in that it's a story-driven game coming from our Wooga studio. And that narrative is what keeps people coming back. Excited about the road map and the build-out of the team there to support that game.

And then kind of like your bread and butter really has been your ability to kind of just leverage your technology and data to go out and acquire games and be able to scale them. In a post-IDFA world, my guess is there's a lot more choice. What does the M&A landscape look like on the mobile side here? Is it any different to what you were seeing a year ago, 2 years ago?

Sure. So the M&A landscape for games specifically is quite competitive. I think the pricing for assets that aren't growing that are getting growth multiples don't really make sense. And I think we're always about creating equity value in everything that we do. And so we're very carefully selecting which studios that we're talking to. We're making investments in situations where maybe the company is not at the right level of maturity, but it's great to start to bring it into our pipeline. And we're investing there. Obviously, in Israel, we are very well known and have an advantage in terms of our network there and taking advantage of that. That's something we'll continue to do. And then we're starting to look at new categories. I mean I think Reworks is a great example of something that blurs the lines between an entertainment application and a game. We surveyed consumers in that game. And when we ask them, is this a game or an application, the consumers actually -- the majority of them thought it was an application, right? They're submitting their designs as part of a contest. But in terms of how do we actually make it more of a game and gamify that, right, add level progression, give people a reason to come back, that's really where we can increase long-term retention. And that's going to give us the ability to then scale that game. And so I think we're really excited about putting that team into Boost, getting them working with us on further gamifying it. And then there's a platform there to go into other categories down the road if we're successful there as well. So I think it's opened up our eyes to other categories that we can go after. And then there's a lot of extension stuff happening within games that are sort of beyond the core mobile gaming business that we're in today. And so I think in terms of where we look at where we want to be 4 to 5 years from now, it's not just in the traditional games categories that we've been in. It's thinking about what are the disruptive areas of the games. And I don't want to drop all the buzzwords, the various categories, but there are a lot of exciting things happening. There's a lot of innovation happening in Israel. And I think that is an advantage for us being headquartered there.

And I want to do a little bit deeper dive on Reworks because it's always been kind of my thesis that what video -- especially in mobile, mobile games have done around monetization business model, social seems to be well ahead of everybody else. And eventually, we'll see a lot of gamification. When you kind of found Reworks or started doing work on it, was it part of a broader push to say, hey, we want something outside of traditional gaming? Or like was there a basket of titles like this that you were kind of looking at? Or was it always kind of the idea that kind of, look, our technology is applicable well beyond just traditional mobile gaming, let's -- now is the right time to go find something?

I think there was a theme that we believe in when we assess various genres, is that we want categories that people are really passionate about that are going to sustain the test of time. And home design is clearly something that's done very well during the pandemic. It's clearly something that people are personally passionate about. It's something that people aspire to do that not everyone can do, but anyone can do it in an application, right? And people may dream of how do I redecorate my bathroom or my kitchen, but it's not something that maybe they can do or something they want to practice and get better at. And here, they can actually submit that design. And I think Ilkka and the team have done a fantastic job of entering the space with a unique game, and I think it's on us now to take -- or sorry, unique application. It's on us now to make that application further gamified and really leverage our know-how. And I think once we're able to do that, it proves to the marketplace the addressable audience for us is much more than just games. And I think there's a variety of other categories, and there's other categories that people are passionate about. Whether it's automotive or fashion or other categories, there's a lot of other areas where there's similar mechanics we think will play out. And so I think it's exciting for us. We saw the big category around home design. And I think there's a variety of other genres we can take it once we hone in on the meta game and the business model.

I mean I've looked to Redecor a couple of times. It feels like -- I mean it's almost a user-generated type of content experience. Is that a broader genre that you think has real applications on mobile? Clearly, it's kind of worked in PC console for a while, but does the user-generated content category, do you see this as a broader opportunity in mobile?

Well, I think if you look at the creator economies that are happening across mobile and web, it clearly is something that is a powerful trend that we're monitoring closely. The idea that we can empower our people to create something and then monetize their creations over time is a powerful trend. And so I wouldn't say per se that's the day 1 plan here, but it definitely is on our road map of things that we're looking at in terms of new ideas and new verticals.

And then I'm going to go off script a little bit because you mentioned something I thought was fascinating, and I want to kind of do a little bit deeper dive. Alternative marketing, leveraging TV, influencers and whatnot. At kind of first blush, I would say that, that might be a little bit like -- I would think a little bit out of the wheelhouse of using data analytics. But I'm sure I'm missing something here. What am I missing that will allow you to really kind of take what you learned from these alternative marketing plans and really apply what Boost is so good at?

Yes. So I think we've been able to track and monitor -- even though unattributed traffic or organic traffic, it isn't exactly clear at the time of day, but you can track when commercials or podcasts, obviously, influencers that are online. It's completely trackable. But I think we can track when things are tracking, what's the organic lift and look at those cohorts over time and the value of those cohorts. And we absolutely do that. And we've been able to scale it now in multiple titles. We just did something with Ty Pennington around Caesars casino. We launched something -- actually, I think it launched today with Penn and Teller around House of Fun. And so a lot of excitement using some unique celebrities and other characters to really drive engagement and excitement and have it permeate through the game just beyond the advertisers. It's like how do you bring the content to the game. And I think you'll see it in House of Fun as well where it becomes a key part of the gameplay. Beyond just driving them from television to the application, you'll see them as part of the game. And so I think it's the innovations around thinking beyond traditional means but using traditional media to drive people there and then using those celebrities to then be a deep part of the game. I know we've done a World Series of Poker with the commentators there as well. And so there's a lot to learn, a lot of case studies that we have internally, and then we continue to optimize when we see success. My takeaway is to put the pedal down and push. And we're definitely seeing that success with a lot of these campaigns.

And then a question from some of the audience. With -- I'll reword it a little bit. As you mentioned earlier -- you talked about expanding into new genres. When you think about doing that, how much time is going to be -- how do you attribute kind of here's an IP that we think we can approve or scale versus here's our audience that also plays this other genre, we think we can kind of leverage our current audience into new games? What kind of balance do you have as you assess some of the genres that you may add eventually?

Yes. So historically, we haven't done a lot of cross-marketing, right? We haven't taken consumers from one game and tried to push them to another game. I think as we build out our internal tools, we will be able to do that more efficiently on a go-forward basis. And it's something that we've been very hesitant with doing because we've seen examples of taking consumers from a game that works very well and then cross-marketing into a game that may not have the same funnel and retention and monetization levels. And so I think we've been just experimenting with that. I think the idea of going after new audiences is very interesting for us because it's expanding the core beyond where we are today. Obviously, we know our core audience very well in terms of an older audience that plays our casino-themed games. But I think as you look at some of the casual categories, they're skewing younger. And a game like World Series of Poker is very different in that it's 80% male, 20% female. And so I think it's -- we're in a variety of different genres that have different demographics. I think for us, it's about what categories have the biggest addressable audience, what categories do we see trends behind in terms of off-line trends that we can capitalize on. And we view all of our games as platforms, right, they're entertainment platforms. When you come to that platform, it's because you're passionate about it. And whether you're passionate about home design or you're passionate about a story that you're reading inside June's Journey or your passionate about playing bingo with your friends, these are all things that we really want to really invest in and drive additional meta games around so that you have a truly social experience where there's really no reason to ever play any other game in that category.

Yes. And you mentioned your players are often passionate about the IP. A question I'm getting here is, how do you think about scaling off-line purchases in light of some of the recent Apple/Epic lawsuit? You've already been doing it somewhat already. So the question is, how do you kind of scale that going forward, if at all?

The question was about alternative platforms beyond...

Yes.

Okay. Perfect. So today, proprietary platforms represent about 22% of our revenue. We've been very successful taking some of our oldest titles. A lot of them started on web. And now there's a mix between web, mobile web, proprietary Android store. And obviously, the Apple news could create potential upside if those anti-steering rules are relaxed and you're able to drive people from an Apple platform to a non-Apple platform. I think we're very well positioned given we process so much of our revenue today. And so that's clearly upside. Who knows what's going to happen? I'm not going to comment on that very legal case. But clearly, there would be upside for us. In the interim, we're starting to plan how do we take our casual -- our newer casual titles also to our own propriety platforms and plan to roll out propriety platforms in a couple of those titles in '22.

And then another question from the audience. How do you think about new entrants into mobile, whether that's new genres like more mid-core or companies like Netflix? Do you -- how are you thinking about the new competition?

Sure. So from a CI, competitive intelligence, perspective, within every genre we're in, we're always analyzing who's new and what they're doing and how it impacts us. And we're very self-aware from that perspective. And we know from our perspective, historically, it's not necessarily the largest companies you have to worry about. It's the companies you don't know about, the upstarts that can quickly grab market share. And so those are the ones we're carefully looking at as well as either trying to invest in or look at from an M&A perspective as well. So the business model that we're in is really around long-lasting engagements with consumers. If you look at our all these titles, around 45% of the revenue was from 11, 12 and 13 cohorts alone, right? So these are 8-, 9-, 10-year relationships we have with those consumers where they're continuing to invest in those games. And so for us, it's very much around creating those types of engagements. I think some of these other subscription products or games without in-app purchases that are more hyper casual in nature, those are less competitive to what we're doing. But I think we look at all new business models, always evaluating, whether it's subscriptions or other types of products, how we can leverage them in our games. Collectibles for us is a really big deal. And so the NFT phenomenon is something we're analyzing closely. And I think it's -- we always have to be looking around the corner for what's next.

Sure. Sure. And then I'll start to wrap it up here. You mentioned mix will be very different. As you think about like long-term planning, has your confidence grown on kind of your core franchises and your ability to launch games? And how do you kind of long-term plan in and around potential M&A or some of these new genre mix? Like how would you expect to see Playtika 5 years from now?

Sure. So I think the mix -- in 2016, our business was majority social casino themed. And today, it's 49% -- sorry, 51% social casino. I think as we look out 5 years and we deploy -- we generate significant cash flow. We have $1.5 billion of available liquidity. As we look at deploying billions of dollars towards M&A and investments in new titles, we expect casual and beyond games to continue to be a bigger and bigger part of our business. So I think we plan to lay that out in March at Analyst Day in terms of letting people see what a road map could look like and what that mix will look like. And I'll use that as a plug for people to join and get to hear that answer at that point in time. But I think you'll continue to see that mix shift, right? If you look at where the past -- just this past quarter, if you look year-over-year, 12% growth in casual. And some of those titles like Solitaire Grand Harvest is growing 45% year-over-year in the quarter. You're seeing significant growth in those casual titles. And I think those casual titles will continue to grow and become a larger part of our business. But then as well as launching new titles and with M&A and harvesting synergies from acquisitions like we'll see in Reworks starting back half of '22, I think you'll start to see that mix continue to shift even further.

Got it. And then I guess last question. This comes from an investor. It's kind of along the same lines. As you think about long-term planning, you've been in this business a long time. The industry is constantly changing. How flexible will you be or have you been in the past or a good example of that to be able to pivot and take advantage of what you're seeing and then ultimately leveraging your Boost Platform?

Sure. So I think we've been very nimble in terms of M&A in the early days. I think post '16, we made a big pivot, started with Jelly Button and then with Wooga, Supertreat, and Seriously and now Reworks. We bought AI studios early on. We were a couple of years ahead of the game in terms of buying marketing technology, both in terms of the mediation layer as well as buying Aditor. And so I think in terms of looking ahead -- and I think Israel really is one of the key hubs for innovation. I mean -- and being that we're based there and the things that we're seeing and doing, I don't want to kind of spoil all of our plans, but there's a lot of really interesting things happening there, and not only making investments there, but looking at M&A opportunities and just whether it's acqui-hiring teams or bringing people on to go after new initiatives, the Boost technology platform does set us apart. And I think we're looking at other business models and ways to leverage that as well. So I think there's a lot of -- as we think about the vision for Playtika, it's a technology and monetization platform that can be leveraged across categories. Are there B2B potential down the road in terms of our platform and leveraging that? Potentially. Are there new verticals and business models we're looking at? Absolutely. So I think -- we understand that the portfolio gains that we have today, we can drive growth there, but that's not going to be the future of what drives growth 5 years from now and that we need to lay the seeds for growth over the next 5 years, and that's exactly what we're working on now.

No, no. And it goes all the way back to your first comment about being a technology company. Your ability to pivot there clearly is in that DNA of being a tech company. Craig, I guess my takeaway here is that '21 has been a very fruitful year. '22 is all about executing on new games. '23 is -- let's attend our Analyst Day and hear the plans. Anything else that investors should walk away from today?

No, it's a great summary. I think '22 will be about continued execution, us executing quarter after quarter on our road map, I think, being better about communications and highlighting the great stuff that we're doing, raising the awareness of the company from a brand perspective because I still think we're relatively unknown and I think with that, a continued execution on our M&A plans. '22 is going to be a really exciting year.

Great. I'll give everybody back about 5 minutes of their time. And Craig, I know you have a lot of meetings today, so you get a little bit of a breather. Thanks for joining us. If anybody has any further questions, reach out to me, and I'll put you in touch with the right folks at Playtika. Craig, again, I really appreciate your time. Look forward to keep chatting.

Great. Thanks, Andrew.

Thank you.