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

Okay. Good morning on the West Coast. Good afternoon on the East Coast. Welcome back to the Wedbush Winter Games Forum. We are in our fifth or sixth session, I think it's 6 with Craig Abrahams from Playtika. He is the President, CFO, visionary. He actually makes everything happen. We dressed as Yin and Yang, so he's wearing black today, I'm wearing white. So he's the bad cop, I'm the good cop. I'm not going to spend much time talking. Craig, I'd like to invite you to tell us your background, tell us about Playtika, tell us how Playtika kind of came about and its journey to public company status. And then just educate us about all the things that investors seem not to appreciate about the mobile games business, why Playtika is outstanding and continuing to grow.

Perfect. Well, thank you, Michael. Thanks for having us here today. I've been with the business now just over 10 years. I was with Caesars Interactive Entertainment when acquired Playtika back in 2011. Robert Antokol, is the Co-Founder and CEO of Playtika. He's been with the business since the beginning, and he's currently the CEO as well. So Robert and I started partnering on expanding into mobile games. The business, when it was first acquired, it was just a single game on Facebook. Saw the opportunity on mobile. Was one of the first to launch social games on mobile and then quickly grow the business to where we are today. We recently guided to just under $2.6 billion in revenue, $980 million of adjusted EBITDA and one of the largest mobile gaming companies in the West. We have about 10 games in the top 100 in the U.S. app store. And so there's a couple of things that really differentiate us in the mobile gaming space. One is our focus on in-app purchases. So 97% of our revenue now is from in-app purchases. Those are consumers buying virtual goods within our games. 3% is advertising. Another big differentiator is our live operations and technology platform, which is the Playtika Boost platform. So what is live operations? Live operations is what enables us to make our games as fun, as exciting as they were the first day you played them within the first, second or third year of playing our games, right? And if you look at our 4 oldest games, almost half the revenue in those games is from people that have been playing our games over 8 years. And so I think as you talk about mobile games and common misconceptions, one of them is that mobile games are bad or mobile games aren't consistent or durable. I think our portfolio of games is one of the most consistent and durable portfolios within all mobile games. And not only do we have all their mature franchises, we have many newer franchises that we've launched, both organically and through acquisitions as well. We've -- starting in 2016, when we left Caesars, and Giant Interactive acquired us. The mandate was to be the biggest mobile gaming company in the West. And we knew in order to do that, we had to pivot to more casual titles and look at new genres. And one of the characteristics we looked for was really thinking through what genres are evergreen in nature, like our casino-themed portfolios, either they exist in the real world or whether they existed in the video game world for more than 10 years. And so these genres were [fads]. And then within those genres, the goal of being #1 in the category. So we acquired June's Journey from Wooga, as far as the Google acquisition, that game was the #2 in hitting object game in the category. It's now #1. If you look at Solitaire Grand Harvest, it was the #2 in-app purchase Solitaire game, it's now #1. We entered Match 3 with the Seriously acquisition. And now that we've acquired so many casual gaming videos with great R&D talent and new game development talent, we have a pipeline of new games. And we have a new game that was recently launched with Switchcraft. We announced that we have a soft launch with Merge Stories and that game will launch next year, and we've also announced a third title and that's going to have a soft launch next year as well. And then we recently did an acquisition, which was a big acquisition for us with the acquisition of Reworks. Reworks has an application, Redecor, which is one of the top home design platforms for home design enthusiasts, whether you want to redesign a kitchen, a living room or a bathroom and compete against others, it was an opportunity for us to gamify that experience. And I think we have a general view that our ability to improve game economies and gamifying experience increases long-term retention, which increases the lifetime value of the consumer, and that really enables us to scale marketing dollars and grow our games. So I think that for us is a new opportunity. If we're successful there, it shows that we can go beyond traditional games, and I think there's also opportunities to go into new categories. And if you think about it, whether it's fashion or automotive, there's plenty of areas where there's design enthusiasts that can have a similar game mechanic to what we have with Redecor.

I think a lot of investors fail to appreciate your scale and you mentioned 10 games in the top 100. What portion of your $2.6 billion of revenue comes from those 10 games? I mean is it 80%, 100% ?

It's probably over 95%. It's almost all of our revenue. Our focus is on the biggest franchises that move the needle, that we have staff with live operations teams, because when we have a game that enters that we view as a long-term franchise, we take a 10-year view and build it as if we're building a company. Each game studio, the way that they're operated in terms of R&D talent, product talent, technology talent, they're all staffed individually.

So to frame that further, you have 10 games that are doing, let's say, $2.5 billion, maybe $2.6 billion. Anyway, so an average of $250 million per game per year is kind of what your top 10 franchises do. I realize that they're not all of that, some are bigger and some are smaller.

Yes, we have -- about half our revenues from Bingo Blitz and Slotomania, and then the rest of the portfolio is pretty well diversified. About half the portfolio is casual-themed games and half casino-themed games. Casual is the fastest-growing part of the portfolio. If you just look at our last third quarter, casual portfolio was growing 12% year-over-year. And some of the biggest titles like Solitaire Grand Harvest are growing over 40% year-over-year.

And the reason I bring this up is that before the Glu acquisition, EA was at about $720 million from 16 games, so they were doing something in the order of magnitude of $40 million per game. And you're doing, certainly, over $100 million per game for the other franchises. Just again, just to frame it that there are varying levels of success in the industry. Can you talk about the Boost platform? And what is it exactly you do? And I'm not looking for a secret, but what is it exactly you do that's different from what your competitors do that keeps players coming back and induces them to spend in the game?

Sure. So we took an early view that in order to scale a games business, you need to productize a lot of the know-how via technology. It couldn't just be all people, right? And I think a big advantage for us with having such a large portfolio is cross-pollinating learnings throughout the organization, and trying to do that with just people and consulting, it doesn't scale, right? Especially when M&A is a key area of focus in launching new games, how do you bring that knowledge and know-how to others? We can do about an acquisition a year, and that would involve like a consulting style approach where you bring in a SWAT team of people to help bring that know-how and work on that road map of feature releases. And what we decided was if we could productize that and build a technology platform that could enable people to leverage our know-how and integrate those games on a technology platform, we could have faster speed to market with known features. And the things that we view as our secret sauce, whether it's game economy management or dynamic pricing, or all of those things, to be able to productize that we can immediately integrate. And so that's what we've been building out over the last 5 years. And now we're in a situation where it allows us to cross-pollinate those learnings throughout the portfolio. So every time we add an additional game to the Boost platform, the entire portfolio benefits. And what we see is when you have a proven game feature, like we did earlier this year, taking% clans from Slotomania and bringing Bingo teams with a team-based feature you get -- it's perfectly configured. It's already worked well in the marketplace, and the team is able to pull it down from the Boost platform and leverage it with that exact configuration and algorithm set. So that's a big advantage for us and something that we plan to integrate and we've already started that integration for the Reworks team. And it's something that now also for every new title that we bring on, as you have something that works really well, we can also bring it to our mature titles. And so it definitely is an advantage for us in the marketplace in terms of speed to market with acquisitions and integrations and then also helping drive growth in more mature titles in the portfolio.

One of the things you guys , I'd say, boast about -- it's warranted, but you boast about is that you monetize very well from a relatively small base. But can you talk about just kind of overall MAU numbers? MAUs per game? I mean I don't care about individual games. And I think the point that I'd like you to make is that there's 3.5 billion mobile gamers out there and you have a small fraction of that playing any one of your games. So plenty of addressable market for you for the next 20 years for every game.

Yes. We have just over 10 million DAU, about 35 million MAU, which is daily active users and monthly activities. I think we really focus is on daily paying users. That's been the metric we've been focused on in terms of every single day, what are the engaged base of payers, and how do you continue to drive conversion. That's one of the healthiest ways to grow our games business is driving those nonpayers to become payers. And once they become payers, they're very sticky, and we do that through content, right? I think the idea of just doing it through promotions is short term in nature. The idea of driving people with great content that then more deeply engages them in the game is how we really drive them to both not only become a payer, but then monetize further as they get more deeply engaged. So I think there is a big opportunity for us, both through M&A and launching new games to expand our audience. Something that we have not done really historically has been cross-marketing between our games. So I think that's upside for us in the future. Advertising for us has been pretty limited. But now that we've expanded into categories where the advertising is endemic in the game and built within the game from the beginning, I think there's opportunities to grow that as well. And so I think both of those areas are areas for upside as we look to expand our audience.

Yes. And I don't expect you to be an expert in all the competition. But for the audience, Candy Crush has over 200 million -- or King has over 200 million MAUs like 248 million, I believe. So they're something like 7x bigger than you and their aggregate revenue is lower than yours. So I think it reflects upon how successful you guys are monetizing. But I think it also kind of demonstrates the point that what would Playtika look like if you had 250 million MAUs. And I doubt the answer is you'd be at $18 billion or $20 billion, but could certainly be higher than $2.6 billion.

Yes. And I think in this world of IDFA, where the focus for us has been on quality traffic, right, quality traffic that we can convert and monetize. And that has been, I think, where we differentiate ourselves. And I think in -- over the last few quarters, we've consistently been able to keep our effective cost of installs flat. And that's been through a diversity of sources. It's been from shifting to Android, from shifting to ad tech platforms, through doing more off-line and influencer campaigns, leveraging celebrities and some interesting things that we've done on television. So I think all of that combined has enabled us to continue to be successful in maintaining and if not growing installs across the base of our games. And as you mentioned, the upside for us is continue to expand in new categories. We can grow that audience size and then convert to payers.

And can you talk about user acquisition and just kind of where you spend your dollars? I don't think we care about the actual aggregate amount per platform, but where are you focused? And how has IDFA changed your -- the direction of user acquisition spend?

Yes. So I think for years now, we've seen cost of installs going up. We knew there was a need to not only build out an internal team, which we did through the Aditor acquisition years back. and Nir Korczak, our CMO, as the founder there, and in building out a very strong team of media buyers. We also realized the need to help them with technology. And we made 2 artificial intelligence acquisitions, and now they can use AI and machine learning as they prioritize which platforms they buy from and the speed in which they can predict which footwear traffic has been accretive and where the ROI isn't there, and make adjustments accordingly. And so we've always probably bought from more sources than others, had limited dependency on any 1 network. And I think that's been an advantage to us as we've been able to navigate the changes with IDFA. I think that the diversification of sources was a big deal, as I mentioned, and I think shift -- some tactical shifts to Android. But I think the other big thing we did starting 2 years ago was integration into TV campaigns where we've partnered with people, everything from the Ellen DeGeneres show to Dr. Phil, where we're leveraging direct TV integration, driving people back and then doing performance marketing on top of that, including influencers, localized marketing, like we've done in Germany. We've gone fully local, and that's done well for us a game like Solitaire Grand Harvest. We did what we call kind of a 360 approach to localization, where it was everything from live ops to the actual game localization. And by doing that with a combination of TV and celebrities, we've become a top 25 application there, top 25 games. So our ability to now replicate that in other international markets is interesting. Our business today is still 70% U.S. And so there's opportunities for us to continue to expand outside the U.S.

And some of your acquisitions have been European developers and you guys are Israeli-based. Is there a competitive advantage to being outside the U.S.? Is there -- is it easier to attract non-U.S. paying players?

So I think the advantage for us, obviously, there's a time zone advantage being in Europe. If you look at -- Seriously is in Helsinki; Reworks is in Helsinki; Wooga is based in Berlin; we have Jelly Button and Tel Aviv, so -- which is close to home, in Herzliya where we're based. So we obviously -- that's an advantage. I think the other advantage is just access to great mobile gaming talent. I mean the -- and I think it's a lot stickier in Europe in terms of employing engagement and retention than it is in some of the U.S. markets. And so I think we've done a good job there. continuing always looking to improve and do a great job engaging our employees. And at the end of the day, that's where the talent is, right? It's getting great people to engage and challenging given the great development opportunities. And I think through the launching of new games and through expanding into new genres, always keeping it exciting for them.

And we have an audience question I'll expand upon a bit. What do you see as a key differentiator between Playtika and the other publishers, King and Zynga? And specifically, I pointed out that you're bigger than King. If you back out advertising, you're bigger than Zynga as well. So what is it that you guys do differently? And you have smaller MAU bases than either company. So what is it? I mean can you just -- you've already touched on it, but can you expand on what you guys do differently that has caused you to have greater success per player?

Sure. So I think it comes down to a real deep understanding of live operations and game economies. When you're managing a game for 5 to 10-plus years, game economies can break, right? And understanding when there's inflation, why there's inflation and how you mitigate that and how you manage that as well as understanding, as different players take different journeys through the game, how do you personalize that content, how do you personalize the pricing of the goods that they're seeing to make it so they're constantly challenged and have a personalized experience within the game and can compete with friends and can play alongside with friends and have something that's constantly engaging. And if you look at something like a Slotomania with over 500 employees or Bingo Blitz over 400 employees, these are very large-scale organizations individually. And it's that focus on content that engages people and a relentless focus on innovation, right? Being an innovator within each one of our game genres is important to us. And I think that is -- that focus on the product side, but then the data analytics and being based in Israel and looking at the analytical mindset of a lot of our employees, I think it's a differentiator. It really is. And I think that technical know-how, combined with the analytical mindset really gives us that edge.

So I'll ask you a loaded of question. If you guys own the Candy Crush franchise, would it be generating a multiple of revenues that it's generating now?

I think they're doing a great job. I think if you look at how they've done -- it's a top grossing game in the U.S. for some time now, they're doing great.

And so -- now my pet peeve, and I've been critical of print of you guys. You don't take advantage of advertising very much -- advertising revenue. And even with your industry high-paying users, you probably have 75% of your users who will never spend money. Aren't your data analytics good enough for you to identify the nonpayers forever and isolate them and force them to watch ads? Or is there a reason that you think that's not a good idea?

So it's a good question. I think in certain game categories where ads were designed into the game from the beginning, it can be less intrusive. And obviously, in those categories, if you look at like a June's Journey or if you look at Solitaire Grand Harvest, you see ads and ads are a more meaningful percentage of revenue there. And games where there were not ads as part of the game, and trying to introduce it after the fact, they can be more intrusive. And the impact can be greater than in the game where it was designed in from the beginning. So I think that's sort of a broad statement in terms of which games probably have more potential as it relates to ads. I think one of the first things that we'll start doing before we probably ramp ads is more on the cross-sell side. So keeping people within our network, pushing them to other games within our category rather than selling to third parties. I think it's so hard. They're paying users for long periods of time, that when you have someone who's tightly engaged in your game. Even if they're not a payer, they still have value, right? And I think we're also -- if you look at a game like Slotomania, we've said this in the past, 1/3 of the new payers have been playing for more than 12 months prior to paying. And so while some game companies may give up on a consumer saying, "We're just going to show them ads," we realized that when someone starts paying that they're much more likely to become very long-term payers and stay retained and the retention numbers are much higher. And so for us, just because they played for 6 months and they didn't convert this doesn't mean that there isn't going to be a feature in the future that convinces them to get really more deeply engaged in the game.

I have to say, that I used to play a World Series of Poker and Zynga Poker. And I used to get questions all the time about, well, why aren't there 1,000 poker games? And the answer is liquidity. That you just got to have -- if you want to play a certain condition, and you want a full table, you guys provide it. And obviously, not all those people are players -- are payers, excuse me. So clearly, it matters having an audience. The same for Alliance mechanics and rates and team-based bingo and whatever. So I totally get it. Can we pivot now to Switchcraft? You mentioned Match 3 before, and what's different about that? It's a story-driven game. Where do the idea come from? Why is it different -- better than the other Match 3 games out there? And what do you see for the potential of that game?

Sure. So that's a game that's been in development since we acquired Wooga. So it's been in development for 4 years. There's a deep level of content within the game. It's story-driven just like June's Journey is a story-driven hidden object game. This is a story-driven Match 3 game with a very diverse set of characters. Very proud of the team of what they did there in terms of prioritizing diversity and having that as part of -- a key part of the narrative. I think that narrative is very important and that it creates a lot of stickiness. It's a type of meta that we're very good at in terms of the meta game there. And I think it's a differentiator in the marketplace. I think it's off to a good start. I think the fourth quarter is a tough quarter for marketing. And so we'll start to ramp that more into the start of next year. But we're excited about that category. I think it has a lot of potential.

And I've noticed that Redecor has passed Design Home in the -- at least on the App Store rankings. So clearly, that's working. What makes you look at a new category like that and recognize that it resonates that there's actually an opportunity?

Sure. So obviously, during the pandemic, home designs, in general, has become something -- and with all the renovations of people's homes and people passionate about home design, we saw that as a broad genre. Obviously, there's others in the marketplace that have done a variety of different things in the category. But I think what we found so exciting about Redecor was that when we did a survey of the consumers after we acquired it, 75% of those players identified it as an entertainment application, not as a game, right? And I think if you look at level progression or you look at how the economy is managed today, there's a lot of upside for us gamifying the entire experience and increasing long-term retention. And that was really our thesis from the beginning that if we can gamify this, make it that someone has a reason to come back every day and get more deeply engaged beyond kind of those initial design experiences that kind of brought them there in the first place, we can make this a much stickier product. We can make it something that's a much more fun product over time. The team there is fantastic, and they come with an entertainment application mindset, not necessarily a gaming mindset. And so we thought there was real synergy and partnering with us there. And Ilkka, obviously, a serial entrepreneur, the CEO there, has done fantastic and really excited to work with them.

So I'm going to give you an opportunity to add several billion dollars to your enterprise value with this answer. So I look at Redecor and I see a massive opportunity for brands to participate, for NFTs, for in-game advertising, but -- essentially through branding. And I just wonder how you think about the coming Metaverse and how you guys will participate. And again, I look at Redecor as the poster child for your ability to participate in that. But how are you thinking about NFTs, blockchain brands, advertising when you have a game that lends itself to it like that?

Absolutely. So I guess I'll talk about Redecor first and then our plans around NFT second. So with Redecor, we view it as a platform like all of our games. And the idea that, that platform, once it's been gamified,and we have that -- the model nailed down, the idea that we can replicate it for fashion or for automotive, I think, is right there. So I think there's a road map there and there's a strategy beyond just the gamification there. In terms of NFTs, we just recently made a minority investment in Israel of a game studio that we believe that is a very high-quality game, that we are going to work with them on pivoting to a play-to-earn and an NFT model. And I think that is a way for us to get real first-party knowledge of the economy and understanding how to help make that transition happen without putting any of our own games at risk, so to speak. And I think for us, it's about learning and working with great entrepreneurs and having a path to partner more deeply with them in this space. I think that there is a lot of excitement around the space. There's a lot of games that don't necessarily have the quality that you see from a large publisher like ourselves. And our focus is, how do we bring that type of A-level quality to the space in a way that it meets all of our legal and regulatory requirements. And I think that the space is moving very quickly. And I think us doing it in a way where we made this investment with someone in our home ground of Israel is something we're really excited about, and that's our first step into this space.

Can you...

I think more deeply, if you look at a game like World Series of Poker, that audience is younger males, that audience is one that owns NFTs and participates in that world, and I think you'll see us start to do more where we have an audience where that resonates. I think when it looks to our older, more casual audience, being more female, I'm not sure that, that audience is an audience that wants to engage in NFTs today, but it's not to say that's not going to change in the future. So I think for us, it's focusing in genres where there's an appetite, in genres where there's a lack of quality and where we can bring something differentiated in the marketplace. Our knowledge on game economy management and live ops is really what will bring real fruits there. And so that's where we're focused.

And you guys have kind of pioneered moving players and spending away from the App Store and Google Play, and onto playtika.com. But how are you thinking about cross-platform synchronous game play? So I can be on my phone and some -- and then maybe this happens, and a member of my Bingo team, Bingo Blitz team can be playing on playtika.com, and we're participating in the same tournament. And how do you think -- how do you see the world migrating away from the App Store, the exclusive place or Android, Google Play as the exclusive place to buy in-game currency, and moving toward more of a playtika.com royalty-free model where you get to keep all the revenue?

Sure. So today, our last quarter, 21.7% of our revenue is on our proprietary platforms. bingoblitz.com is a great example of a website and mobile website where people can play bingo, and they're in the same rooms as people across whether on Amazon, Facebook, iOS or Android, they're all in the same rooms competing with each other. So we've always had the mindset from the beginning, before we knew who the winners and losers would be, if you go back to 2011, our view was we're platform-agnostic. And I think that view has continued with time and that we want to give our consumers the best experience, regardless of what platform it's on. And although obviously, it's clear today who the winners are with iOS and Android being the biggest in terms of mobile platforms, and our consumers -- those are our biggest platforms where our consumers can play. But there are consumers that want to play in a large screen at home, large screen at home on a PC or on a tablet. And if it's an Android tablet, they can play on our own proprietary app store and then download our games as well. So I think it was giving consumers choice in that respect where they want to play. And wherever -- and also giving ourselves opportunities to acquire people outside those platforms. And I think when we do acquire people outside those platforms, like bingoblitz.com, and someone starts to pay there, we keep 96% to 97% of the revenue versus 70% on a third-party platform. So it will be interesting to see how that continues to evolve over time as we continue to introduce our proprietary platforms in the new games. We have 2 of our casual titles playing on the road map as well as to launch next year, proprietary platforms. And today, only 5 of our games are on proprietary platform, and they represent 22.7% of the revenue. And so those teams have done a great job growing that business for us.

And how do you go about giving a player an incentive to migrate away from App Store iOS and Android and to bingoblitz.com?

Yes. So you can't communicate to that player directly on platform.

I was curious, do you think Judge Rogers' injunction means you can?

It will be interesting to see what happens. Tomorrow, obviously, is a big day to see kind of what comes out of that ruling. And then if you're able to communicate directly and drive people in iOS, I think that's an opportunity. Today, it's really been about more marketing in these other channels, right, in driving adoption there. and people are seeing benefits of playing in those platforms, whether it's early access to new content or features or whatever it might be, those engaged players can engage there. So I think that's an opportunity to drive people off platform, but it really depends what the rule is saying, we'll have to see what comes up tomorrow. We're all patiently waiting.

Yes, good timing for appearing today. And are you guys going to be reactive then? Or do you have a forward plan? I mean do you have a view on what's going to happen, and you're ready to go? Or should we expect this to be a several year response to whatever comes out? There will be more litigation, I'm sure.

Yes. I don't know that the answer is going out tomorrow. I think we'll get to see directionally, hopefully, the direction this is taking. I think our view has always been we have -- it's taken us years to get to where we are in terms of proprietary platform. We have the knowledge, we have the know-how and whatever the rules state, we'll be able to make adjustments quickly. That's always been one of our advantages as a company is moving quickly and speed. And so I think we'll be positioned to hear just for that.

And as a player of Playtika games, am I benefited as a player for being on bingoblitz.com instead of on iOS. I mean, do you put money in my -- currency in my account? Do I get something -- do I get a boost for being there? Or is there a reason for me to migrate over?

Yes. I mean the reason could be if there's early access to special content, if we're doing a beta test for a new feature. I think it usually would be content-driven, that really is what players care about, that's what they're playing for. And so depending which platform you're on, you can have access potentially to new features. But again, we'll have to see what the rules state in terms of what you can do for IOS players.

And I'm curious, I mean, I know you're a lawyer, so you'll have an opinion.

I'm not a lawyer.

Yes, I thought you were. I thought you were. Are you allowed to advertise inside iOS and say, "Oh, by the way, our bingoblitz.com players are getting early access to this new feature?" I mean, just as an ad?

No, they're not allowed.

Oh, that's crazy. Okay. That's the next lawsuit. Perfect. Yes, that -- don't get enjoined on that one. That's good to hear. All right. So can we talk about your M&A strategy? What do you look for as you look at new games? And then once you do acquire a studio, what are your expectations from that studio on developing additional titles? So the thing, you buy a game, obviously, plus the aqua hire benefit. So -- and how has that worked out over the last several years? How many studios have you acquired that have actually come up with new games after you acquired them as well?

Sure. So we've done 8 acquisitions. So if you look at our 10 franchises, 8 of them came through acquisitions. So it's been a substantial part of our growth strategy over the last 10 years. As we look at our success rate, I think we're one of the most successful in the industry in terms of our proven ability to dramatically grow these businesses once we've acquired them. The fundamental thesis was buying great products with great management teams where we can help them on the live ops side. And by doing that, help further scale the business. I think the fundamental belief is that you can increase conversion and drive LTVs. You can spend more marketing dollars and scale these businesses. And we've done that time and time again. And if you look at games like Solitaire Grand Harvest, that game is up over 4x since we acquired it. And a lot of these games that we acquired, the general view is when we acquire a business, within 2 years, can we double it and then grow it from there. And I think that's the general kind of mindset that we take. And that's why we're able to do these acquisitions in a very accretive manner. Obviously, the private market valuations have become a little dislocated compared to where the public markets are. I think we've moved just some interesting opportunities with early stage as well as diversifying into some new areas. And I think our fundamental view now is what businesses can finally transform our growth trajectory and either under new genres or finally transform our business line with new verticals. And so there's a lot of exciting things happening in the ecosystem, as you referenced earlier, and that's where a lot of our focus is, is expanding the team to continue to make investments and acquisitions in new spaces.

And what has been your history in retention? Like what happens to the founders of the companies you buy after they hit their earnouts? And how successful have you been in keeping them engaged and employed?

Yes. So I think it's very different based on which acquisition it was. If you look at an acquisition like House of Fun, the CEO and Founder is still a part of management and very involved here at Playtika. If you look at acquisitions, like a Seriously, there are 2 founders, 1 founder has stayed and is running the studio. The other founder was a CEO, moved on. So I think everyone with an exit, it's a question of what their long-term priorities are. And I think that we're very upfront coming in around expectations. And I think obviously, the management talent and the employees developing the game are critical. But in some examples like Solitaire Grand Harvest, they wanted to go and make their next game. And so they trained us on the game. We migrated it from Austria to Tel Aviv in Eastern Europe, and we've taken over the game and grown it dramatically. And so I think every acquisition is unique. Every acquisition is different. And I think what we can do from a technical migration capability brings about more acquisition opportunities because sometimes, game entrepreneurs want to just go make another game and they're happy to sell us the game, and we have that ability to do deals like that. But so every deal is different from that perspective. But retention of people is something I think we're very good at in terms of coming up with incentive schemes, coming up with earnouts and ways that kind of really motivate people to succeed as part of Playtika.

And can you expand on incentive comp? Because you guys have mentioned a couple of times in conferences and earnings calls about how people kind of mail it in after they've made their year and they've accomplished everything they're supposed to accomplish. And how you're thinking about incentive comp going forward so that you can keep the pedal to the metal all year around?

Yes. So I think there's a couple of things. As a private company, we had all EBITDA-based compensation plans. It's driving people to the metrics that matter. If I look at the bonus plans and the metrics of moving people to gross revenue targets, daily paying user targets, DAU targets, obviously, having the incentives, all of those things drive where our investors are focused and aligning people there. And so I think that will be a shift. I think our own cadence of features and how we have road maps spread throughout the year is going to be important. Historically, the Q1 was always a very strong road map feature because as people kind of exceed their targets for the year, we've noticed features slipping to the next quarter, and some of that's human nature. You probably see it with portfolio manages as well as you know, they take their gains for the year and move on to the next year. And so I think for us, it's managing them as a public company. We've given annual guidance and not quarterly guidance because we want to keep people focused on hitting annual targets. And that's something that we're making adjustments in tweaking as we go to keep people incentivized and driven by the metrics that matter.

And then just housekeeping. This quarter is irrelevant, but can you remind the audience, when did you close the Reworks acquisition? When did Switchcraft launch? What kind of -- what are your normal hurdle rates for an acquisition? Like, what do you expect to gain, did contribute in its first year? So just so we can think about next year's performance of those 2 games versus this past year's performance.

Sure. So given where -- so where we are this year is we've guided to 8% growth year-over-year. Obviously, last year was a very difficult comp from a COVID perspective. So I think the one thing that's consistent was we've always had very strong organic growth year-to-year on the core portfolio. In addition to that, as you referenced next year, we have Reworks, which we closed on September 1. We guided the market to $30 million of contribution for the final 4 months of the year, so that implies a $90 million run rate. Obviously, we intend to have growth there. We're going to take over marketing in Q1 next year. We expect to start seeing synergies into Q2 of next year and beyond. We haven't given specific guidance into that title, but obviously expecting to grow it. And then we have Switchcraft, which launched globally in October. We'll start putting more marketing dollars to that into Q1. I think with all the new titles that we're launching, those are more of a marketing investment that you'll see into next year. I think from a revenue contribution perspective, you won't see more meaningful contribution from those titles until you look to kind of '23 and '24, but we will have some contribution in '22. So I think we're having an Analyst Day early March next year, and we're planning to give people guidance directly into our organic growth and from new titles and M&A as well, giving people a sense of what that long-term growth rate will look like. And so I think that's when we'll kind of get into more detail there.

And we've already touched on improving gross margin through greater revenue generation off of iOS and Android. But how should we think about contribution margin like on an incremental $1 million of revenue? Should I expect that the incremental million of revenue is going to come in at 75% gross margin instead of 70%? And should I expect that the user acquisition spend will be kind of constant at 30% or something lower? How should I think about just a revenue build on growth and the contribution -- profit contribution you get from that? Again, don't guide to something. I'm just looking for a way to think about it.

As we exceed expectations on it from a top line perspective, we would expect to see 70% or greater flow-through because we're focused on live operations, right? So when you have that focus, it's not coming from incremental marketing dollar spend, right? It's coming from you're converting customers and driving that flow through. And so I think you would just see -- look to see that when you exceed expectations that you have that flow-through. I think in terms of things that we set about next year, we are going to have incremental marketing spend from new games that's going to have a drag on margin for next year. We are going to have a $75 million minimum marketing commitment for Redecor and so having that market increase. There is going to be salary increases as we see wage and inflation in the marketplace and staying competitive and we are adding R&D headcount as well. So I think there is some that there's some short-term -- I think next year is a transition year and some respects. As you have from a margin perspective, but I expect to see those as we go beyond '22, you see those margins come back again as you start getting contribution from new games and Redecor. So I think we'll give more guidance to that specifically coming Analyst Day. But again, our focus is driving growth top line. And through that, as you mentioned, over time, that's going to continue to drive EBITDA as well.

So the head scratcher for me is that you surprised us with an acquisition and you accelerated a game launch and your stock has gone down. So you're actually giving us more than you promised and performing, and your stock is going down. Can you -- I don't need names or anything, but can you give us kind of a glimpse into the next 5 years? Should we expect 1 game a year? Should we expect the game every other year? Should we expect no new games? Or how are you thinking about the release schedule for the stuff that's in the pipeline right now, not acquisitions?

Sure. So we've guided to about 1 game a year is how we were thinking about the new game pipeline. Obviously, we pulled forward some titles based on how they performed in close launch and soft launch. Seeing great retention and monetization characteristics that gave us the confidence to push those titles to either a soft launch or a global launch. And so we're going to have 3 titles coming out in an 18-month period. I think that's something new for us. Obviously, we'll have a lot more data 12 months from now in terms of their performance and be able to set expectations. We're not greenlighting any of these games if we don't believe they can run rate $100 million in 3 years, and that's kind of the guidance we've given thus far. So that's been the mindset of how we greenlit these titles. And I think now we just need to execute and perform.

And my final question, just to close the loop on this. You mentioned home design and in the same breath, you mentioned like racing. Can you just kind of link those 2 things together? And I understand designing your car and customizing it, but what are you thinking when you say those things kind of lend to one another?

Yes, not say racing, but the idea that you want to redecorate a room isn't much different than from you wanting to redecorate your car, right? And I'm sure there's a lot of people that like using the build-your-car function on various car websites, trying to look at what it would look like, their dream car. And the idea of doing that and competing with others, the same way you do with home design, I think that's an idea that, once you kind of gamify this experience, how do you replicate that with other forms of content? And so I think it's just the idea that there's many other genres in the pipeline as we think 5 years down the road that we can kind of continue to execute on. But I think the first order of priority is to extend our gamification through home design.

Perfect. Craig, thank you. We filled the time. I appreciate it very, very much. You were a good cop instead of bad cop. Thanks, everybody, for joining us. Have a wonderful rest of the week.

Take care.