Playtika: An Underrated IPO

seekingalpha2021-03-25

Summary Playtika's IPO in January was overshadowed by IPOs of DoorDash and Airbnb, and later by GameStop's short squeeze. The mobile game developer already generates more than $2 billion in annual ...

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Comments

jaffer
2021-03-26
jaffer
Silence
weiqianz
2021-03-26
weiqianz
hmmm... interesting
埃及妖后
2021-03-26
埃及妖后
Like for like
Titu
2021-03-25
Titu
Pls like thanks
jeremiahlo
2021-03-25
jeremiahlo
long

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The mobile game developer raised more than $1.8 billion throughout the process and saw its share rise by 35% on its debut. Although Playtika was the largest IPO of 2021 with a market cap of $11 billion, the IPO gained less attention than more hyped IPOs including DoorDash(NYSE:DASH)and Airbnb(NASDAQ:ABNB). Additionally, GameStop's(NYSE:GME)short squeeze in late January took the market's attention from Playtika, causing its volume to sink further. As a result of a wider correction in the technology market, shares dropped significantly, now trading roughly 20% below Playtika's IPO price.\nThe Israel-based mobile gaming company counts more than 35 million monthly active users across its portfolio of game titles on its monetization platform. Playtika continues to grow at high rates, already generating more than $2 billion in annual sales while mightily balancing profitability. Thus, the company may be overvalued regarding its growth aspects and deserves a closer look from growth-focused tech investors.\nHigh Growth and Profitability\nPlaytika reported robust Q4 earnings and full-year results for the fiscal year. Here, Q4 revenue was up by 17% to $573.5 million compared to $488.2 million a year earlier. For the full year 2020, revenue increased by 26% to $2.37 billion, driven by strong demand for mobile games due to the pandemic. The company also posted a profit of $76 million compared to just $30 million in the year prior. More impressively, adjusted EBITDA for 2020 came in at $941.6 million, up from $712 million. Its casual portfolio exceeded $1 billion in revenue, while its fastest-growing game \"Solitaire Grand Harvest\" achieved record revenue of $147 million, growth of 95% on an annual basis. The company also has $1 billion in cash and equivalents on hand, including its undrawn revolving credit facility.\n\n We executed across our entire organization to deliver an impressive set of results for both the fourth quarter and full year 2020. I was especially pleased with our continued industry-leading organic revenue growth, all contributed by games we have operated for many years, which underscores our understanding of how mobile games work and how to operate them successfully. This expertise combined with our efficient marketing and financial discipline enabled us to generate over $900 million in adjusted EBITDA in 2020. -Craig Abrahams, President and Chief Financial Officer\n\nIn terms of outlook, Playtika anticipates $2.44 billion in revenue, representing growth of just 4%. However, as Playtika widely beat revenue estimates in previous quarters, I believe these are rather moderate estimates and that an upside surprise may be in the cards. Moreover, the company expects roughly $360 million in net income and free cash flow of $460 million.\nPlaytika revenueSource: SA\nA Growing Industry\nThe pandemic has further accelerated the global gaming industry's growth, as lockdowns forced young adults to stay indoors. It is estimated that the global gaming industry will grow from $151 billion in 2019 to over $291 billion by 2017, registering a CAGR of 13%. The mobile device segment makes up roughly 35% of the market and is expected to further dominate the industry in the future. In this context, mobile games account for 33% of all app downloads and 74% of consumer spending. As of 2019, over 2.4 billion people play mobile games worldwide, representing roughly 1/3 of the global population. In the United States, 213 million people are estimated to play mobile games, a staggering 66% of the entire population.\n\n By the end of 2019, the global gaming market is estimated to be worth $152 billion, with 45% of that, $68.5 billion, coming directly from mobile games. With this tremendous growth (10.2% YoY to be precise) has come a flurry of investments and acquisitions, everyone wanting a cut of the pie. In fact, over the last 18 months, the global gaming industry has seen $9.6 billion in investments and if investments continue at this current pace, the amount of investment generated in 2018-19 will be higher than the eight previous years combined. -Tech Crunch\n\nAfter Pokemon Go's massive success in 2016, Wall Street is starting to notice the massive opportunity in the gaming sector, after generating $2.5 billion in revenue from that game alone. Mobile games are expected to generate some $60 billion in revenue this year alone, mainly through advertisements. Although the market is competitive, Playtika is well-positioned to capture this growth, as demonstrated through strong performance in recent years.\nCheap Valuation\nData by YCharts\nUnlike many recent tech IPOs, Playtika is not trading at an unreasonable valuation. That said, shares trade at just 4.3 times forward sales, significantly lower than other companies related to the gaming sector. For instance, Nvidia(NASDAQ:NVDA)and Bilibili(NASDAQ:BILI)trade at 15x and 13x forward sales, although growing faster. Playtika saw revenue growth of 17% in Q4, while Nvidia grew 61% last quarter. However, Playtika has the largest gross margins on the list, reaching 70%, ahead of Nvidia, which only counts 66%. The company is also mightily profitable, which is unusual considering that Playtika is still in its growth stage. With over $360 million in projected income, Playtika trades at a forward P/E of 29, significantly lower than competitors on the list. Analysts expect $3 billion in revenue and $600 in net income by 2023, which would imply a valuation of just 3 times sales and a P/E ratio of 16.\nRisks\nWhile the mobile gaming market benefited from the pandemic due to strong demand for mobile games, the growth could fade in 2021 once economies around the world reopen. Such a reverse trend would likely hurt Playtika's growth as the company generates money through advertisements on its platform that attracts millions of active gamers every day. Revenue growth is already expected to decelerate at a notable pace in 2021, before slightly picking up in the following years. However, if Playtika misses growth projections due to slower-than-expected growth, its share price may fall even further. Moreover, as mentioned earlier, competition is stiff and includes large competitors such as Apple(NASDAQ:AAPL), Google(NASDAQ:GOOG)(NASDAQ:GOOGL), and Tencent(OTCPK:TCEHY). Highly concentrated competition could lead to lower gross margins, which would affect its profitability in the long run.\nTakeaways\nIn relation to its market cap and fundamentals, Playtika deserved more attention as a newcomer on the Nasdaq. The IPO was overshadowed by ultra-growth IPOs of Airbnb and DoorDash, written off as a saturated game developer. However, this view may not reflect the reality: In just 10 years of being founded, Playtika built a powerful game platform with over 30 million monthly users, generating over $2 billion in revenue while balancing profitability in an early stage. Its most recent earnings call also demonstrated that its growth hasn't stalled yet, although growth rates are set to slow in coming years. Still, the company appears undervalued compared to peers, trading at just 4 times forward sales and 30 times its earnings. Thus, although risks remain, this stock may be an attractive investment in the long term.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":358534425,"gmtCreate":1616715474367,"gmtModify":1704797715456,"author":{"id":"3574309252756598","authorId":"3574309252756598","name":"jaffer","avatar":"https://static.tigerbbs.com/1a3d779d7e90da7a7b584e147536abf7","vip":1,"crmLevel":4,"crmLevelSwitch":0,"authorIdStr":"3574309252756598","idStr":"3574309252756598"},"htmlText":"Silence","listText":"Silence","text":"Silence","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/358534425","repostId":1129704963,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":358296404,"gmtCreate":1616691335808,"gmtModify":1704797569157,"author":{"id":"3572043885221300","authorId":"3572043885221300","name":"weiqianz","avatar":"https://static.tigerbbs.com/f114bda152376707afa3b94800d41619","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3572043885221300","idStr":"3572043885221300"},"htmlText":"hmmm... interesting","listText":"hmmm... interesting","text":"hmmm... interesting","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/358296404","repostId":1129704963,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":358206989,"gmtCreate":1616690151641,"gmtModify":1704797554482,"author":{"id":"3577345324058629","authorId":"3577345324058629","name":"埃及妖后","avatar":"https://static.tigerbbs.com/6cdcb0ed51686b3b151c75086b3f68a4","vip":1,"crmLevel":1,"crmLevelSwitch":0,"authorIdStr":"3577345324058629","idStr":"3577345324058629"},"htmlText":"Like for like","listText":"Like for like","text":"Like for like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/358206989","repostId":1129704963,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":358683024,"gmtCreate":1616684820268,"gmtModify":1704797470764,"author":{"id":"3558865529132556","authorId":"3558865529132556","name":"Titu","avatar":"https://static.tigerbbs.com/9f0b0e640551e4ad766c10135d80d562","vip":1,"hat":"https://static.tigerbbs.com/b0a2963eb37c60c5d6d4a8dbcd266952","crmLevel":5,"crmLevelSwitch":0,"authorIdStr":"3558865529132556","idStr":"3558865529132556"},"htmlText":"Pls like thanks","listText":"Pls like thanks","text":"Pls like thanks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/358683024","repostId":1129704963,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":358631349,"gmtCreate":1616683695681,"gmtModify":1704797444495,"author":{"id":"3575039193701494","authorId":"3575039193701494","name":"jeremiahlo","avatar":"https://static.tigerbbs.com/21de2d9d678bee1a58ef1dacdd08f089","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"3575039193701494","idStr":"3575039193701494"},"htmlText":"long","listText":"long","text":"long","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/358631349","repostId":1129704963,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":30,"commentSize":5,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1129704963"}