Founded in 2010, Playtika is a pure-play mobile gaming company that got its start creating social casino games. The ambitious startup was quickly spotted and acquired in 2011 by the casino conglomerate Caesars Entertainment and continued to grow under its new ownership. Caesars Entertainment was handsomely rewarded for being an early believer in the startup when Playtika was sold to a consortium of Chinese investors for US$4.4B in 2016.

During Playtika’s rapid growth phase, the company differentiated itself from the crowded field of competitors through its ability to analyze and understand data, which it applied to both live operations and user acquisition. It consolidated those learnings to create the “Boost” playbook, which it deployed in all its games.

Playtika also had a strong reputation as an acquirer and leveraged the M&A landscape to grow and diversify its product portfolio away from social casino. It then looked to apply the “Boost” playbook to drive growth and profitability at acquired studios. Today, nine of Playtika’s 11 top games come from its affiliated studios, and over half of its revenues come from casual titles.

While the company has a portfolio of over 20 games, its top four games make up over 60% of total revenues.

A common thread across its games is that they monetize almost entirely based on in-app purchases (98% of revenue). The company also shepherds customers through its alternative payment channel, where the payment processing fees are 3-4% compared to Apple and Google’s 30% fee. (Roughly a quarter of Playtika's revenues are channeled through its D2C store).

The Big IPO

Playtika made waves when it went public in 2021, cementing its status as one of the world’s most valuable mobile gaming companies. The company was coming off a string of successes, with its decades-old titles growing double digits, its M&A engine firing on all cylinders, and operational discipline driving industry-leading margins. The company traded at over 20 times its EBITDA, pricing the shares for perfection.

However, things quickly took a turn for the worse. First, Apple’s implementation of App Tracking Transparency led to a steep decline in Playtika’s ability to acquire users, grounding the company’s growth to a halt. (More than 70% of its revenuescame from iOS users.) Meanwhile, the company’s recent M&A deals failed to deliver expected growth and synergies. A boardroom showdown also shone a spotlight on ownership misalignment. Today, Playtika’s share price is down more than 75% since the company’s IPO, leaving many questioning how things unraveled so quickly for a company once viewed as a best-in-class operator.

In today’s digest, we’ll recap the major developments since the company’s IPO, offer our perspective on the SuperPlay acquisition, and share our thoughts on where the company can go from here. Let’s dive right in.

Struggling to Find Growth

In 2021, the company’s streak of consistent double-digit revenue growth was broken by a year of only 9% growth. While this was still impressive given the tough comparison against 2020 (when it was impacted by COVID), the company’s social casino portfolio showed a worrisome trend of sequential decline. This coincided with Apple’s implementation of ATT, which meant a significant reduction in targeting efficiency, leading Playtika to have trouble onboarding new users — specifically whales — for its highly profitable social casino segment.

For a company that prided itself on operational excellence, Playtika was slow to react. Throughout 2021, management led the market to believe its eCPIs were stable, attributing the slowdown to infrastructure upgrades in its largest titles, which drove a slower product roadmap.

But the numbers told a different story: The player base was shrinking, and the company was squeezing more out of its existing users to make up for the shortfall.

To top it all off, Playtika was also losing market share in the social casino category it had once dominated. Innovative developers were also making the social casino experience more approachable (e.g., Scopely with Monopoly Go!) and were growing in scale while targeting a similar audience.

When reality set in, Playtika shifted its marketing budget toward its casual portfolio, driving growth across its largest casual games. Unfortunately, this wasn’t enough to offset the declines in the social casino segment. In recent quarters, the casual portfolio also seems to have hit a ceiling, which management has attributed to product launch delays.

In short, while there are still pockets of growth within the portfolio, they aren’t enough to outweigh the headwinds faced by its social casino portfolio.

Losing the Midas Touch

Acquisitions have always been at the heart of Playtika’s growth strategy, and heading into the IPO, this seemed like a bulletproof game plan. The company had a string of successful acquisitions, with companies like Wooga and Supertreat growing significantly post-acquisition. Its “Boost” playbook also seemed to be able to turning around the fortunes of any games Playtika acquired.

However, the market moved against it. In 2021, valuations were at all-time highs, and Playtika had difficulty acquiring studios at attractive prices. The big bet they made to acquire Redecor, a home design game, for over $400M went belly-up when Playtika redesigned the economy to squeeze more out of players and harmed the player experience. (We covered the events in detail here.)

Playtika also made a few smaller acquisitions, but none lived up to the company’s past successes.

In a tacit acknowledgment that Playtika’s way of doing things wasn’t always the best for its acquired studios, the company recently announced it was giving more independence back to the acquired studios and decentralizing marketing, which was historically all run through its CMO. There was also a shakeup within the C-Suite: The Chief Revenue Officer and Chief Operating Officer roles were removed to give the CEO more oversight over individual games.

Over the same period, Playtika’s reputation as an acquirer has suffered. In addition to fumbling some of its recent acquisitions, the disgruntled founders of Seriously, a studio acquired by Playtika in 2019, publicly called out Playtika’s leadership in 2022 for being “ruthless” and “impatient”. They also accused their acquirer of focusing solely on monetization and killing efforts to develop new games. While this should not come as a surprise given Playtika’s strategy, it showcased a breakdown of communication with key executives of an acquired studio for which it paid $269M.

These factors likely played no small part in Rovio rebuffing Playtika’s offer to acquire the company in 2023. Sega went on to buy Rovio for $776M, with Rovio saying in September “Sega isn't limiting us.”

Ownership Misalignment and Boardroom Drama

In addition to the company’s operational woes, drama unfolded in the boardroom. In 2021, Playtika’s majority shareholder, Yuzhu Shi, contemplated transferring his stake to Giant Network Group, a Chinese publicly listed game developer and publisher he had founded. This move would have subjected all Playtika’s major strategic decisions, including M&A, to Giant’s approval. The cancellation of those plans led Yuzhu Shi to explore paths to liquidity, which triggered Playtika to explore strategic alternatives. The sale process found no takers, and management ultimately decided to repurchase $600M shares at a premium to appease its major shareholder, taking away much-needed assets for growth and debt paydown.

The strategic review also revealed another ugly truth about Playtika’s boardroom dynamics when a private equity investor set to purchase a 26% stake in Playtika pulled out at the last minute due to uncovering “significant deficiencies” in the boardroom. The investor, James Lu, issued a public letter accusing the management team of controlling the board and paying themselves generously at the expense of shareholders. This brought attention to the management retention plan, which was paying out more than a hundred million dollars per year to key management executives despite the company’s lackluster performance.

Where Does Playtika Go from Here?

With growth lagging, M&A not paying off, and ownership misalignment hanging over the company’s head – the company is stuck between a rock and a hard place.

Outside of the recent management reshuffle, the executive team’s plan seems more of the same: looking toward M&A to buy its way out of trouble. In early 2024, Playtika announced it would be spending $600M to $1.2B in M&A over the next three years, and the company quickly blew past that target with its splashy purchase of SuperPlay for up to $2B (revenue of 2.6 times assuming no earnout and 7.5 times assuming a full earnout).

The rationale behind the acquisition is twofold. First, SuperPlay’s two titles, Dice Dreams (85% of SuperPlay's revenue) and Domino Dreams (15%), are exposed to fast-growing subsegments of the casual market (coin looters and board games, respectively) and are growing into leaders in their respective markets. While the games constitute only 9% of Playtika’s pro-forma revenues, SuperPlay’s growth (its revenue has doubled each year) could help offset Playtika’s declining revenues in older titles.

SuperPlay Revenue

Second, and perhaps more important, is SuperPlay’s expertise in successfully developing and launching new games in the post-IDFA world. Quoting Playtika’s CEO from an M&A announcement call: “For us, we always said in the past that we have Wooga to develop new titles for Playtika. So now the game is changing. We have SuperPlay to do it. SuperPlay showed very strong ability to develop new titles. They did launch two amazing titles in a short time. And yes, they're going to have a new title in the next year, and we're counting on them to develop in the future more and more. So this is going to be our place to develop the Playtika future.”

While the strategic rationale makes sense, there are two major ironies. First, Playtika wound down its internal game development efforts in 2023, with management stating: “Based on the current marketing environment, we made the decision to temporarily suspend our new game development pipeline until the ROI for new games is economically viable.” Wooga was the only studio still allowed to work on new titles, but moving forward, management has indicated SuperPlay would be its engine for new game development — painting a confusing narrative for the company.

Second, SuperPlay’s founders were former Playtika employees who were acqui-hired in 2015. It’s clear that the talent to create great games exists within the organization, but Playtika’s culture of foregoing development in exchange for “sure” profits has cost the company $700M in cash and another $1.3B in potential earnouts. It’s also telling that rather than taking their earnings in shares (which theoretically should align interests), the founders of Superplay took cash and received a generous $50M retention package.

Another thing to note is that this deal is significant relative to Playtika’s current market capitalization, with the $700M upfront consideration amounting to 25% of the company’s stock market value. Including the full earnout, this would amount to more than 70% of the company’s market capitalization, but this would require SuperPlay to exceed $2B in revenue ( which would be more than 80% of Playtika’s 2023 revenue) and $300M in EBITDA (about 40% of Playtika's 2023 EBITDA) in three years, which would be a win-win for both parties.

The deal is also negative for Playtika’s credit profile (it currently has $2.5B of debt outstanding). But the company has a healthy cash balance ($1.1B) and generates strong cash flows (about $400M), which should hopefully mean the debt can be refinanced without impacting operations.

In short, while the deal is favorable to the seller, the acquisition could provide much-needed growth and development expertise that could change the narrative on Playtika.

Conclusion

While we have been mostly critical of Playtika’s recent developments, it wouldn’t be fair to management to not highlight their incredible run during the 2010s: reinvesting the profits from a two-hit social casino game into building a diversified mobile gaming empire.

Unfortunately, mobile gaming is a Darwinian industry where the rules constantly change (e.g., ATT), and even the best-in-class operators can quickly lose their edge. While operational challenges and ownership misalignment still hang over the company’s head, Playtika’s continued diversification away from social casino into casual games and the SuperPlay acquisition offer investors a glimmer of hope for the company.

It also would be short-sighted to count out the talented management team that has weathered so many storms, and we are hopeful a fruitful union between Playtika and SuperPlay can be the start of a turnaround for the company.

A Word from Our Sponsor: TikTok

Why Game Publishers are Seeing 9x Growth with TikTok’s LiveOps Program 

Take your mobile game to the next level with TikTok’s LiveOps program. In a dynamic gaming market where a majority of games fail within three years, sustaining engagement through in-game events, seasonal updates, and post-launch content is key. TikTok has become a critical partner in helping games achieve long-term player retention and substantial revenue growth. Power your LiveOps campaigns with TikTok’s real-time support and industry-leading tool.

In Other News

💸 Funding & Acquisitions:

• Games industry M&A activity hits $2.5B in Q3 2024
• Party Icons raises $9M for mobile-first gaming platform
• Malaysian government invests $4.64M to boost national esports talent
• Keywords acquires co-development studio Certain Affinity

📊 Business & Products:

• Apple is developing a new iOS games hub similar to the App Store
• How TiMi Studio revived Age of Empires Mobile for a new age of fans
• Yuga Labs brings AI to blockchain with ApeChain creator platform
• 47% of U.K. Nintendo Switch players are women
• How marketers should advertise to mobile gamers during the holidays 

👾 Miscellaneous:

• Twitch has removed badge identifying game devs in chat streams
• JRPG developer Falcom contemplating AI for localization efficiency
• Key Austrian court finds FIFA Ultimate Team packs are not gambling
• Roblox to implement changes to protect children under 13
• Supercell and King vets co-found Antihero Studios to "create games worth sharing"

Content Worth Consuming

Is AA Dead? (gamesindustry.biz Microcast): “Our main topic centres around comments by former Sony boss Shawn Layden, who declared that not only is the AA space gone but its loss is a threat to the entire games ecosystem. Chris and James unpack his statement and the nuances around it, as well as discussing the opportunities for lower-budget titles in a market seemingly dominated by AAA blockbusters.”

Gaming Industry Report - Q3 2024 (konvoy.vc): “While AI in gaming is a trend in early-stage gaming VC, less VC capital is going into AI-related companies now compared to blockchain in 2021. Epic Games: Launched competing iOS app store in the EU, sued Google and Samsung. Konvoy opinion: Competing app stores will continue to emerge in the EU due to regulatory shifts, and lawsuits likely to continue.”

From Pong to Deconstructor: Mishka Katkoff’s Global Gaming Journey (The Fourth Curtain): “Ok, we know this episode should be called Something Fun on the Toilet with MK, but we're chose to keep it classy. Our guest this week is Michail Katkoff, a veteran of Zynga, Supercell, and Rovio, partner in Play Ventures, and founder of Deconstructor of Fun. In all of these different roles he's developed a unique understanding of our industry from different perspectives.”

The Power of AI in Game Development(with Christoffer Holmgård) (Mobile Dev Memo Podcast):“My guest on this week's episode of the Mobile Dev Memo podcast is Christoffer Holmgård, the CEO and co-founder of modl.ai, which allows game developers to deploy AI-empowered bots into their games to discover bugs and personalize game experiences.”

The Strange Evolution of the Sponsored Stream (pushtotalk.gg): “There are currently 2,679 playable (for free!) demos for upcoming games on Steam as part of Steam Next Fest—a feast for players and a horrifying statistic if you’re hoping to launch a game next year. Valve knows that’s entirely too many game demos, so they’ve posted a live scoreboard where you can see the most played and wishlisted demos.”

Our Gamification Consulting Services

Today, we’re highlighting our gamification consulting services. Applying game mechanics to all sorts of applications has proven to boost retention, engagement, and revenue — but doing it right can be harder than it seems.

Naavik offers gamification deconstructions, workshops, and ongoing flexible support. Here is what one of our clients had to say.

If you’d like to learn more, reach out here! Also check out our expanded consulting service portfolio here.