Morning, everyone. Thanks so much for being here. I'm Nathan Feather on the Morgan Stanley U.S. Internet team, stepping in for Matt Kost. Pleased to be joined by Craig Abrams, Playtika's CFO and President. Thanks so much for joining us.
Thank you for having us.
Before we begin, quick housekeeping item. Please note that all important disclosures, including personal holding disclosures, are online at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, let's kick it off. Craig, I think it'd be helpful for people that are maybe less familiar with the story to give an overview of Playtika, the business, and the evolution of strategy here.
Perfect. Playtika is one of the largest public independent mobile gaming companies. It was founded in 2011. Right now, we have nine out of the top 100 franchises in the App Store. Twelve of our 14 top titles came through M&A. I think that's what differentiates us in terms of our initial strategy. We kind of took the viewpoint that we are experts at monetization and retention of customers. We love to find great entrepreneurs and products that are already established in the marketplace and further growing them, leveraging our technology and live operations capabilities. Over the last 13 years, we've executed on that strategy. We went public in 2021, kind of post the COVID and IDFA changes. I think you saw the market become a bit more mature. I think for us, as a large player, it's been a great opportunity to continue consolidating.
We acquired Innplay Labs and Youdagames in 2023, and we just completed the acquisition of SuperPlay in 2024, our largest acquisition in the company's history. I definitely feel like it's a name that's misunderstood in the marketplace. I definitely feel like we are currently undervalued in the marketplace. When you look at the strength of our biggest franchises, the depth and breadth of the portfolio, the free cash flow that we generate, both the organic new game development pipeline as well as the recent acquisitions and the growth there. You look at the dividend yield that we pay, almost at 8% right now, definitely feels like an opportunity for investors.
OK, great. Really helpful overview. Maybe to kick things off, I'd love to discuss Playtika's game pipeline. The team mentioned that there are three games slated to release in the next 12 to 18 months. What can you share with us about these games and which is most exciting for you?
Sure. It's exciting for us because there's a bit of a shift in strategy. Historically, we did not develop new games internally. I think what changed is we acquired companies with core capabilities and development of new games, and we've seen very specific market opportunities. The first being when we acquired SuperPlay, they had two games in the pipeline. This is a team that has developed two games thus far in the market, both very successful, both top 100 games, Dice Dreams and Domino Dreams. The third game in the pipeline we recently announced is Disney Solitaire. Disney Solitaire is going to be launched in the second quarter of this year. It's obviously in partnership with Disney, taking the solitaire genre, which we know very well. We're currently the number one player in the solitaire market within our purchases with Solitaire Grand Harvest.
We have seen an opportunity to dramatically expand that category. It is a big category when you look at traditional, what we call green screen solitaire. We know there are tens of millions of players that are playing those style games. We think, as we have seen in some other categories with a big brand, there is an opportunity to really expand the category with Disney Solitaire. Excited about that. The other opportunity is with social casino and slots specifically. We have seen that our initial titles were developed in kind of the 2011 to 2014 time frame. As those titles are mature, the complexity in the games and managing those games and the first-time user experience is not what it is in a newly developed game.
We see an opportunity to bring our best content, our best features into a new game that we can bring to market that will have a better return on investment in our view. Excited about that. We have not given a timeline other than said that all three titles will be out in the next 12-18 months. The third title is Claire's Chronicles from our Wooga studio.
OK, great. I want to touch a little bit more on Disney Solitaire. As you mentioned, planned to release in Q2. Talk to us about what you're seeing so far in the test phase and the potential uplift for releasing this game given the strong brand recognition relative to the category.
Sure. As we mentioned on our earnings call last week, the game is in soft launch in a number of international markets. The initial metrics are very strong. We have not committed to the actual release date publicly, but we have said the intent is to launch in the second quarter. I think what's really exciting for me is that leveraging a big brand and the portfolio of over hundreds of characters within the Disney portfolio is that there's new international markets that will become available to us that historically have not been available. I think when you look at markets like Japan or others in APAC, the Disney characters resonate extremely well. We've seen Disney titles move up the charts there.
I think for us, the opportunity to not just be big in the United States and Europe like with the rest of our portfolio, the opportunity to really move into APAC and some other markets is really exciting.
OK, great. Now, I want to talk a little bit more holistically. Given these new titles in the pipeline, one thing I'm curious about is what sort of framework the company uses when assessing the go or no-go decision as it relates to launching these new games. Anything you can quantify or thoughts you can share could be helpful.
Sure. I think there's a couple different gates that we look at. I think there's the pre-launch phase, which is when you're deciding what category you're entering, how big can it be, what is the competitive environment, what's our differentiator, why are we going to be number one or number two in that respective category, and can it be a $100 million franchise. Those are some of the thoughts that come to mind when framing that decision. Once the game has been green-lit and it's in development and you go to soft launch, we're very focused on retention metrics, right? Everything from day two, day seven, day 14, day 30, and kind of on and on, and monitoring those metrics. After retention becomes monetization, not only are you retaining customers, but are they paying within the game?
The third layer is what's the return on ad spend? Can that scale? I think what's exciting about leveraging a brand is the opportunity to really rapidly grow via organic traffic as well, given the awareness and the organic traffic you get through the app stores. Definitely those are some of the frameworks we use when evaluating the launch of a new title.
OK. Now, I also want to talk about social casino games. Been under a little bit of pressure lately. How does the management view the opportunity around this game genre as a whole? How has that view and the opportunity evolved over the past few years and post-IDFA?
Sure. Historically, it is one of the largest and most attractive categories within mobile. I think you saw intense competition there. I think when you look at a lot of the categories we are number one in, you will see pretty significant market share. It sort of becomes almost like winner take most, given the liquidity characteristics or other gameplay characteristics socially in those genres. If you look at Bingo or in June's Journey with our narrative-driven game or Solitaire. When you look at slots, it is much more competitive. Even as the leader in the category, you will see that our market share there on a per-title basis is not as high, probably more like anywhere from around 10% to 12% or so. When you look at the competitive intensity there, I think there is a different dynamic.
I think when you look at the last few years, we've seen the slot manufacturers bring real-world content and be successful in deploying that. We saw that as an opportunity in our recent partnership with IGT to bring their content to market across our top three slot games. That content started to roll out the last week of December. We are just at the initial phases of that partnership. I think we see the opportunity with the development of a new title. Given there really hasn't been that many new titles brought to market there that are meaningful, we think there's a big opportunity to bring consumers something new and fresh and exciting. We are excited about that.
OK, great. Putting a little bit of a finer point on that, how are you approaching stabilizing this side of the business and really returning it to being a growth category?
I think we'll be kind of honest. When you look at the category over the last few years, it's stagnated and matured. I think the idea that you're going to grow the category or grow, I think, is something that probably isn't realistic. I think that's why we made strategic decisions years ago to further grow our casual business. We saw casual as an opportunity to be much bigger, much higher growth, bigger TAM. That's why we've made such a concerted effort to kind of strategically transition. You look at the majority of our recent acquisitions, they're all in casual. I think the exception there was poker, which we had a great acquisition of the Governor of Poker franchise to add to our World Series of Poker positioning.
I think when you look at the strategic steps we've taken, it's been to kind of diversify away. That being said, we're very focused on stabilization and regaining market share. That is through improved content, upgrading technology, all the things that we're doing in the new game to get a better return on ad spend. We continue to do well within that category on our direct-to-consumer channels. I think that's a differentiator for us and something that's helped support the margins in that category as well.
Right. You mentioned the company's developing a new slot game. How do you think new launches fit in the overall strategy?
I think for us, it is unlike most game companies that have huge R&D budgets focused on a new slate, we still stick to our core knitting, which is leveraging M&A as a path to kind of buy proven franchises. We see new game development as an opportunistic way to attack specific opportunities where there isn't necessarily an M&A opportunity or something that we believe strongly we can do in-house. I think the difference in mobile versus AAA and console is that the development budgets required aren't nearly as big. It's the marketing budgets. For us, we have an opportunity to test various genres with organic development. We're not putting capital at risk unless we know or have a strong belief that it's going to be successful based on early metrics.
Yeah. Are there previous instances in which you've done something similar that provides a playbook to replicate the reactivation of dormant players in the category?
I think that is a big focus for us is constantly how do you reactivate consumers. When you think about a big title like Slotomania that has historical revenue over $5 billion and over 100 million downloads, you're really focused on bringing people back to the game. Most customers in the segment aren't hearing about the title for the first time. The question is, how do you make customers aware of all the new and great things that are available in that game, a unique promotion? I think we saw we did very well with reactivation, bringing people in with Cleopatra II and with the IGT content. I think we're definitely working on a variety of strategic initiatives to bring people back.
Great. Now, on the casual side, Bingo Blitz has been growing consistently for many years at this point. In your 4Q report, you reported year-over-year growth of almost 6%. Understanding that the natural lifespan of individual titles plays a role, how do you think about the durability of growth for this title?
I think Bingo Blitz is one of the most impressive titles in the marketplace. We acquired it in 2012. It was probably initially launched in the market in 2010. When you look at it kind of 15 years later, fourth quarter was still up 6% year over year. It's our biggest franchise. We have significant market share in that category. It is very challenging for others to launch from both a technical perspective and sort of liquidity perspective. There are so many Bingo players competing with their friends, chatting with friends, sharing collectibles that if anyone, the switching costs are very high for someone to decide to go and find another Bingo experience. We bring so much content to bear, spend so much in marketing that it really has a high barrier to entry.
I think for us, it's one of our strongest and most stable franchises and one that we feel very confident in as we look at future growth.
Right. Really helpful. Switching gears, direct-to-consumer, clear opportunity for Playtika that you've been discussing for a while. It is encouraging to see the revenues from the segment up 8% year over year in Q4. What are some of the puts and takes investors should be aware of as they consider Playtika's plans to expand this offering to more of the titles?
Sure. Direct-to-consumer for us has always been a differentiator. This last quarter represented 27% of our revenue. Historically, we've given a target of 30%. I think that target is constantly moving as we acquire titles that are off the platforms. The recent deployment of direct-to-consumer for both June's Journey and Solitaire Grand Harvest has been going quite well and gives me a lot of confidence that we're going to be able to execute on direct-to-consumer with other recently acquired titles. I think for a long time, people questioned, you're successful with some of these older franchises that took many, many years and started on web with these mobile-first titles. Can you be successful? I think we're proving that we can. Obviously, SuperPlay is the largest addition to the portfolio.
As we look at the roadmap down the road, the idea of bringing those titles on direct-to-consumer is very exciting for us.
OK, great. Now, you have a track record of using M&A to effectively enhance Playtika's portfolio. SuperPlay is a great example of that. How should we think about your appetite for M&A in 2025 and then more broadly long term?
Sure. As I mentioned earlier, M&A is a key part of our DNA in terms of how we look at expanding the portfolio. SuperPlay was an extremely exciting acquisition for us, not only the top 100 franchises that we brought in and helped drive further growth and diversify the portfolio, but the future pipeline of games that they bring. I think we were very careful in how we structured the transaction so that we're fully aligned in terms of growing, but growing in a profitable way. They have a structure where to be eligible for the earnout in 2025, they can't lose more than $10 million of EBITDA. As you look out to 2026 and 2027, those margins need to scale as well. Very consistent with how we think about the games industry and focused on profitable growth.
I think as we look at expanding the portfolio further, last week we just announced that we're going to deploy $300 million-$450 million in M&A over the last three years. Historically, we gave a target of $600 million-$1.2 billion. Obviously, we did the large SuperPlay transaction with our capital allocation strategy, really assessed our free cash flow, and targeted around 50% of free cash flow towards M&A, about 50% towards capital returns. I think the idea of a studio a year in the $100 million-$150 million range as bolt-ons to really strategically address key growth opportunities and genres that we see as exciting additions to the portfolio to continue to drive future growth. I think it's important to be very consistent with our M&A executions.
When you look at the cohorts of transactions over time, you'll see that that shift to profitability can take 18 to 24 months. To continue to drive EBITDA going forward, we need to continue to execute on those. I think when you look at like an Innplay, for example, we guided last week that that studio will turn to profitability in 2026. Sorry, it will drive to EBITDA positive contribution in 2026. Same thing with the SuperPlay acquisition. Having that as a systematic part of our strategy for us is important.
OK. Now, given how active you've been with M&A, one thing that investors wonder about is Playtika's potential for organic growth. Help us think through what sort of organic growth is embedded within your outlook for 2025. How should we think about organic growth in more long-term cadence?
Sure. We did not actually split out what is organic versus SuperPlay in terms of our guidance for 2025. What I can say is that we have our biggest franchises, whether it is Bingo Blitz, June's Journey, Solitaire Grand Harvest, that we are confident in our ability to continue to execute and grow over time. I think we have our recently acquired titles like Youdagames and Innplay Labs and obviously SuperPlay that we believe will be growth drivers in the years to come. We have titles like World Series of Poker, which are number one in their respective category and have been very steady. I think in terms of the social casino portfolio, for us, the key focus there is stabilization. The smaller titles that you see are kind of on a managed decline as we pull back marketing dollars and manage cash flow contributions.
I think as you look at the portfolio as a whole, with the M&A activities and the acquisitions that we're doing, we foresee getting back the growth in the years to come. Obviously, there's a mixed shift. The impact of the mixed shift this year impacts the EBITDA margins. We're focused, obviously, on increasing the margins of the acquired studios over time.
OK. Now, focusing a little bit more on that margin part, how should we think about the investments required to scale these new games in your pipeline?
As you look into the guidance, all of the development activities are built in in terms of the people that we have working on them and how we think about it. The actual marketing dollars that you have to deploy to execute and launching them is probably the biggest growth driver. I think we're deploying that with success. The payback periods on a new game can be very quick. You may not see it as a big investment driver, or we'll basically reallocate marketing dollars to try and maintain our margins. I think we're very careful. We have a lot of tools that we have, given we have such a large portfolio. It definitely, the idea of having these higher growth titles and launching new titles does impact our margins in the near term.
We think it's going to pay off in terms of revenue growth and changing the trajectory of the overall business.
OK. Anything to call out as far as the shape of margins as we work through 2025 and 2026, given some of those puts and takes you mentioned?
I think you see it in the guidance. You see that last year we were closer to 30% margins. This year, we are a few hundred basis points below that. I think if you look at the range of guidance that we have given, there definitely is an impact. We are focused on driving that top line consistent growth to be in a position to improve margins down the line.
OK. Great. On to a topic that's been top of mind for many investors throughout the conference in AI. Talk to us about areas of the company where you're most excited about AI's potential impact to the business.
Sure. I think throughout the video game industry, I think there's probably a variety of impacts. I think if you're in AAA or console and you have massive budgets related to art and the creation of games, there's probably a much bigger impact. Obviously, lowering maybe barriers to entry and development of those games. I think within mobile gaming, the biggest barrier to entry for someone isn't on the development side. It's on the marketing side. I think when I look at the opportunities with AI, it's really about it's going to help us be more efficient in the development of games. It's going to help us be more efficient in how we manage live operations, how we deploy marketing dollars. I definitely see it more on the efficiency side than maybe helping out on the top line side.
I definitely see it as a positive impact. I think the question for us is really timing. When are these tools going to be ready to really deploy en masse across games? I think now we're doing a lot of testing. We've always been very close to investing in sort of internal AI tools. I think now we're seeing a lot of excellent third-party tools. It's something that we're really excited about.
Can you help us think about, from an investment standpoint, where are those concentrated today and what the timing of that might be as you see some of these tools continue to improve and create more efficacy?
I mean, I think we'll see towards the end of this year. We're hopeful that in terms of the generative AI tools, that we'll be able to deploy more things there. It's hard to say specifics. I think as we think about it, it's really about how can we bring the best experience to our consumers. If we can optimize content and bring them content that we can A/B test faster and that they can get to things that resonate that much faster, it's a win for everyone.
OK. As a follow-up, how are you evaluating the ROI and revenue incrementality from these investments and any difference compared with traditional kind of investments, just given the earlier portion of the tech curve, Warren?
I think for us, we're always evaluating what's the lift when we do anything. It's A/B testing, a control group versus the test group, and seeing what kind of lift we have top line. Are we seeing where are we seeing on the expense side in terms of savings? What are the returns there? I don't think it's any different than any other initiative that we take on. It's just obviously an area where there's a lot of focus and a lot of excitement. I think we're trying to do it in a way where we're mindful of giving consumers the best experience we can through the gameplay.
OK. Great. Now, interested to hear your thoughts on the mobile gaming market's growth and what we can expect to see from here over the medium to long term.
Sure. If I was on stage probably four years ago, you probably saw high single digits in terms of market growth. I think the latest market projections I've seen has about 3% market growth. It is definitely a maturing market. It's been one that's consolidating. I view us as a consolidator. I think that from an M&A perspective, there's going to continue to be strong opportunities for us. I think it has become kind of post-IDFA. It's been more challenging for newer startups to scale. That's where we can come in as a partner and help them scale. I think that has been something that's been good for us.
I think that there has been kind of a void of new games relative to if you looked sort of five, ten years ago at the amount of new games deployed in the marketplace, there were a lot more new games that were scaling and successful. I think the challenges in the market have had fewer new games coming to market. I think the idea that we're bringing new titles to market is really exciting for consumers to see some new and exciting things that they can play on their device. I think it's going to give it a better chance of success in the current market.
OK. Great. I am interested to hear some of the trends you are seeing. What are potential catalysts for industry growth above that current low single digit range?
Listen, I think international penetration into new markets is something that people have talked about for a long time, but you have not really seen from Western developers going kind of beyond Europe and the U.S. I think that idea could, if we are able to penetrate further in some of these markets, you will see growth beyond that. I think the market as a whole, you are not getting handset penetration or increased bandwidth or increased screen size, all the things that were sort of tailwinds for a long period of time. I think now where we are seeing a lot of the growth is coming from increased conversion. Consumers are just getting that much more adept and used to paying in games. I think that driving conversion, you have seen our conversion numbers go up now over 4% on our payer conversion.
I think when you look at growth going forward, that's another area of opportunity. I think the other growth will be on the margin side as you continue to offer opportunities for more direct-to-consumer channels. That creates margin opportunity for growth as well. Not necessarily on the gross side, but on the net side.
OK. Great. Speaking of conversion, mentioned 4%, what are the levers you think you could pull that could bring that continue to increase over the next few years?
I think as we look at our conversion rates, it's probably tied most closely to the maturity of the game since we've owned and operated it. It's something where it just takes time, where it's constant optimization, constant new feature launches. It's not something that you do quickly. Consumers have to really make that decision that they want to become a payer in your game and the experience is worthy of that. For us, it's just continuing to develop great content and new features and being innovative. That innovation is what drives the growth.
OK. Great. Same question, but on the flip side, a revenue per payer metric. Where do you think that can trend over the next few years?
I mean, I think that is mostly driven by conversion. I think when you look at there are games where, especially games that we've acquired, where the entrepreneurs were very product-focused and didn't have the understanding around monetization that we do and the opportunity to kind of give consumers truly personalized offerings that are really tailored to their personal preferences. I think with that, we do a better job at increasing monetization. I definitely don't think that that's something that you have to carefully manage because you're trying to retain users for a very long time.
OK. Great. On the marketing environment, interested to hear, as the mobile game market has matured, how have you seen the marketing environment evolve and then any kind of key changes as we think over the past few quarters?
It's definitely a much more dynamic market than it had been historically in that there's constantly new channels to explore and evaluate. We're constantly moving dollars from one channel to another for the best ROI possible. It's differentiated by game, by platform. I definitely think that if you look back to it kind of pre-IDFA, there's definitely more consistency to how you deploy marketing dollars. We've done a good job leveraging offline campaigns, influencers, international market takeovers where you really can concentrate the spend and really drive your app up the app rankings in that particular market. I just think it takes more creativity and more continued focus on return on investment than it did historically.
OK. Great. On the international side, kind of outside U.S. and Europe, interested to hear where you see the biggest opportunity, where you're most focused as we think about 2025 and 2026, where you think you can really drive that incremental penetration.
Sure. Historically, we were biggest in tier one English-speaking markets. I think with the Youdagames acquisition and the SuperPlay acquisition, we really grew our European base. We've done some European takeovers that have done quite well, especially in markets like Germany. I think that localization and continued penetration in Europe is something that we're always focused on. I think the big unlock, as I referenced earlier, is if you can break into a market like Japan. Within our casual portfolio, it's definitely something that we think about all the time. The question is, what content could resonate there and what could scale? You don't see many Western game makers scale up those charts. When you do, it's pretty tremendous.
OK. Great. I know we talked about capital allocation a little bit earlier. I want to put a touch of a finer point on here. More holistically, how do you think about your capital allocation philosophy and what would cause kind of updates or diversions from where you currently stand?
Sure. At the start of last year, we came out with our capital allocation strategy, which was 50% of free cash flow towards M&A and 50% towards capital returns. We currently pay around $0.10 a share per quarter in dividends. The rest is really around a share buyback program. We authorized a $150 million share buyback. That is really intended to offset dilution from the vesting of employee equity awards. That framework is still intact. I think when you look at the historical free cash flow, it has been around in the $350-$400 million range of free cash flow. That is kind of how we sized the opportunity to deploy half for M&A and half for capital return. I do not think there is anything that I can think of in the near term that is going to change that thinking.
I think we feel pretty good about that and are executing under that plan.
OK. Great. A few minutes left. I want to wrap up with more of a high-level question. What do you think are the one or two things investors most underappreciate or misunderstand about the Playtika story?
Sure. I think first would be the value of the franchises. I think when you see these long-lasting franchises like Bingo Blitz, June's Journey, and Solitaire Grand Harvest, and World Series of Poker, and all these franchises, the fact that the stability and the growth potential and the cash flows that they generate and the consistency over time, I think is something that is unique. I think our market leadership in six categories is very unique. I think the fact that we just recently acquired three studios and four games that all are on a very impressive growth trajectory, I do not think people really understand just SuperPlay. And two games that were growing historically over 100% a year. You can track them in third-party app stores continuing as a portfolio, continuing to grow at a clip far beyond the industry.
I think when you have, we view it as we acquired the crown jewel within the industry with two titles in the top 100 that are combined growing at a clip much faster than anything else that we've seen in the marketplace. I think the last layer would be just the evergreen nature of the categories that we operate in. Those games, whether it was in the coin looter, but dice, domino theme, solitaire theme, these are games that have been around in the real world for the last 30 years and will continue to be around in the gaming world for the next 30 years. I think just the stability and consistency there with our portfolio is pretty unique.
OK. Great. Craig, on behalf of Matt, myself, and the whole team at Morgan Stanley, thanks so much for being here.
Thank you.