Earnings Call Transcript - PLTK Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for your patience, and welcome to Playtika's Fourth Quarter and Full Year 2020 Financial Results Conference call. All participant lines are currently in a listen-only mode. Following the presentations, we will have a question-and-answer session. Now, I will turn the call over to our speaker today, David Niederman, Vice President, Investor Relations and Capital Markets. Please proceed, sir.

David Niederman, Vice President, Investor Relations and Capital Markets

Welcome to everyone, and thank you for joining us today for the fourth quarter and full year 2020 earnings call for Playtika Holding Corporation. Joining me on the call this afternoon are Robert Antokol, Co-Founder and CEO of Playtika; Craig Abrahams, Playtika's President and Chief Financial Officer; Eric Rapps, Vice President of Corporate Development; and Troy Vanke, Chief Accounting Officer. I'd like to remind you that today's discussion may contain forward-looking statements, including but not limited to the company's anticipated future revenue and operating performance. These statements and other comments are not a guarantee of future performance, but rather are subject to risks and uncertainties, some of which are beyond our control. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC. With that, I will now turn the call over to Robert.

Robert Antokol, CEO

Thank you, David, and thank you to everyone for joining our first earnings call. I'm really excited to have this opportunity. The IPO was one month ago and it was a major event in Playtika's history. First, I want to take a moment to thank our employees for the amazing job they've done over the last 11 years, working with me, working under pressure, growing the revenues, building the company, and establishing the unique DNA that we have. I want to acknowledge our millions of players around the world who enjoy our games, and we will continue to maintain our mission of providing infinite ways to play and offering great pleasure to our players. A bit of background about Playtika: the company was established almost 11 years ago and I was one of the founders. Over these years, we have experienced remarkable growth, becoming cash flow positive from day one. This has always been our focus. Every dollar we invest is scrutinized to understand how to generate more revenue from that dollar. Another significant aspect is the seven acquisitions we've made in the last 10 years, which have all seen great success, and we will provide more insight into that later. Additionally, most of our games are considered evergreen; they aren't games that will disappear after a year. They are designed for long-term retention. It's also noteworthy that nine of the top 100 grossing games in the US market are Playtika's games, a unique achievement that sets us apart from others. Since our inception, we've always aimed to grow revenues and remain cash flow positive. We've done this through various means: our operational expertise, data-driven decision-making, and effective marketing strategies. For instance, our operational capabilities were evident since we launched our first game, Slotomania, which quickly became a sustainable platform. We prioritize data in our decision-making process because it is crucial to our operations. We practice diverse spending in marketing, always backed by data, which informs our strategy. Our unique operation, LiveOps, combines all these aspects to drive revenue growth, and we have established a new division called Playtika Boost, which encapsulates our experience and technology in one platform to enhance both our existing games and future acquisitions. Moreover, we have over $1 billion allocated for acquisitions and aim to continue our successful track record. We know how to enhance acquired games and take them from zero profitability to significant earnings. Lastly, we envision Playtika extending its reach beyond games, leveraging our technology and the capabilities we're developing with Playtika Boost. I am very excited about our future as a public company; it's a tool that will facilitate our growth further. Now, I will turn the call over to Craig to discuss our operations and financial results.

Craig Abrahams, CFO

Thank you, Robert. I'd also like to thank everyone joining us on the call. I'll spend a few minutes reviewing some achievements and progress during the quarter and the full year 2020, followed by our financials and outlook. Following that, we'll open up the call for Q&A. It was a Q1 event, but I want to underscore our successful IPO last month. This was transformative for our company, strengthening our balance sheet, providing a public currency for M&A and employee compensation, and raising Playtika's profile within the mobile gaming industry. We are thrilled to be public and share our journey with you as we innovate and grow. Turning to highlights from 2020, we had a year of significant achievements. Our casual portfolio surpassed $1 billion in revenues for the first time, with Bingo Blitz celebrating its 10-year anniversary, achieving record high revenue of $443 million. This demonstrates our ability to continue growing games that have been in operation for years, reflecting the sustainability of our franchises. We celebrated Bingo Blitz's milestone with a special program, including features and daily events, and gained significant exposure through a five-show placement on The Ellen DeGeneres Show, where the game was played live. Additionally, Solitaire Grand Harvest had a record year with $147 million in revenue, marking 95% year-over-year growth to become the largest casual solitaire game based on in-app purchases. June's Journey also had a remarkable year, growing 90% to $168 million. Slots continue to thrive, with our largest game, Slotomania, growing 18% in 2020. In Q4, we introduced a new events layer in World Series of Poker that positively impacted monetization. We are excited about many new features planned for 2021 and look forward to sharing updates on our next call. Regarding COVID-19, we prioritize employee safety while allowing some return to the office in accordance with local guidelines. Now, looking at financial performance, revenues in Q4 2020 increased approximately 17% to $573.5 million compared to $488.2 million in the same period last year, driven by organic expansion and the rollout of new content. Casino games accounted for 55.4% of revenues in Q4, while casual games contributed 44.6%, with respective year-over-year growth of 10% and 28%. The US accounted for 69% of revenue, with Europe contributing 15% and APAC adding 9%. We also reported a strong fourth quarter adjusted EBITDA of $210.4 million, representing a 24% increase year-over-year. Expectations for 2021 are optimistic as we have exciting new game initiatives and a revenue forecast of $2.44 billion, with a projected adjusted EBITDA of $920 million. Our Q4 performance was robust, and the momentum of our business continues. We remain committed to enhancing monetization and adding new content features while leveraging our Boost platform and driving growth with our acquired studios. Now, we would be happy to take your questions.

Operator, Operator

Our first question comes from Brian Nowak from Morgan Stanley. You may start.

Brian Nowak, Analyst

Thanks for taking my questions. I have two. Just the first one on the payers and players that you saw come in 2020. Just curious if you're seeing any differences in retention of those players or aging of those players? Or how should we think about the way those new players are performing as we move into 2021-2022? And the second question I had is on the portability of the Boost platform. Can you share examples of tools in the Boost platform that have worked particularly well in the casino space and might also work well in the casual space?

Robert Antokol, CEO

Okay. First, thank you for the question. Again, it's a really exciting day for me with our first earnings call questions. So, regarding the first question about the sales, yes, we saw a significant jump in Q2 and Q3, especially in Q2. Now that we finished Q4, we observed that the behavior of the players remains consistent. We don't see any different behavior among users. The players are the same with no changes in their patterns. Regarding the second question about the Boost platform, I could discuss it for over an hour, but I’ll keep it brief. When we started as a casino company and expanded into casual, it became clear to us that monetization strategies can be similar across both genres. A key aspect of the Boost platform is the capability to understand game segmentation, which is often lacking in casual games. Our AI-driven technology in Playtika Boost enables us to bring effective segmentation techniques to any game category, whether casino or casual.

Operator, Operator

And our next question comes from the line of Stephen Ju from Credit Suisse. You may begin.

Stephen Ju, Analyst

Thank you. A recurring question from investors seems to be around the M&A environment, which appears to be intensifying. Do you think valuations are becoming unreasonable? Or is the list of potential targets shrinking? Now that you can fund acquisitions with equity as well as cash, what might change in terms of the targets you may pursue?

Craig Abrahams, CFO

Thanks, Stephen. Yes, the market has experienced increased M&A activity throughout 2020, with prices moving upwards. We are focused on finding the right deals that align with our culture and demonstrate financial discipline. Our pipeline is broad, with opportunities to acquire both growing assets and those that may require turnarounds leveraging our LiveOps platform. We feel confident about our pipeline and our ability to create equity value for our stakeholders, utilizing both cash and stock in our M&A strategy. We will be thoughtful in our approach to ensure it benefits our shareholders and partnership entrepreneurs.

Stephen Ju, Analyst

Thank you.

Operator, Operator

Our next question will come from the line of Eric Sheridan from UBS. You may begin.

Eric Sheridan, Analyst

Thank you so much. Regarding the performance and evolution of the business, could you share thoughts on forecasting, particularly as you have slightly increased growth with reduced sales and marketing spend as we look into 2021? What are your views on the marketing environment and ROI going forward?

Robert Antokol, CEO

Thank you for the question. Playtika understands user acquisition deeply; it's part of our DNA. However, we do not rely solely on user acquisition for growth. Our business model does not hinge on spending a specific amount each quarter. Instead, we analyze our spending on a constant basis. We are not reckless with our marketing budget. Our growth is derived from internal skills, technology, and our LiveOps model, which enables us to implement careful management of our expenditures.

Craig Abrahams, CFO

We'll take our next question, please.

Operator, Operator

Our next question comes from the line of Mike King from Goldman Sachs. You may begin.

Michael King, Analyst

Thank you for the question, and congratulations on the first earnings report as a public company. For 2021, could you discuss your expectations for revenue cadence? Are there differences in the growth between your casual and social casino portfolios?

Craig Abrahams, CFO

If you look at our casual portfolio, it is indeed the fastest growing area relative to our casino titles. Our expectations are to see growth throughout the year even with the challenges posed by tough comparisons with last year's performance. Typically, we have a strong start to the year with consistent management of our product roadmap throughout. There are no specific peaks in our calendar, but our ongoing investment in new features and ongoing content will contribute to our steady growth.

Michael King, Analyst

Great. Just a quick follow-up. What can you share about your views on Apple's changes to IDFA and any initiatives you are exploring to address any gaps in data management?

Craig Abrahams, CFO

It's still early to assess the impact of IDFA as its rollout is scheduled for this spring. However, we have some factors that insulate us. First, as Robert mentioned earlier, we are less dependent on user acquisition for growth, which differentiates us in the market. Additionally, a significant part of our marketing budget is allocated to re-targeting, which focuses on reacquiring past users. Most of our revenue is derived from in-app purchases, making us less vulnerable to advertising changes. We do not expect IDFA to have a significant adverse effect on our revenue.

Michael King, Analyst

Thank you for your time.

Operator, Operator

Our next question comes from the line of Drew Crum from Stifel. You may begin.

Drew Crum, Analyst

Thanks. The guidance for adjusted EBITDA suggests some margin pressures. Can you clarify what's driving that expectation? Also, during your roadshow, I believe there were 68 new games in development. Any updates on that pipeline?

Craig Abrahams, CFO

In terms of margin projections, we are accounting for public company expenses like D&O insurance, additional staffing, and other related costs. Regarding our development pipeline, Robert, would you like to address that?

Robert Antokol, CEO

Sure. Historically, Playtika has focused on enhancing existing games rather than developing new ones. However, in the past two years, we've acquired several studios known for their successful new game development. We are currently working on various new game titles and are excited about the progress. While our primary growth strategy has centered on organic growth, we are actively preparing to launch one or two new games over the next year. I want to emphasize that Playtika has always concentrated on improving existing games as platforms. Any features we develop will focus on enhancing current offerings, but we are excited about the new categories we are exploring as well.

Operator, Operator

Our next question comes from the line of Colin Sebastian from Baird. You may begin.

Colin Sebastian, Analyst

Thank you. Congrats on the recent IPO. I have a couple of questions. Regarding player metrics, how do trends in MAUs and DAUs look for you this year? Is the higher monetization or conversion rate sustainable, and should we expect quarterly variability in these metrics?

Craig Abrahams, CFO

We are primarily focused on daily paying users as the most critical metric to drive our revenue, alongside conversion rates. Based on our historical performance, we anticipate continued growth in both metrics throughout 2021 based on our efforts.

Colin Sebastian, Analyst

Thanks. Additionally, you mentioned expanding Playtika beyond games. Could you expand on what that means for potential new revenue streams and anticipated timing?

Robert Antokol, CEO

As we ventured into the casual division and saw substantial success, we discovered that our monetization capabilities extend beyond just games and into other digital products. With our technology and the advancements made through Playtika Boost, there is a significant opportunity to expand our business into different areas. While it's a long-term ambition, we are investing in teams and research to explore these options actively. It's essential for us to position Playtika as a technology-driven company, prepared to lead in innovative areas beyond gaming.

Operator, Operator

Our next question comes from the line of Jason Bazinet from Citi. You may begin.

Jason Bazinet, Analyst

Thank you. A casual observer might think that your financials reflect the increased payer conversion rate seen in Q2 was solely due to COVID. However, it seems there may be other factors at play as well, possibly related to Boost. Can you comment on those variables and how sustainable these trends might be?

Robert Antokol, CEO

First, thank you for the question. I appreciate the opportunity to elaborate. Yes, COVID did lead to a notable revenue increase, but it also revealed that we are effectively driving conversions. Our technology and experience from the casino side have positively impacted our casual game monetization, leading to higher conversion rates. The COVID impact certainly brought in more users, but our core strategy, which focuses on data-driven growth, is what allows us to sustain these high conversion rates moving forward.

Operator, Operator

Thank you. And our last question comes from the line of Ryan Gee from Bank of America. You may begin.

Ryan Gee, Analyst

Good morning, guys. Can you clarify the strategic priorities between the casino and casual divisions? What should we expect in terms of new game investments and M&A opportunities in the near term?

Robert Antokol, CEO

Thank you for the question. We are leaders across multiple categories—slots, bingo, solitaire, poker, and hidden object. Our current M&A focus is primarily on the casual segment as we believe there are significant growth opportunities there. We also aim to use our casino monetization expertise to enhance casual operations. We remain open to attractive opportunities in the casino segment, but our strategic priority is to accelerate our casual offerings and become a dominant player in mobile gaming worldwide. Regarding user acquisition spending, we invest where we see potential results, irrespective of whether it's in the casual or casino category.

Ryan Gee, Analyst

Thank you.

Craig Abrahams, CFO

In terms of revenue growth over the past few years, we've seen increases in payers but some pressure on ARPU. Can you walk us through those dynamics and if we should expect to see declines in ARPU moving forward? ARPU reflects our ongoing product mix shift as we incorporate more casual titles, which generally yield lower ARPDAU compared to casino games. In Q4, we primarily focused on organic growth, eliminating acquisition-based noise and providing a clearer performance look for our metrics. Thank you for joining us today. We appreciate your time on our first earnings call, and we look forward to speaking with you again soon. Please stay safe.

Robert Antokol, CEO

Thank you, everyone.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.