Playtika Holding Corp.
Q4 2020 Earnings Call Transcript

Published: 27 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Playtika's Fourth Quarter and Full Year 2020 Financial Results Conference call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, David Niederman, Vice President, Investor Relations and Capital Markets. Please go ahead, sir.

[David Niederman:]

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:]

Thank you, David, and thank you for everyone to join our first earning call. I'm really excited about it to have this first call. The IPO was one month ago, it was a major event in the Playtika's history. And first, I want to take a moment to thank our employees about the amazing job they're doing in the last 11 years, working with me, working under pressure, growing the revenues, growing the company, building the special DNA that we have. And of course, I want to tell the players that playing our games, we have millions of players around the world playing our games and they will keep our mission, providing infinite ways to play and to have a big pleasure to our players. So, a little bit background about Playtika. So, the company was established actually almost 11 years ago and I was one of the founders. When you look at the 11 years, we have a few main things that I would like to say. First, we have unbelievable growth. We started to grow our revenues and to be a cash flow positive company from day one. This was always our focus. Every dollar that we invest, we try to understand how we are making more money from this dollar. So, this was our first -- this is one of the main DNA of Playtika. The second big thing is the seven acquisitions that we did in the last 10 years. We did different kinds of acquisition. We acquired big companies, we acquired small companies, but a comment to all these acquisitions is we have huge success with them and we will speak about it a bit later. One more important stuff when you look at the portfolio of Playtika, most of our games are evergreen games. It's not games that's going to disappear tomorrow. It's not games that it's coming and going after one year. This is a game seen for long-term. The last thing about Playtika is 9 of the top 100 grossing games in the US market are Playtika's games. This is unbelievable. You cannot compare to any other company. This is very unique for us and we are really excited about it and want to bring more games to the top 100.

[Craig Abrahams:]

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 and then speak to our financials and outlook. Following that, we'll open up the call for Q&A. First, though it was a Q1 event, I also want to underscore our successful IPO last month. This was a transformative event for our company. We strengthened our balance sheet, gained a public currency that can be used for both M&A and to compensate our employees, and also raised the profile of Playtika to a level commensurate with our many years of success and leadership within the mobile gaming industry. We are excited to be a public company and to share our journey with our investors as we innovate and grow. Turning to some highlights from 2020; we had a great year of achievements and progress. I'm excited to share some performance measures of individual games on the call today. Going forward, we will, from time to time, highlight performance of selected games, but this is not data we will disclose every quarter. Our casual portfolio passed $1 billion in revenues for the first time, and within this group, Bingo Blitz had its 10-year anniversary or reaching record high revenue of $443 million. This showcases our ability to continue to grow games that we've operated for many years and speaks to the sustainability of our franchises. We celebrated this milestone in Bingo Blitz with a 10-day program that included the new balloons booster feature along with daily celebrations and other in-game events. We also commemorated the anniversary with a five-show placement on the Ellen DeGeneres show, during which the game was played live with the studio audience. Solitaire Grand Harvest also finished a record year, achieving $147 million in revenue and 95% year-over-year growth to become the largest casual solitaire game in the world based on in-app purchases. In addition, June's Journey had a record year, growing 90% to $168 million.

[Operator:]

Our first question comes from the line of Brian Nowak from Morgan Stanley. You may begin.

[Brian Nowak:]

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, are you seeing any differences in retention of those players or aging of those players? Or how to think about the way those people who came in, how they look now and the probability of them sort of sticking around into 2021-2022? And the second one. I had a question on the portability of the Boost platform. Can you just give us some examples of some of the tools in the Boost platform that have worked particularly well in the casino space that you think will work really well in the casual space to sort of keep those businesses growing? Thanks.

[Robert Antokol:]

Okay. First, thank you for the question. Again, for me, it's a really excited day. The first time, earning call questions. So, regarding the first question, was about the sales. Yes. So, we saw Q2 and Q3 jumping dramatically, especially Q2, but when we are now -- when we finished Q4, we saw that the behavior of the players are the same behavior. We don't see any different behavior. We don't see that they are different users, they are the same players with the same behavior. And actually, after the huge growth in Q2 and Q3, we are now -- right now in Q4. We were running exactly as we expected, and everything is working the same. Regarding the second question, the Boost platform. Okay, so the Boost platform, I can speak about the Boost platform more than one hour. So it's -- for me, it's something really close to what we are doing, and I think when we started the casino company and we thought to move to casual, everybody thought, okay, this guy knows how to monetize casino games, how they would monetize casual games, but we showed everyone and showed ourselves first that it's the same game, it's the same thing, and then the idea of Playtika Boost came. So, we can give you many examples. But this small example is understanding the segmentation of the game. So, today, when you're playing, let's say, Slotomania or Caesars Casino, you have a different segmentation of the game. In the casual world, this never exists. So, now, we have the technology that's driven by AI that's running our Playtika Boost. We can bring the segmentation to the new world to any game. It doesn't matter if it's a casino game or a casual game. It will work the same. Thank you.

[Operator:]

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

[Stephen Ju:]

Okay. Thank you. So, a recurring question from investors seems to be around the M&A environment as it seems like, activity at least from a headline standpoint seems to be intensifying. So, do you think valuations are starting to get on reasonable? Or is the list of potential targets starting to shrink? Also you can now fund your acquisitions with equity as well as cash. So, what's going to change or not change in terms of the parameters on what kind of targets you may be looking at? Thank you.

[Craig Abrahams:]

Thanks, Stephen. Yes, I know it's been obvious that the market has had an increase in activity throughout 2020 and consolidation continues, and we've seen prices continue to creep up. I think we've been very focused on finding the right deals. We also listed our culture or deals that demonstrate our financial discipline. We have a very broad pipeline of deals available to us, in that we can acquire growing assets, we can acquire assets that have been stagnant, leveraging our LiveOps platform and Boost, how we've done turnarounds. And so, I think because of that broad pipeline, there's a lot of opportunities available to us that may not be available to the broader market. And so, I think we feel good about our pipeline and continue to execute the way we have and also the fact that because we're able to grow the assets through LiveOps and when you do that with a business of 97% in-app purchases, that 70% of that drops to the bottom line when you drive those improvements, which really drives EBITDA, which effectively lowers the multiples that we paid for these assets overtime. So, we really focus on equity value creation and you've seen that across all seven deals we've done over the last 10 years. We do have public currency that we can use. We also have cash we can use. And I think we're very focused on what's going to those value creator for our shareholders, as well as what's the right structure for the partner entrepreneurs that we're partnering with. And so, I think we'll be thoughtful about that.

[Stephen Ju:]

Thank you.

[Operator:]

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

[Eric Sheridan:]

Thank you so much. Maybe just turning to the performance of the business and how you see it evolving as a group through the year. In terms of the way, we may be forecasting it, it looks like you got a little bit more growth with a little bit less sales and marketing spend that we would have thought. Can you talk a little bit about the broader marketing environment, how ROI is evolving, and how we should be thinking about marketing and return on marketing to drive growth as we run into -- deeper into the calendar 2021, where you obviously start to comp against the environment we found ourselves in 2020? Thanks so much.

[Robert Antokol:]

Thank you for the question. So, Playtika is a company that understand how to do UA. This was a -- This is one of our DNA, UA. But as you look at our games, we're not depending in UA. We have never been depending in UA. We're depending in our monetization skills. So, we are not looking to spend. It's not -- we don't have a number that we say, let's say, this quarter we spend this amount of number with spending. We're checking our spend every week, every day, every hour. We're not spending. We're not throwing money. We're very careful with this. This was our DNA from day one. We are not growing by marketing. We are growing by skills, technology, and the LiveOps. And this is really important for us to add, because we are new in this world, we are new in this industry, and then, we saw many different companies that's growing by UA, but we are a little bit different. I can give you another example of a company that we acquired a year enough ago. A game we call Best Fiends. Best Fiends was growing six years by UA. Never been profitable, never been EBITDA positive. This year, we cut the budget for the marketing say of June's Journey and so Best Fiends -- and this was the -- Best Fiends was the best thing and this was the first time that we're really profitable. So, this is how we're working really careful and we are checking every dollar that we're spending.

[Craig Abrahams:]

We'll take our next question, please.

[Operator:]

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

[Michael King:]

Thank you very much for the question, and congratulations on your first earnings to report as a public company. As you think about 2021, could you talk a little bit about your expectations for the revenue cadence throughout the year and whether there are any differences between your casual versus your social casino portfolio as you think about growth? Thank you.

[Craig Abrahams:]

Sure. So, if you look at our casual portfolio, it is the fastest growing part of our portfolio relative to casino. Our expectations, our growth throughout, I know '20 is a tough comp relative to '21 that we are still forecasting growth. And in terms of the cadence, I think usually the start of the year, we have very strong roadmaps and then we manage the year throughout. So, I think -- I don't think there is anything specifically point to either from a LiveOps event on our roadmap or new product launch. So, I don't think there's anything that there is sort of -- that's going to sort of provide some sort of peak throughout the year. It's usually for us, very steady flow of product features, whether it's new content, monetization features, retention features, and a variety of other LiveOps things that we do on a sort of daily and weekly basis.

[Michael King:]

Right. Thanks, Craig. And if I could just have a quick follow-up. Could you talk about any updated views that you have on Apple's changes to IDSA and any initiatives that you are experimenting to fill out those gaps in data that you might have? Thanks.

[Craig Abrahams:]

Sure. Eric will take that.

[Eric Rapps:]

Yes, sure. So, on IDSA, it's still early to tell how it will impact us because it's only going to be released or go effective this spring. But I think there are a few things that insulate us more than others. First is, and Robert alluded to this earlier in addressing Eric's question, we are much less reliant on acquiring new users to grow our revenue. So that's the big distinction between us in the market. The second thing is that a substantial part of our marketing budget is from re-targeting. Our games have been around for, in many cases, 10 years. There is only so many more new users that you could acquire and sort of dedicate a lot of resources to bolstering that technology where we're re-acquiring former users, and all of that is done beyond the scope of IDSA, so that wouldn't be impacted. And then also, we have our own proprietary platform where about 14% of our revenue comes from. So, that is also beyond the scope of IDSA. And the last thing I would say is that, if you look at our business, only about 3% of it comes from ads, 97% from in-app purchases, and I think, because that's what is so predominantly in favor of in-app purchases, again we're very insulated from any sort of negative consequences to revenue as a result of IDSA.

[Michael King:]

Great. Thanks for the time, guys.

[Operator:]

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

[Drew Crum:]

Okay, thanks. Hi, guys. So, the guidance for adjusted EBITDA implies some margin slippage. Can you remind us what's driving that? And then separately during your roadshow, you mentioned, I think, there were 68 new games in various stages of development. I know that was less than two months ago. But any updates you can share around the development pipeline. Thanks.

[Craig Abrahams:]

Hey, Drew. So in terms of margins, there are some public company costs associated with being public, whether it's D&O insurance, additional headcount and some other costs. And so, that's one component there, and I think, anything else is really immaterial as you just kind of look year-over-year in terms of roadmap. Robert, do you want to take that one?

[Robert Antokol:]

Yes. So, regarding the new game, I want to speak a little bit, two seconds about the history of Playtika. So, Playtika never focuses of developing new games. It was never our DNA. In the last two years, we acquired few studios with the amazing history and success of developing new game and we took this opportunity now. Right now, we are developing few games in different categories. We are checking them, we do better. We are really excited about a few of the results, and this is only the beginning of this journey and only -- and again, it's a new journey for us. And I believe that next year -- during next year, we're going to launch one game or two. But the most important to understand is Playtika always grew by the organic source, always. We were focusing to make our games as a platform. So, every feature that we had, we will put in the current game, not in new game. This is well -- again, I'm speaking about the difference between Playtika and the other companies. We are a little bit different here. We never thought about, well, we want to develop new games. No, we want to put more content in our current game. But this year, again, we're taking this challenge and we're focusing. The last thing I want to mention about it, everything that we're developing will develop on the Boost platform, every feature. So, even if we launch a game and it's not working well, we still can use this feature to our -- to other games. So, this is a cycle that we can always using the feature and this is growing Playtika Boost. Thank you.

[Operator:]

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

[Colin Sebastian:]

All right, great. Thank you. Congrats on the recent IPO. I have a couple of questions. First off, in terms of player metrics, just wondering how you're thinking about the trends in MAUs, DAUs through the year. And if the higher monetization or conversion rate is sustainable, could we see some quarterly variability in that metric? And then, Robert, you mentioned taking Playtika beyond games. If you could expand a bit on what that means in terms of the types of new revenue streams potentially and the timing of those initiatives. Thank you.

[Craig Abrahams:]

Sure. Thanks, Colin. So on metrics, we're really focused on daily paying users. We find that that is the most important metric in terms of what drives our business and obviously looking at that conversion relative to DAU. I think, going forward, our expectation is just like we have historically, is that we'll continue to drive conversion, which will drive DPUs and drive growth. And so, I don't think there's anything -- I know we had very high conversion in DPUs in Q2 of last year, but I don't see any reason why we're not going to continue to grow throughout 2021 on those same metrics. Robert, do you want to take the second question?

[Robert Antokol:]

Yes. So, when we moved -- not moved. When we add the casual division to Playtika and saw the use huge success, only to say a few words about the casual division. We started this division less than three years ago, and we did $1 billion revenues after three years ago. So, after we saw the success and we understand that actually, we know how to monetize. We don't want to do LiveOps. It doesn't matter if it's a game or if it's another digital product. So, then the understanding of this direction and with Playtika Boost that bringing all the technology and the feature and experience based on the AI activities, we believe that to take Playtika beyond game, it's a very interesting direction. So we mentioned this, we spoke about it, because we're looking ourselves as a technology company. We're looking ourselves as a company that's not okay, yes, right now, we're doing games. Yes, right now, we are very strong in games, and we're going to focus on games because we understand games. But we could do other kinds of stuff. The timing here, it's not going to happen this year or next year, but we are really focusing, we are studying the market, we are looking opportunity, we are building teams. Right now, we have two big AI labs around; one in Israel and one in Europe. So, we are on it and really exciting about it, because we believe in ourselves. We believe in ourselves as being a leader in this market. We believe in ourselves as a technology company. And this is the direction where we're going. Thank you.

[Colin Sebastian:]

Thanks, Robert. Thanks, Craig.

[Operator:]

And our next question will come from the line of Jason Bazinet from Citi. You may begin.

[Jason Bazinet:]

Thanks so much. I think a casual observer would look at your financials and say that the payer conversion rate that jumped in 2Q was only driven by COVID, but there was something else going on there related to Boost or something else that would allow that conversion rate to sort of stay high in sort of the 2.6% range even as the world opens up. So if you could just comment on any other variables that sort of caused that bump and the sustainability of it.

[Robert Antokol:]

First, thank you for the question. I answered a lot of times in the past and really happy to answer the question. So, yes, we had a huge bump by the COVID. Yes, the COVID pushed the revenue. And so, the secret is it pushed their revenues for all other kinds of activities and the timing activities. But when we look at the conversion, especially on the casual, and this is where we are focused right now, it's still depending on the COVID. We are using the technology and the experience from the casino side to the casual, and our conversion is becoming better and better and higher. And again, it's bringing to the story that I told you a few minutes ago. When we acquired the story that was driving revenues only by user acquisition, we can't be user acquisition and we drove the revenues by conversion and monetization in LiveOps. So, yes, the COVID helped the business, but it's not the major growth to our revenues.

[Jason Bazinet:]

Super helpful. Thank you.

[Robert Antokol:]

Thank you.

[Operator:]

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

[Ryan Gee:]

Yes. Hey, good morning, guys. Thanks for taking the questions fitting in here. I guess maybe just for Robert. Can you kind of remind us of your strategic priorities between the casino and the casual businesses? Which areas over the near- to medium-term should we expect new games investments to focus? Where we should expect M&A, if that's an opportunity for one or both segments? And then where you're spending the most QA dollars at this point going forward?

[Robert Antokol:]

Yes, thank you for the question. Well, first, I want to mention that we are leaders in few different categories. We are leaders in Slot, we are leaders in Bingo, we are leaders in Solitaire, we are leaders in Poker, we are leaders in Hidden Object. So, it's not only casino and casual. We are today leaders in five different categories in the game industry. But on the casual or the casino side, we already have been number one, number three, number five. So, right now, most of our focus around M&A is on the casual side. We believe there is more opportunity there. We believe it will make the company more stable. We believe that the knowledge that we have in monetization in LiveOps from the casino can help us to grow the opportunities on the casual side. So, again, we are working by opportunities -- good opportunities. So, if we see a good opportunity, financial opportunity on the casino side, we will never say no. But our focus today is on the casual side, our focus today is to bring more new games, more new categories to be a leader. If you ask me and ask my management, we have one mission. We want to be the leader in mobile gaming in the world. This is our ambition. We started in casino, bingo, poker, and now solitaire; we didn't object , and we're trying to get to be a leader in any different categories. Regarding UA spending, as I said before, we are spending where we see good results. This is our Playtika world. It doesn't matter if it's casual or casino. When we have good results, good -- do with your money best. So this is the place we're spending right now. I can tell you that we're still spending on the casino side, but of course on the casual, we have more opportunity to spend. Thank you.

[Ryan Gee:]

Great. And then, maybe just two quick ones for Craig. Drivers of revenue growth the past couple of years has been growth in payers, but some pressure on ARPU. So can you walk through why that dynamic is? And if we should expect to see that continue over the foreseeable future specifically, year-over-year declines in ARPU?

[Craig Abrahams:]

Sure. So, ARPU is really a mix shift. As we added the casual titles, there are lower ARPDAU than the casino theme titles. That mix shift and the large increases in DAU drove down that ARPDAU. I think when you look at us, Q4 was the first pure organic story, right, because there's no acquisitions built into it. So, when you're looking at Q4 year-over-year, topline grew 17.5% organically. And then, obviously going forward until we have another acquisition, all the results are organics. So, you're seeing now no noise in terms of -- looking at sort of your same-store sales. And so, I think that's the -- going forward, it will be much easier to say, but really that shift that you were talking about is a result of product mix shifting.

[Ryan Gee:]

Thank you very much.

[Operator:]

Thank you. And I'm not showing any further questions in the queue.

[Craig Abrahams:]

Okay, great. Well, thank you very much for joining us. Really appreciate everyone taking the time on our first call and looking forward to join us again. Thank you. Stay safe.

[Robert Antokol:]

Thank you, guys. Thank you so much.

[Operator:]

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