Playtika Analysts Largely Bullish, Laud Video Game Publisher's Core Growth, M&A Optionality, New Game Plans

China-owned mobile game publisher Playtika Holding Corp PLTK recently went public by offering 69.5 million shares at $27 each. 

The Platytika Analysts: Following the expiry of the IPO quiet period, Goldman Sachs analyst Michael Ng initiated coverage of Playtika shares with a Buy rating and $35 price target.

BofA Securities analyst Ryan Gee initiated coverage of Playtika with a Neutral rating and $35 price target.

Credit Suisse analyst Stephen Ju initiated coverage with an Outperform rating and $35 price target.

Morgan Stanley analyst Brian Nowak initiated coverage with an Overweight rating and $35 price target.

How Core Growth, New Games, M&A Could Fuel Growth: Playtika is on track to record $2.35 billion in revenue and proforma EBITDA of $922 million, Goldman analyst Ng said in a Tuesday note.

The revenue growth will benefit from gaming industry tailwinds, increased payer conversion and monetization initiatives, the analyst said.

Playtika generates about 97% of its revenue from in-app purchases and 3% from ads, with 81% revenues coming from mobile and the remaining 19% from the web, he said. 

The analyst forecast 8% compounded annual growth for revenue in the period between 2020 and 2024.

Further upside potential exists thanks to growth in the company's core portfolio, synergies from recent acquisitions, continued tuck-in M&A and the company's goal of launching one to two new games, annually, starting in 2022, Ng said. 

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Playtika Not a Standout, BofA Says: Playtika is the largest and most profitable mobile game publisher in the west, with double-digit growth and more top-grossing games than peers, BofaA analyst Gee said.

The company's expertise is live game operations, and it has a solid track-record of M&A to expand reach and sustain market leadership, the analyst said.

"PLTK screens well vs. peers, but is not a stand-out. What matters is mgmt's ability to buy growth, acquire players cost-efficiently, and convert payers at a high rate – not delivering the next "hit" – which should result in less forecasting risk," he said. 

Playtika remains nicely positioned in mobile, with a combination of genre leadership, scale, profit and cash flow, Gee said. 

Yet the company is concentrated on social casino games, and its history making new games is limited, the analyst said. 

Credit Suisse Lauds ‘Best-In-class' Organic Growth: Playtika has a best-in-class organic growth profile, as it boasts of 12.5% organic growth versus low-single digit growth for closest competitors, Credit Suisse analyst Ju said.

This is reflective of the company's ability to retain, engage and monetize its user base over an extended period, the analyst said. 

Playtika has an incremental monetization opportunity through advertising, he said, adding that the company has considerable room to grow advertising as a proportion of total revenue over the long run. 

Additionally, there is optionality for new title releases and potential acquisitions, Ju said.

Morgan Stanley Bullish On Playtika's Growth, Profits: Playtika operates in the largest and fastest-growing segment of video gaming, which is estimated at about $100 billion and is estimated to grow at a CAGR of 15%, Morgan Stanley analyst Nowak said.

"We expect continued mobile adoption, demographic trends, and improvements in quality/accessibility of games to propel the global mobile gaming industry to about $170bn by 2024," the analyst said. 

Playtika has established itself as the leader within social casino, which makes up 75% of its revenue, he said. 

Non-casino games such "Solitaire Grand Harvest" in the card category and "June's Journey" in the adventure category, are on track to become a larger part of the business mix, Nowak said. 

Looking ahead, the analyst said he is particularly bullish about the company's ability to further leverage the Boost platform on recently acquired non-casino games like "Best Fiends" to drive higher monetization.

Playtika's industry-leading EBITDA margins and free cash flow enable the company to invest, while delivering modest margin expansion, according to Morgan Stanley. 

The sell-side firm is bullish on Playtika's leading growth and profitability and expects its live operations expertise and Boost platform to drive growth across its casinon and casual titles.

"We expect 9% '19-'24 rev growth with a path to $1.1bn '24 EBITDA," Nowak said. 

PLTK Price Action: At last check, Playtika shares were rallying 5.45% to $34.06. 

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