Consumer spending on gaming surged during the pandemic as the restrictions forced people to stay indoors. While the return to normal lifestyles led to a slightly lesser focus on gaming in 2022, the industry grabbed solid consumer attention.

According to Entertainment Software Association (ESA) and The NPD Group data, total consumer spending on video games in the United States totaled $56.60 billion in 2022.

ESA President and CEO Stanley Pierre-Louis said, “This latest report underscores the video game industry’s leadership as a driving force in the U.S. economy, as well as for innovative and creative entertainment.”

The growing penetration of smartphones and the availability of faster connectivity through 5G is expected to drive the growth of mobile gaming. Moreover, the advent of AR (Augmented Reality) and VR (Virtual Reality) will make mobile gaming attractive.

Mobile gaming entertainment and technology company Playtika Holding Corp. (PLTK) is expected to benefit from these trends. The company missed the consensus earnings estimate by 2.4% in the third quarter. However, its revenue was 1.1% higher than what analysts estimated.

PLTK’s CEO Robert Antokol said, “Playtika’s casual games performed exceptionally well. Bingo Blitz, Solitaire Grand Harvest, and June’s Journey achieved double-digit growth year-over-year, and we are very pleased with their continued success. We believe we are well-positioned for the future as we develop exciting new features for our games and drive our strategic initiatives focused on technology and digitization to build on our leadership position in mobile games.”

The Herzliya, Israel-based company’s casual portfolio grew revenue 14% year-over-year and comprised 54.9% of total revenue. Bingo Blitz’s revenue increased 14.7% year-over-year. Its average DPUs rose 3.4% year-over-year. The company’s average daily payer conversion came in at 3.4%, compared to 2.8% in the year-ago period, while ARPDAU stood at $0.78, rising 16.4% year-over-year.

For fiscal 2022, PLTK expects its revenue to come between $2.60 billion and $2.66 billion and adjusted EBITDA of between $900 million and $940 million. PLTK’s President and CFO Craig Abrahams said, “We are encouraged by the growth of our casual portfolio and will continue to invest responsibly in our strongest franchises.”

The NDP Group’s video game industry advisor said, “With a highly anticipated slate of new games and the reduction or even elimination of console hardware supply constraints, 2023 could very well see the market return to growth.”

Over the past three months, the stock has gained 3.3%. It has rallied 23% year-to-date to close the last trading session at $10.47.

Here’s what could influence PLTK’s performance in the upcoming months:

Positive Recent Developments

On January 19, 2023, PLTK announced that it had submitted a revised proposal to the Board of Rovio Entertainment Corporation to acquire Rovio for €9.05 per share. Earlier in mid-November, PLTK had submitted an offer to acquire Rovio for €8.50 per share.

PLTK’s CEO Robert Antokol said, “We firmly believe the combination of Rovio’s renowned IP and scale of its user base, together with our best-in-class monetization and game operations capabilities, will create tremendous value for our shareholders.”

Mixed Financials

PLTK’s revenues increased 1.9% year-over-year to $647.80 million for the third quarter ended September 30, 2022. The company’s cash, cash equivalents, and restricted cash for nine months ended September 30, 2022, increased 40.3% year-over-year to $1.26 billion.

Its adjusted EBITDA declined 6.9% year-over-year to $230.70 million. Its net income margin came in at 10.5%, compared to 12.7% in the year-ago period. The company’s net income declined 15.3% year-over-year.

Mixed Analyst Estimates

Analysts expect PLTK’s EPS for fiscal 2022 to decline 16.6% year-over-year to $0.63. Its EPS for fiscal 2023 is expected to increase 31.9% year-over-year to $0.82. Its revenue for fiscal 2022 and 2023 is expected to increase 1.1% and 0.9% year-over-year to $2.61 billion and $2.64 billion, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, PLTK’s 11.55x is 30.4% lower than the 16.58x industry average. Its forward EV/EBIT of 11.07x is 26% lower than the 14.96x industry average. Also, the stock’s 5.55x forward EV/EBITDA is 37.5% lower than the 8.89x industry average.

High Profitability

PLTK’s 11.02% trailing-12-month net income margin is 225.6% higher than the 3.38% industry average. Likewise, its trailing-12-month EBIT margin is 16.60%, compared to the 9.25% industry average.

Furthermore, the stock’s 17.60% trailing-12-month levered FCF margin is 97.9% higher than the 8.90% industry average. Its 0.92x trailing-12-month asset turnover ratio is 89.5% higher than the 0.49x industry average.

POWR Ratings Show Promise

PLTK has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLTK has an A grade for Value, in sync with its discounted valuation. It has a B grade for Quality, consistent with its high profitability.

PLTK is ranked #7 out of 21 stocks in the Entertainment – Toys & Video Games industry. Click here to access PLTK’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

After two consecutive years of pandemic-induced growth, the gaming industry witnessed a slight slowdown in 2022 due to various macroeconomic concerns. Major companies like Microsoft (MSFT) and Take-Two Interactive Software (TTWO) are bullish on the gaming industry’s prospects as they have already made big-ticket acquisitions. The mobile gaming industry is expected to benefit from the integration of 5G, AR, VR, and others.

Despite the uncertain macroeconomic conditions, PLTK has maintained its revenue and adjusted EBITDA outlook for fiscal 2022. Given its high profitability and discounted valuation, it could be wise to buy the gaming stock now.

How Does Playtika Holding Corp. (PLTK) Stack up Against Its Peers?

PLTK has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Entertainment – Toys & Video Games industry with an A (Strong Buy) or B (Buy) rating: SciPlay Corporation (SCPL), Electronic Arts Inc. (EA), and DoubleDown Interactive Co., Ltd. (DDI).

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PLTK shares were unchanged in premarket trading Thursday. Year-to-date, PLTK has gained 23.03%, versus a 7.10% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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