Is the party over for Playtika?

Robert Antika  credit: PR Ohad Romano
Robert Antika credit: PR Ohad Romano

Layoffs and Joffre Capital's withdrawal from the deal to buy a 25% stake in Playtika, amid claims of deficient corporate governance, have rocked the Israeli mobile games firm.

Last week's reports about another round of layoffs at Israeli mobile games company Playtika (Nasdaq: PLTK) are the latest in a string of negative developments that have hit the company in recent months. There is the global slowdown in the social casino and online gambling sector, in which the company operates, and the decision by global investment firm Joffre Capital to pull back from its plan to buy a 25% stake in Playtika, at double its current market cap.

In the latest round of layoffs, the company led by founder and CEO Robert Antika, will part with about 600 employees including 180 in Israel. This follows the announcement in May 2022 that it was firing 250 employees, mainly in North America. Playtika currently has 4,100 employees including 1,000 in Israel so that it would have shed about 20% of its workforce in just half a year.

Playtika develops and markets mobile games including both casual and casino games. Almost two years have passed since the company floated on Nasdaq at a company valuation of $11 billion. Since then the share price has fallen by 70% - giving Playtika a market cap of just $3.1 billion. This is lower than the $4.4 billion paid by a Chinese consortium to acquire Playtika in 2016.

No liquidity problems

Playtika it must be stressed does not suffer from liquidity problems like other tech companies that have had to make cuts. The company is profitable with cash totaling $600 million in its coffers. Nor has Playtika revised its forecasts for 2022 downwards recently, so that the layoff do not come from any obvious financial distress.

However, since the Covid pandemic has waned, Playtika has struggled to achieve quarter-on-quarter growth. In recent months the company has seen a 14% drop in revenue for its two most popular products - Slotomania and House of Fun.

Playtika said, "As a leading company in the industry with 4,100 employees around the world, Playtika takes seriously its commitment to be prepared for a number of business scenarios. Playtika has not made any declarations about its organizational structure."

Deficient corporate governance

The layoffs are not Playtika's only problem at the moment. In the summer Playtika reported that private equity company Joffre Capital was acquiring 25.7% of its shares for $2.2 billion from Chinese consortium PHUK II controlled by Yuzhu Shi.

In this deal, Playtika's shares were priced at $21 each, a 46% premium on the market price at the time, and double the current $8.60 price of the share. But now Joffre Capital is looking to cancel the deal with claims against Playtika's management.

Two weeks ago the fund's representative on the Playtika board, James Lu, resigned and sent a letter saying that after joining the board, he saw "significant deficiencies in the company's current corporate governance practices. I sent a letter to the board regarding the company's procedures. I believed and I still believe that it is possible to improve the company's corporate governance procedures."

Lu says that he feels uncomfortable that the majority on the board is controlled by the company's management and that this creates a conflict of interest in favor of management against shareholders. He added that the fact the board is not really independent in overseeing management leads to major costs that could be avoided. Lu charges that the board "failed to act in a sufficiently meaningful manner," to his objections and that the situation remains unchanged.

He wrote, "As long-term investors who believe deeply in Playtika's business, we are disappointed that we are unable to move forward with our acquisition of company stock at this time. We were excited about the opportunity to help Playtika capitalize on its market position and growth prospects. Despite my immediate efforts to work with the Board to address the Company's deficient corporate governance practices, which were outlined in a letter I delivered to the Board on July 16, the Board has failed to act in a sufficiently meaningful manner.

He added, "After several months of attempting to work with PHUKII, it has become clear that Joffre is not able to proceed to pre-closing outlined in the Purchase Agreement in part due to Playtika management's domination of the Board, which is directly contrary to assurances made by PHUKII prior to signing the Purchase Agreement. Pursuant to the terms in the Purchase Agreement, we will seek to recover our initial payment to PHUKII, which we have requested be returned immediately."

Several employees at Playtika and former senior executives have made similar claims. For example a former senior executive tells of a very significant division within the company's management, and of setting goals and strategic measures by small groups of people. Employees still at the company who prefer to remain anonymous, claim that for many months there has been an atmosphere of paralysis at the company, and the feeling is that "Every day they are waiting for the next round of layoffs."

Regarding Lu's resignation from the board, Playtika said, "After less than five months as a member of the board of playtika, Mr. Lu resigned on November 30. Our focus continues to be continuing growth and leveraging our strong financial csituation and chealthy balance sheet in order to continue to consolidate our leading position in mobile games. As CEO and the only member of management who is a member of the board of directors of Playtika, the aim of Robert continues to be the direction and continued prosperity of the company as it has been since Playtika was founded more than a decade ago."

Even though Playtika has been compelled to part with 850 employees within six months, the company has grown significantly after hiring hundreds of new employees during the Covid pandemic. With the quick exit from the Covid crisis hitting the company's profitability, Playtika is probably shrinking to its more 'natural' dimensions.

In the first three quarters of 2022, Playtika's revenue reached nearly $2 billion, 2.6% higher than the corresponding period of 2021. Net profit was $188 million, down 9% from the corresponding period of 2021 and EBITDA fell 10% to $690 million.

When publishing its third quarter results, Playtika president and CFO Craig Abrahams said that the company is optimizing its business model and focused on innovation and efficiency while generating free cash flow.

The market will continue to grow

The mobile social casino sector refers mainly to games that allow interaction between different players who play together. The field includes card games - such as blackjack or poker, games such as roulette and slot machines, and other games in which several players participate at the same time. During the Covid pandemic, according to estimates, the mobile social casino market was worth about $6.2 billion annually. However, following the recovery from the pandemic, the market is currently suffering from the costs of "acquiring new users."

Playtika CEO Robert Antikol, referred to the high cost of acquiring users in the post-pandemic period. In an interview with "Globes" in February 2022, even before the first wave of layoffs, he said, "The party is over. When I founded Playtika, bringing in a player cost us something like 40 cents. Today it costs $20. If you don't know how to keep the player in the system, forget the money, you have no chance of success. Now what happens? Companies used to pour in money and then move forward. It doesn't work like that anymore. The party is over."

According to analysts' estimates, the social casino market will grow by about 6% every year until 2026 and reach an annual market value of $8.7 billion. This is a significantly lower growth rate than that recorded during the Covid pandemic, with future growth now challenged by additional market trends that include free games, new mobile gaming platforms, and even augmented reality and virtual reality technologies.

Published by Globes, Israel business news - - on December 11, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Robert Antika  credit: PR Ohad Romano
Robert Antika credit: PR Ohad Romano
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