Playtika Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 26, 2024

There are 16 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Playtica Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Tayle, Senior Vice President, Corporate Finance and Investor Relations. Please go ahead.

Speaker 1

Welcome everyone and thank you for joining us today for the Q4 2023 earnings call for Playtecha Holding Corp. Joining me on the call today are Robert Antical, Co Founder and CEO of Playtecha and Craig Abrams, Playtecha's President and Chief Financial 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.

Speaker 1

We undertake no obligation to update these statements after this call. We have posted an accompanying slide deck to our Investor Relations website, which contains information on forward looking statements and non GAAP measures, and we will also post our prepared remarks immediately following the call. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC. With that, I'll now turn the call over to Robert.

Speaker 2

Good morning, and thank you, everyone, for joining our call today. I would like to begin by expressing my pride in how our employees and businesses have performed over the past year. While the year had many unexpected challenges for us to navigate as a company, it was a year of successful acquisition of 2 studios, increasing efficiency, continuous growth into direct to consumer platforms and increasing focus to our largest and growing franchise as we shifted more of our U. Leading games. I'm pleased to announce that despite revenue headwinds, we outperformed our guidance on revenues and credit adjusted EBITDA.

Speaker 2

Our agility in adapting and optimizing operation in this challenging market has not only enabled us to mitigate obstacles, but also to surpass our expectations. In the face of these headwinds, 23 was the year of efficiency for Playtecha. This transformation has empowered us to move faster and to make quicker decisions, which I believe will allow us to revamp our business and to get back to sustainable growth. Our commitment to efficiency is not just about doing more with less. It is about empowering our people to sharpen our competitive edge.

Speaker 2

This approach was critical as the mobile gaming industry continues to navigate challenges due in part to privacy updates affecting the marketing and monetization of games. I want to emphasize that despite the revenue headwinds we faced, there were bright spots throughout the quarter. Our casual gains grew 2% q over q and 5.5 percent year over year, led by growth in June Journey, which grew 1.8% q over q and 33.3 percent year over year. This success shows the strength and critical importance of our portfolio strategy, enabling us to navigate market challenges and capitalize on the opportunity for growth. As we look forward to future, we have now positioned ourselves for critical phase of the reinvestment.

Speaker 2

We are setting in motion our new capital allocation framework, which includes initiation of dividend and intention to deploy between $600,000,000 to $1,200,000,000 in M and A over the next 3 years. Our recent acquisition, anywhere in coins and government of poker, have demonstrated consistent month over month growth, reinforcing our belief in growing our game portfolio through M and A. I believe mobile gaming is a pivotal point with several trends pushing the need for consolidation. Our track record speaks for itself, with previous acquisition driving growth and profitability since I co founded the company over 13 years ago. In the evolving landscape of mobile gaming, I believe our commitment to M and A will retain the company to growth.

Speaker 2

Finally, I would address an important decision regarding our strategic alternative process. Our current global landscape is unpredictable, especially due to ongoing geopolitical conflicts in Israel and Ukraine. These conflicts have introduced a level of uncertainty that has impacted the process, and the Board has decided to pause the evaluation of strategic alternatives. I will now turn it over to Craig.

Speaker 3

Thank you, Robert. As Robert mentioned, 2023 was the year of efficiency for Playtica. The strategic decisions that we've made as a company over the last year have further streamlined our operations and enhanced our ability to generate free cash flow. Supported by our strong financial position, I am pleased to introduce our capital allocation framework, focusing on maximizing shareholder value and ensuring our growth is sustained. Our goal is to deploy $600,000,000 to $1,200,000,000 in M and A to enhance our portfolio and leadership position as well as return capital to shareholders.

Speaker 3

In line with this strategy, we plan to make significant investments in performance marketing for our newly acquired growth title, Animals and Coins. While this approach is expected to lead to some margin erosion in the near term, it is designed to enhance long term revenue potential. Furthermore, we remain committed to strategically deploying incremental investments in performance marketing across selected titles within our core portfolio. Our aim here is to seize opportunities to gain market share and drive profitable growth. Our approach is grounded in a long term vision for success and we are confident in the strength and potential of our game portfolio.

Speaker 3

Alongside our focus on M and A to drive growth and diversification, we are pleased to announce the initiation of a quarterly dividend starting in the Q1 of 2024 subject to quarterly board approval with a target of $150,000,000 per year in dividends representing an annualized yield of just over 5% based on our last 4 week average share price. Beyond our dividend program, we are looking at other opportunities to enhance shareholder returns, including a share repurchase program in the future. We are committed to a balanced approach in our capital allocation strategy, aiming to invest in growth opportunities, maintain a strong and healthy balance sheet and return capital to shareholders. Turning to our financial results. For the year, we achieved financial results above our guidance range.

Speaker 3

We generated $2,560,000,000 of revenue, down 1.9% year over year, dollars 235,000,000 of GAAP net income compared to $275,300,000 of GAAP net income in 20 22 and $832,200,000 of credit adjusted EBITDA, an increase of 3.4% year over year. Our credit adjusted EBITDA margin was 32.4% compared to 30.8% in 2022. We generated $436,400,000 of free cash flow, an increase of 13.7% year over year. We define free cash flow as cash flow from operating activities minus capital expenditures. We spent $79,200,000 in capital expenditures, which includes purchase of property and equipment, capitalization of internal use software costs and purchase of software for internal use.

Speaker 3

In addition, we accrued for an additional $17,000,000 of purchases of property and equipment in Q4 'twenty three that will be paid in Q1 of 'twenty four. For the quarter, we generated $637,900,000 of revenue, up 1.2% sequentially and up 1.1% year over year. Net income was $37,300,000 down 1.6% sequentially and down 57.4% year over year. Credit adjusted EBITDA was $188,900,000 down 8.1% sequentially and down 6.8% year over year. Our credit adjusted EBITDA margin was 29.6% in the quarter compared to 32.6 percent in Q3 and 32.1% in Q4 last year.

Speaker 3

We generated $161,600,000

Speaker 4

in revenue from

Speaker 3

our direct to consumer platforms, up 0.4% sequentially and up 7.6% year over year. Our direct to consumer business now makes up 25.3% of our overall revenues. Last year, we added Solitaire Grand Harvest and June's Journey to our web store and this year we'll be adding both titles to additional D2C platforms starting in the Q2. Turning now to our business results for the quarter. Revenue across our casual team games grew 2% sequentially and 5.5% year over year.

Speaker 3

Year over year growth in June's Journey, Salazar Grand Harvest and ReDecor was offset by weakness in other casual titles such as Best Beings and Board Kings. We also benefited from a full quarter's contribution of Animals and Coins, where we are pleased to see consecutive months of sequential growth in the quarter. Bingo Blitz revenue was $150,300,000 up 0.4% sequentially and down 3.1% year over year. We are pleased to see a positive shift in financial performance for Bingo as the studio improved sequentially quarter over quarter following a few quarters of sequential decline. The team launched several new projects in the quarter that contributed to the positive performance such as a new daily layer chase, addition of rolling purchase offers and a redesign of the core collection experience in the game, which helps strengthen the social experience.

Speaker 3

June's Journey revenue was $77,600,000 up 1.8% sequentially and up 33.3% year over year. June's Journey became our 3rd highest grossing gain by revenue in the past quarter. June's Journey is the highest grossing hit in object gain worldwide and recently surpassed the $1,000,000,000 lifetime revenue mark. Our dedication to a player focused philosophy has elevated June's Journey to the forefront of the story driven casual gaming genre. By providing a deeply engaging narrative within the expansion universe of June, the game offers a captivating experience for our players.

Speaker 3

Throughout its evolution, we have regularly rolled out new features and expansions, ensuring that there's something for everyone. Fans in the narrative can explore further with additional side stories, social gamers can collaborate with their club members on solving mysteries, and those in search of a challenge can test their skills in competitive events. We have an unwavering commitment to our players and the June's Journey community and we look forward to continuing to enrich their gaming experience for years to come. Now over to our social casino theme games. Social Casino Theme Game revenue was down 0.2% sequentially and down 4.6% year over year.

Speaker 3

Sequential performance benefited from a full quarter's contribution from our newly acquired Yudis Studio. Slottomania revenue was $136,900,000 down 3.6% sequentially and down 8.3% year over year. Despite maintaining its position as the number one game in the slot genre, it's important for us to acknowledge that some of our peers have gained share at our expense. This shift can be partially attributed to our own strategic decision to reallocate some of our performance marketing dollars towards other opportunities in our portfolio. While this was a calculated move aimed at diversifying our growth avenues and enhancing our overall position in the market, it has contributed to the market share loss of Slottomania.

Speaker 3

We recognize the importance of Slotomania to our portfolio and its role in driving consistent revenue and margins and we plan to increase our user acquisition spending this year for Slottomania. This revenue mix shift from declines in a higher margin title like Slottomania to revenue growth from our casual games, including animals and coins, will have an impact on our margins this year. I will reiterate that 2024 will be a year of reinvestment for Bottega, and we look forward to sharing our progress in the coming quarters. Turning to marketing. Our recent launch of several celebrity study campaigns underscores our leadership in leveraging partnerships to amplify our games appeal.

Speaker 3

Historically, we've embraced offline campaigns as a key component of our marketing strategy, consistently demonstrating our ability to engage audiences through high profile partnerships. In the past quarter, we introduced campaigns featuring Sarah Jessica Parker for Salazar Grand Harvest, Jason Alexander for World Series of Poker and continued our partnership with Drew Barrymore for Mingle Blitz and Ty Pennington for Caesars Casino. These initiatives underscore our commitment to providing our players with an engaging and immersive playing experience. Alongside our celebrity endorsements, we are also launching the New Year, New Slottomania campaign to celebrate in game redesigns and new features within Slottomania. Turning now to specific line items in our P and L for the Q4.

Speaker 3

Cost of revenue decreased 0.2% year over year and operating expenses increased 4.8% year over year. R and D decreased 14.9% year over year. The decline in R and D was driven by lower headcount and savings from lower discretionary spending across the company. Sales and marketing was up 24.6% year over year. The increase was driven primarily by investments that we made in Animals and Coins and Governor Poker 3.

Speaker 3

We also had slightly more performance marketing spend this quarter versus the prior year in our organic portfolio due to timing of some of our performance marketing campaigns. G and A expenses increased by 2.5% year over year. As of December 31, we had approximately $1,000,000,000 in cash and cash equivalents. Looking at our operational metrics, average DPU increased 2.3% sequentially and decreased 2.2% year over year. Average DAU increased 2.4% sequentially and decreased 2.3% year over year.

Speaker 3

ARPDAU was $0.80 in the quarter, a decrease of 1.2% sequentially and an increase of 2.6% year over year. Turning now to our guidance and financial outlook for 2024. We expect to deliver full year revenue between $2,520,000,000 $2,620,000,000 As we selectively ramp up our performance marketing spending for our portfolio, we expect credit adjusted EBITDA between $730,000,000 $770,000,000 We expect to deploy $110,000,000 to $115,000,000 in capital expenditures, which includes $17,000,000 in accrued capital expenditures from Q4 'twenty three that we paid in fiscal year 2024. As we conclude our prepared remarks, I want to emphasize the journey we've embarked on the past few years. Our focus has been on streamlining our operations, enhancing our agility and positioning ourselves as a resilient force and acquirer of best in class assets in the mobile gaming industry.

Speaker 3

This strategic refinement has enabled us to pivot towards a period of reinvestment in our core business and execute on M and A opportunities. Simultaneously, we remain focused on generating strong free cash flows. Our financial discipline ensures that we maintain the ability to return capital to our shareholders through ongoing quarterly dividends alongside pursuing growth opportunities for the portfolio. Thank you for your continued trust and support, and we'll now take your questions.

Operator

Our first question comes from the line of Aaron Lee with Macquarie. Aaron, your line is now open.

Speaker 5

Hey, good morning. Thanks for taking my question, guys. Appreciate all the color so far. Just wanted to start by digging into guidance for a bit. So obviously you're going to RevStar basically flat and then lower EBITDA margins.

Speaker 5

Can you just help us understand, is that delta EBITDA all from the incremental marketing for your recent acquisition? And what do you have baked into those figures just in terms of marketing for the rest of the portfolio? What you're assuming returns from those investments? And any general impact from macro or geopolitical events? Thanks.

Speaker 4

Sure. Thanks for the question, Aaron. So as we take a step back and we look at the industry more broadly, obviously, the changes in the advertising world has affected how people purchase media as well as investing in new games. I think for us, there's 2 things going on. 1, there's a need for us to spend more on some of our legacy titles as well as our acquired titles.

Speaker 4

And 2, there's a mix shift going on where we've seen growth in the casual titles and declines in the casino theme titles. And the casino theme titles have a higher margin and higher some of them have a higher percentage direct to consumer as well. And so as we look at that flow through, there's impact there as well as an increase in marketing for the organic titles as well as the newly acquired titles.

Speaker 5

Got you. Okay. And then on the M and A target you guys put out there, can you put any guardrails around that for us in terms of how you're thinking about the sizes of acquisitions and what areas you'll be targeting? And do you expect that to be more front end loaded or back end loaded? Thank you.

Speaker 4

Sure. So I think for us, we've always been opportunistic. I think we've communicated in the past the right cadence is probably 1 to 2 transactions a year, depending on what's available in the marketplace. We do see this environment as one that is a great setup for consolidation, the maturing of the market, the difficulty a lot of the smaller companies have with the advertising market. And so, we think we're well positioned.

Speaker 4

We have $1,000,000,000 in cash. We have a $600,000,000 credit facility. The target that we gave really looks at around 50% of our cash being used for M and A and the other 50% being used for capital return. And we think this is a very balanced approach to grow the portfolio as well as well as return capital to our shareholders.

Speaker 5

Okay, got it. Thank you very much.

Operator

Our next question will come from the line of Colin Sebastian with Baird.

Speaker 6

Thanks and good morning, good evening.

Speaker 7

I think you mentioned expanding

Speaker 6

the number of DTC platforms you're utilizing this year. So first off, just curious if you could expand maybe on what those are and what you're anticipating from those platforms? And then as a follow-up on the M and A, I guess, what are you seeing in the market that gives you visibility to spend that to that level on consolidation? Are there specific trends or specific studios that you're observing that gives you that visibility or something else? Thank you.

Speaker 2

Hey, thanks for the question. So regarding the D2C platform, as we always said in the few other calls before, we are growing this. We have a target. One important thing, changing the focus of profitability become in the last few quarters become harder. So we are now going to focus more on our D2C platform.

Speaker 2

We're going to bring more of the games and for us it's going to be one of our main target. You know, Playtecha was the 1st company in the industry that started with the B2C. For us, it was always advantage. We see it right now as a big advantage. It gives us a lot of flexibility about things that we are doing.

Speaker 2

So again, this is our main focus one of our main focus. And by the way, regarding your question about M and As, again, having a D2C platform is giving us big advantage of acquiring companies, acquiring games to make their profitability much better with the D2C platform. Regarding the target, as Craig said before, we are opportunistic and we are looking at all around the market. We're speaking to all the players. We know everything that's happening from the small games that starting 2 months ago to the big games that's running already 12 years.

Speaker 2

And as we did last year, 2 good acquisitions, this is our target for this year and we are very optimistic about it. Thank you.

Speaker 6

That's helpful. Thanks. Maybe one quick follow-up on D2C. Is your goal for the percent of bookings or revenues coming from D2C channels, has that changed at all recently? Or do you have the same target out there?

Speaker 6

No,

Speaker 2

it's not changing. As we said, it's not changed. But the market is changing and it's not everything like it was before, it's today. I think 30% this is where we are looking to be. This is our target.

Speaker 2

We believe we will get to this target. And after we'll achieve 30%, we can speak about the next target.

Speaker 6

Okay. Thanks, Robert.

Speaker 2

Sure.

Operator

Our next question will come from the line of Omar DeSouki with Bank of America.

Speaker 7

Hi, thanks so much for taking the question. So first of all, just a quick housekeeping question. When you said 50% of your cash to M and A, the other 50 percent to capital return, are you referring to the cash on the balance sheet or the free cash flow or which metric specifically are you referring to?

Speaker 4

Free cash flow. In terms of ongoing free cash flow, that's our target.

Speaker 7

Got it. Okay. And when you say capital return, obviously a couple of ways you could do that. Just wondering why you decided to initiate a dividend rather than reduce debt or start the buyback? That's the second question.

Speaker 7

And then I have one follow-up on your M and A targets.

Speaker 4

We looked at a balanced approach of both investing in M and A as well as dividends and exploring buybacks. And so I think it's a balanced mix and that's where we came out.

Speaker 7

Understood. Got it. Great. And so the explanation of kind of how much capital you could deploy, super helpful. Could you give us some more sense of maybe what some of your investment metrics might be?

Speaker 7

For example, things like cash on cash return for your investments, payback period, things like that, just so we can get a sense of as you go through these acquisitions, what we should expect for your financial performance down the road as these incremental acquisitions layer in?

Speaker 4

I think we've been focused historically on acquiring assets at attractive EBITDA multiples and leveraging our operational expertise and know how to help expand that EBITDA over time. And as we do that, the effect of multiple comes down and look to do accretive transactions that are creating value. And so I don't I think every transaction depending on the segment of the market it operates in as well as what stage it is in its maturity, will have different goals and objectives. But obviously, the underlying goal is creation of equity value. Understood.

Speaker 7

Thanks a lot. Appreciate it.

Operator

Our next question will come from the line of Brian Fitzgerald with Wells Fargo.

Speaker 8

Thanks guys. A couple of quick ones. Wondering if you give us any sense for how the 2 recently acquired titles, Governor of Poker 3, Animals and Coins performed in 4Q or maybe help us size the top line contribution from those 2?

Speaker 4

Yes. So I think as we noted in the prepared remarks, we saw consecutive growth throughout the Q4, which is very encouraging. We're very pleased with the initial results from both of those acquisitions. In terms of the contributions, those are in our 10 ks, which has just been filed. I don't have the exact number in front of me right now.

Speaker 8

Okay. Appreciate it. And then maybe as a follow-up to the D2C questions, curious to hear your thoughts on Apple's recent concessions on App Store fees, DMA implementation. And is that kind of is that impacting or maybe accelerating your focus on D2C or no, we've always been focused on D2C. It's a known strategy, but any reads on, hey, what apples and DMA are metering through your thought process?

Speaker 2

So thanks for the question. So this is really early to say. It only started a few weeks ago. We are still learning. We're still trying to understand exactly the benefits, how to work with this.

Speaker 2

It's not changing the strategy that we had in the past and we have right now with the D2C platform. It's not connecting to each other. But again, it's a very interesting move of Apple. We and I think in few weeks, few months, we will be we will know exactly how it's going to benefit the company in which way.

Speaker 8

Thanks. Thanks, Robert. Thanks, Craig.

Operator

Thank you. Our next question will come from the line of Drew Crum with Stifel.

Speaker 9

Okay, thanks. Hey guys. Craig, just to go back to your earlier comments on credit adjusted EBITDA this year, do you see 2024 as a trough for the business or is there further downside beyond this year given some of the puts and takes you referenced?

Speaker 4

Yes. I think obviously this year is a year of reinvestment in the portfolio. I think we're hopeful that we can stabilize the casino theme titles and continue to grow the casual titles. The incentive and compensation plan does end in 'twenty four, and so there should be a net benefit from that ending going into 'twenty five. But we are not giving guidance beyond 2024 at this stage.

Speaker 9

Okay, fair enough. And then just a housekeeping item, anything contemplated in your revenue guidance range for 2024 in terms of M and A, that $600,000,000 to $1,200,000,000

Speaker 4

Yes. M and A is future M and A is not included in our guidance.

Speaker 9

It's not. Got it. Okay. Thanks.

Operator

Thank you. Our next question will come from the line of Doug Creutz with TD Cowen.

Speaker 10

Hey, thank you. Several quarters ago, you guys made the decision to pause internal game development because you said tough market conditions making it hard to launch new games. In the last few quarters, we've seen some of your competitors launch some very successful new games. So just wondered if you revisited that decision, what's your feeling is on new game development

Speaker 11

at this point? Thank you.

Speaker 2

So thanks for the question. First, we are really happy to see even our competitors are launching good games because it's still saying that the market is good. So for me, everything that's happening, I always trying to see what is the benefit for us and what is the benefit for the market. So it's first is saying that the market is healthy. 2nd, we never had a good history of developing new games.

Speaker 2

It's not a secret. It's not that it depends if the environment is good or bad. It's never been our DNA. Yes, we tried. We tried many things as a company that is a big company that's always trying, but it's never been our DNA.

Speaker 2

Our DNA was always M and As and we did very well with M and As in the last 10 years. And I'm not saying that we're not going to have any kind of experience with the new gains, but it's not the main focus. And our main focus again is M and A. This is where we are looking and this is a I believe we're going to do 1 or 2 deals, I hope even better than the deal that we did last year that was a really good deal. That's it.

Speaker 2

Thanks. Thank you.

Operator

Our next question will come from the line of Clark Lambin with BTIG.

Speaker 12

Thanks. I got a question. I want to come back to, I guess, the plan to increase performance marketing spend next year. Craig, could you give us a little bit more color around, I guess, sort of why now? If you look at, I guess, your advertising spend for the last couple of years, it's been pretty consistent, after a step up that we saw in 'twenty one, both in aggregate and as a percentage of revenue.

Speaker 12

And I'm curious if there's something that you saw with your spend maybe in the back half of the year where it started to perform better or you're reallocating the mix. If the budget is growing, is it shifting in a new way or should we imagine that this is going to be mostly sort of offline television campaigns or any I guess incremental color you could provide would be helpful?

Speaker 4

Yes, sure. So obviously the biggest driver is Animal Insulin Coins, which is a title that we acquired last year and are ramping up growth there. I think in terms of what we called out in the prepared remarks, we are looking at investing more in slotamania. That is a competitive market, where competitors are fighting for market share, and so we saw the need to invest more there. And then in terms of strategically, we have selected other titles that we look to invest in to support growth.

Speaker 4

So I think the biggest change in terms of year over year is clearly to support the acquired titles.

Speaker 12

Got it. And from our seat, we and investors, I guess, as we're trying to measure the ROI on that spend going forward, should it be if you guys are successful with the incremental allocation, will it be primarily driving stronger inorganic growth? Or is there another way that

Speaker 11

we should try to evaluate that on a go forward basis?

Speaker 4

No, I mean, we consider that part of our organic growth and it's a part of the operating our organic portfolio. So I don't I think we make changes based on the marketplace where we see opportunities, we invest more and where we don't have the returns that justify those, we pull back. So I don't think there's more specificity that we can provide on this call, unfortunately.

Speaker 12

Okay. That's helpful. And then just one quick one and I'll get out of the way. As we think about, I guess, this sort of broader capital allocation framework, you guys talked about, I guess, sort of market and geopolitical factors that sort of led you to move away from your strategic review. If we assume that some of those other factors are also weighing on competitors of yours and the market doesn't end up, I guess, as fluid or you don't see the M and A opportunities that you hope for accruing, is the sort of pool of free cash flow fungible in any way?

Speaker 12

If we were thinking about that sort of previous fifty-fifty split, if the pipeline isn't maybe as robust and you can't execute on some of the things that you would like, would you consider from 1 year to the next tilting more of that cash flow allocation towards capital return? Thank you.

Speaker 4

Yes. So, Clark, I would try and disaggregate that. I think there's 3 separate concepts going on there. I think the first is the decision that was made to pause strategic alternatives. And it was cited that there was geopolitical factors tied to that decision.

Speaker 4

Separately is the M and A environment, which for us most of the acquisition targets we look at are there's some in Israel, but also outside of Israel. And we have not seen that necessarily impacting our ability to go out and do diligence and explore opportunities for transactions. And the 3rd concept is capital allocation, which I believe is pretty independent of the first two or of the first one. And the second one, 50% of capital allocation is dedicated to M and A and the other 50% is to capital returns, both dividends and exploring the idea of buybacks. And so I don't think that they're necessarily tied there.

Speaker 4

Obviously, folks that operate in those regions, some have been impacted and obviously have had to make adjustments as we have, to ensure operations are not affected.

Speaker 12

Thank you.

Operator

Our next question will come from the line of Eric Sheridan with Goldman Sachs.

Speaker 13

Thanks so much. Maybe a 2 parter following up on Clark's question. First, in terms of what you've learned as the marketing environment has become volatile over the last couple of years, what are the key learnings in terms of driving incremental ROI that you're taking out of the 2022, 'twenty three period that informs your marketing strategies going into 'twenty four and beyond? And then looking into 'twenty four and beyond, how should we be thinking about elements that could increase ROI like scale as you execute on the M and A strategy, AI becoming a more a larger component of marketing overall or other elements that could sort of amplify ROI over the medium to long term? Thanks so much.

Speaker 14

Hi, it's Nir Kocak, Playtica CMO. So first and foremost, we need to understand that we have a very wide range of different games. And for each game, obviously, we build a tailor made marketing strategy. So when we look at the market, we need to understand also the competition and also what we want to achieve for the long term. So what we are basically trying to understand sometimes the ecosystem is changing as you mentioned before, the competition become a bit tougher and we need to spend a bit more in different strategy.

Speaker 14

So always we adjust our strategy towards area where we believe that for the long term we will provide the best ROI. And so that's for the first part of the question. The second part, what we are basically doing for leveraging technology and AI, so it really depends on the different sources and of course what's going on in the platform. So at the end of the day, what we are trying to achieve, we're trying to create a very diverse portfolio with diverse sources so that we will not be rely on any specific source And we are trying to push the one with the highest ROI obviously and see over there whether we can leverage technology and improve our results. So that's our strategy and of course we are tailor made it for each one of the games differently.

Speaker 2

Thank you.

Operator

Our next question will come from the line of Matthew Cost with Morgan Stanley.

Speaker 15

Hi, Debbie. Thanks for taking the question.

Speaker 10

Maybe I'll start just by asking about

Speaker 15

what you're seeing in the broader mobile gaming market because we have seen some steps up in consumer confidence over the past couple of months. I'm wondering if you're seeing any change in consumer behavior either late last year into this year, particularly because as you lean into marketing, you're also expecting revenue roughly flat year on year. So do you expect to be outperforming a down market in line with a flat market? How should we think about what that guidance means relative to the broader backdrop? And then I have one follow-up.

Speaker 15

Thank you.

Speaker 4

Sure. So I do believe the macroeconomic environment has been tricky over the last few years. But I think it's we've really seen titles that are able to execute on their roadmaps are successful and grow. And if you look at our casual portfolio, it was up 5.5% last year. And if you look at where we've struggled, it's been some of the more competitive categories like with the slot themed games.

Speaker 4

And so I think some of that is not necessarily based on what's happening more broadly in the environment, but I think been more affected by changes in the advertising ecosystem, which affects the ROI of acquired traffic. And so I think that has probably been the biggest impact to the mobile game industry rather than consumer discretionary spending. We've always thought that mobile gaming is one of the more resilient areas within the economic environment. And so I think it's really more based on what's happening in the ad environment than the macroeconomic environment at this stage.

Speaker 15

Okay. Thank you. And then so there was obviously, I think you noted it very well in the prepared remarks about a step up in marketing in the Q4. You've historically seen kind of an opportunity in the Q1 every year to lean into marketing. Should we expect that same seasonality where there's like a meaningful sequential step up in your marketing spend in Q1 this year?

Speaker 14

Hi, it's Nir again. So obviously, we are well familiar with the seasonality around the marketing and I believe that you saw what we did at the end of the year. We launched 5 new campaigns basically at the end of the year and trying to start the year strong. Obviously, I cannot elaborate about the results of the campaign, but we are very bullish about our strategy and how we see things forward.

Speaker 15

Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Jason Bazinet with Citi.

Speaker 11

Thanks. I just had a question about these ad changes that I think that you're referring to Android and Apple. Maybe you could just unpack it a bit for us because when I look at your revenues, they're sort of flat, your ad out leads are sort of flat. Like it's not obvious that these changes have sort of diminished your financials and yet, you guys are talking about it as if it might be sort of it has been a big change and it's going to be a big change. So do you mind just sort of flushing that out a bit?

Speaker 4

Sure. So I think we're referencing it as we look at guidance for 2024, as we're making incremental investments. And I think we've always been very transparent with the trends that we've seen in the marketplace and how it's impacting us. And so I think this is no different. Ramping up spend in animal and coins impacts margins.

Speaker 4

And I think as for the rest of the portfolio, we saw the need for selected titles to continue to ramp up investment. And so that combined with some of the mix shift has impacted our guidance for next year. But I think in terms of historically, we've been very good at leveraging offline campaigns and doing a variety of different things to ensure that we're able to navigate a changing environment.

Speaker 11

Okay. And if you had to parse the sort of decision on your part to sort of lean into animals and coins and spend more in marketing as opposed to the Android Apple changes that are happening in the ecosystem. Is there a way to parse that out in terms of the impact on your EBITDA guidance for next year?

Speaker 4

Yes, there is not.

Speaker 11

Okay. Thank you.

Operator

Our next question will come from the line of Eric Handler with Roth

Speaker 10

Good morning. Thanks for the question. Craig, I wonder if you could talk about when you look at your 4th quarter results relative to consensus, you had a nice top line beat, but EBITDA was just in line. I'm curious, was that a reflect obviously, marketing dollars was the big reason for that, but what type of how fast are you getting a return off of your advertising? Do you see an instant lift or does it take 1 quarter, 2 quarters?

Speaker 10

How should we think about that?

Speaker 4

Sure. So you are correct in that we leaned into marketing to invest in the Q4, but again came out above consensus on both revenue and EBITDA. I think as we look to make return investments in a variety of games, they all have different payback periods. Obviously, some of the newer, fresher titles can have payback periods in a matter of months. Some of the longer some of the legacy titles can take over a year depending on the title.

Speaker 4

So I think we have our own targets. It's different by title, by platform, by jurisdiction, and we invest towards those targets.

Speaker 10

Great. Thank you very much.

Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Playtika Q4 2023
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