Grand Warszawski
Playtika (NASDAQ:PLTK) stock fell about 3% after BofA Securities downgraded the shares to Underperform noting no growth inflection in sight.
The firm also lowered the price target on the shares to $8 from $11.
The analysts said that the company's long-term growth trajectory and prospects for re-rating will remain muted through 2024 and that an upside catalyst, such as an aggressive FY24 guidance seems unlikely.
The analysts noted that an aging portfolio and few new titles cap growth in 2024 for the Israeli mobile games developer.
While the maturity of Playtika's (PLTK) portfolio has contributed to its best-in-class margin profile, it represents a headwind for future growth, the analysts added.
Revenues of the company's top social casino games, which have operated for 10 plus years, appear to be in slow, consistent declines, and a mix shift into newer and more casual titles could pressure margins due to their lower profitability compared to top social casino titles, according to the analysts.
In addition, the analysts said that the Management has indicated a Mergers and acquisitions, or M&A, led growth strategy, but the analysts cannot assume acquisitions will drive profitable growth in '24 without further details on the opportunity size, target metrics, and pace of execution.
Moreover, precedent for a high-volume M&A growth strategy is unfavorable, as shown by Embracer's (OTCPK:THQQF) (OTCPK:EBCRY) stock price, which has been flat since 2017.
Mobile gaming likely to underperform PC/Console in 2024. The analysts noted that Playtika (PLTK) operates in a market which BofA expects to grow +2% year-over-year in '24 versus consensus implied +5% year-on-year.
The mobile gaming industry experienced a second year of decline in 2023, and the analysts see few catalysts for a return to growth in 2024 because — user acquisition has not returned to pre-IDFA (identifier for advertisers efficiency) despite some improvements in mobile adtech; management teams remain cautious about investing in new game development; and the transition to high-definition and IP-based mobile games, which have higher retention rates than casual will happen gradually.
The analysts added that investors may prefer pure PC/Console publishers, such as Electronic Arts (EA), Nintendo (OTCPK:NTDOY) (OTCPK:NTDOF) or Capcom (OTCPK:CCOEY) (OTCPK:CCOEF), whose market they expect to grow above trend due to console cycle maturation.
Playtika (PLTK) has a Sell rating at Seeking Alpha's Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors' (2 authors in this case) average rating is more positive with a Buy and so is the average Wall Street analysts' rating, Buy.