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HSBC downgraded Playtika (NASDAQ:PLTK) to Hold from Buy as it turned cautious on the prospects of the company's return to organic revenue growth for core game titles, and sees greater risks around game developer's acquisition strategy.
The firm also lowered to price target on the shares to $8 from $14.90.
The analysts said that outlook for the fourth quarter of 2023 results are muted after a disappointing year as competitors make inroads. Mobile games developer Playtika struggled through 2023, losing market share as its leading titles Bingo Blitz and Slotmania registered sequential quarter-over-quarter revenue drops through the second and third quarter.
The near term picture looks to be more of the same as third-party data points to an only modest recovery instore for the fourth quarter's upcoming results, the analysts noted.
The analysts added that 2024 should see some improvement. The focus for Playtika in 2024 will likely remain on turning around the existing portfolio, inorganic growth in the social gaming sphere, and taking steps to improve operating leverage.
They expect its legacy portfolio of games to stabilize, estimate recently acquired titles should add over $80M to annual revenues and believe EBITDA margins will rise to about 29% (versus 27% FY'23) on account of recent staff layoffs and growth of DTC offerings.
The analysts see Playtika's (PLTK) recent underperformance casting a shadow on its ability to successfully execute its M&A strategy.
They continue to see the company's strategy of diversifying into adjacent social genres holding merit as the mobile gaming market consolidates. However, the analysts think that recent underperformance casts a shadow on the company's ability to successfully optimize and grow the games it acquires.
The analysts have reduced their growth outlook for the legacy portfolio given recent trends and now foresee greater M&A execution risks ahead.
Last week, BofA Securities had downgraded Playtika's (PLTK) stock to Underperform noting no growth inflection in sight.
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.