PLAYSTUDIOS, Inc. — Q3 2023 Form 10-Q
Business and period: PLAYSTUDIOS develops free-to-play mobile and social games, monetized through virtual-currency purchases and advertising, and offers real-world rewards through its playAWARDS loyalty program. This unaudited filing covers the quarter and nine months ended September 30, 2023; comparisons are with the same 2022 periods. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $75.9 million | $72.1 million | $233.8 million | $210.9 million |
| Operating income (loss) | $(3.7) million | $(3.2) million | $(7.8) million | $(23.6) million |
| Net income (loss) | $3.8 million | $3.6 million | $0.5 million | $(16.1) million |
| Net income (loss) margin | 5.0% | 5.0% | 0.2% | (7.6)% |
| Adjusted EBITDA (non-GAAP) | $13.5 million | $9.8 million | $47.6 million | $26.2 million |
| Adjusted EBITDA margin (non-GAAP) | 17.8% | 13.5% | 20.3% | 12.4% |
Q3 revenue rose 5.2%; nine-month revenue rose 10.8%. Advertising revenue increased 272.7% in Q3 to $14.2 million and 266.1% in the nine-month period to $41.6 million. Virtual-currency revenue fell 6.2% in Q3 to $61.6 million and 4.0% year to date to $187.6 million. Other revenue was $0.1 million in Q3 and $4.6 million year to date.
Cost of revenue was 26.2% of revenue in Q3 versus 30.1% a year earlier, and 24.9% for nine months versus 30.2%. Based on reported revenue less cost of revenue, gross profit was approximately $56.0 million in Q3 and $175.5 million year to date. Operating losses persisted: operating margin was approximately (4.9)% in Q3 and (3.3)% for nine months. The improvement in nine-month net results versus 2022 partly reflects lower impairment and restructuring charges; quarterly and year-to-date net income also included non-operating items and tax benefits.
Cash, liquidity and debt: Cash and cash equivalents were $129.8 million at September 30, 2023, down from $134.0 million at December 31, 2022. Current assets were $170.1 million and current liabilities $34.6 million. For the first nine months, operating cash flow was $36.4 million, investing cash use $21.9 million and financing cash use $17.8 million; cash declined $4.2 million, including currency effects. The company had no borrowings under its $81 million revolving credit facility. It reported $10.8 million of operating lease liabilities and $4.8 million of minimum-guarantee obligations.
Material changes and management commentary
- Management attributed advertising growth primarily to more ad impressions and opportunities, including the Tetris mobile game and Brainium portfolio acquired in 2022. Those additions also expanded reported average DAU to 3.52 million in Q3 from 1.46 million, but the average daily payer conversion rate fell to 0.8% from 2.0%, and ARPDAU declined to $0.23 from $0.52. Management attributed the lower payer conversion partly to the larger audience mix of primarily ad-supported games.
- Q3 operating expenses increased 5.7% year over year, including higher research and development and depreciation and amortization; nine-month operating expenses increased 3.0%. Selling and marketing expense fell, while R&D, general and administrative, and amortization costs rose.
- The company recorded a $1.1 million non-cash impairment charge in Q3 2023. Nine-month restructuring and related costs were $7.1 million, including costs associated with its 2023 reorganization, which reduced global headcount by approximately 14% and was substantially completed by the end of Q2.
- Management said available cash, operating cash generation and revolver capacity should fund operations and capital expenditures for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
Outlook, risks and contingencies
- Israel operations: The October 2023 war and potential escalation may disrupt the company’s Tel Aviv studio, including through employee military call-ups. The filing says some employees had been activated and further call-ups were possible. Subsequent to quarter-end, the company entered foreign-currency contracts with approximately $7.5 million notional value, expected to mature within 12 months.
- Licensing commitments: After September 30, the company entered licensing arrangements that increased intangible assets by $32.0 million with an offsetting minimum-guarantee liability. For Tetris-related contingent payments, certain conditions were subsequently met; the company estimated a potential payment of $3.5 million to $17.0 million, excluding prior advance payments.
- Litigation: Disclosed matters include a TeamSava claim seeking 27.3 million NIS, a shareholder securities class action seeking unspecified damages, an Alabama lawsuit alleging illegal gambling, and four similar arbitration demands. The company disputes the claims, says it cannot reasonably estimate potential losses, and has not accrued amounts for these matters.
- Other exposures: Revenue depends on third-party platforms and their policies and fees; the business also faces player-acquisition and monetization risks, foreign-exchange exposure, and the possibility that tax carryforwards may expire unused. Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether strong advertising growth can continue and offset declining virtual-currency revenue, payer conversion and ARPDAU.
- How the Tetris and Brainium audience mix affects monetization, costs and future operating profitability.
- The final amounts, timing and accounting for post-quarter licensing and Tetris contingent payments.
- Any operational or financial impact from the Israel conflict, employee call-ups and currency movements.
- Developments in the disclosed litigation and gambling-related claims, for which potential losses are not estimable in the filing.
- Cash deployment and share-count effects: the company repurchased $20.0 million of shares through September 30 and subsequently extended its repurchase program through November 10, 2024, with $50.0 million remaining authorized.