PLAYSTUDIOS, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise stated. PLAYSTUDIOS develops and operates free-to-play mobile and social games, monetized primarily through virtual currency purchases and advertising, with its playAWARDS loyalty program.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $80.1 million | $70.5 million | +13.7% |
| Gross profit / margin | $60.6 million / 75.6% | $49.4 million / 70.1% | Margin +5.5 percentage points |
| Operating loss / margin | $2.2 million / (2.8%) | $14.8 million / (21.1%) | Loss narrowed $12.6 million |
| Net loss | $2.6 million | $25.2 million | Loss narrowed $22.6 million |
| Adjusted EBITDA / margin (non-GAAP) | $17.8 million / 22.2% | $9.1 million / 12.9% | Improved |
| Operating cash flow | $4.5 million | $11.6 million | Down $7.1 million |
| Cash and equivalents | $127.5 million | $134.0 million at Dec. 31, 2022 | Down $6.5 million |
Revenue growth reflected advertising revenue of $13.1 million, up 221%, and other revenue of $2.7 million, up $2.2 million. Virtual currency revenue fell 2.4% to $64.4 million. Cost of revenue declined to $19.5 million, or 24.4% of revenue, partly due to advertising’s lower platform-fee burden and lower royalties. Selling and marketing fell 12% to $18.1 million; research and development rose 4.6% to $17.8 million; general and administrative rose 22.8% to $11.9 million; and depreciation and amortization rose 31.4% to $11.0 million.
Investing activities used $7.6 million, including $5.9 million of additions to internal-use software and $1.8 million for property and equipment. Financing activities used $3.5 million, including $5.4 million for share repurchases, partly offset by stock-option exercise proceeds. The company had no borrowings outstanding under its $81 million revolving credit facility. Current assets were $173.1 million and current liabilities $35.6 million; operating lease liabilities totaled $15.1 million.
Material changes and operating indicators
- Average DAU increased 129% to 3.565 million and average MAU increased 89% to 13.082 million, primarily reflecting the addition of Tetris-branded games and the Brainium portfolio. The filing cautions that Brainium counts users by app installation, so its user metrics are not calculated on the same basis as legacy PLAYSTUDIOS metrics.
- Average DPU declined 9.7% to 28,000; average daily payer conversion fell from 2.0% to 0.8%, and ARPDAU declined 52% to $0.24. Management attributes the conversion decline partly to the acquired games’ advertising-focused business models.
- Restructuring expense was $4.0 million versus $8.7 million in Q1 2022. The prior-year period included an $8.4 million non-cash impairment after the company suspended Kingdom Boss development.
- The company initiated a workforce reorganization on February 28, 2023, targeting an approximately 14% reduction in global headcount. It recorded $2.5 million of costs in Q1 and estimated total charges of about $4.0 million, with substantially all personnel reductions expected by the end of Q2 2023.
Outlook, risks and contingencies
No specific revenue, earnings or other financial guidance is provided in the filing. Management stated that cash, operating cash generation and available revolver capacity should fund operations and capital expenditures for at least the next 12 months, while noting possible future financing needs for growth, game development or acquisitions.
- Key business risks include reliance on Apple, Google, Amazon and Facebook platforms and their fees and policies; player spending and acquisition economics; competition for talent; successful game development and monetization; and macroeconomic conditions. Advertising and virtual-currency revenue depend on player engagement and platform relationships.
- Apple and Google represented 43.3% and 21.0% of receivables, respectively, at March 31, 2023. The company does not hedge foreign-currency exposure and has significant personnel expenses denominated in New Israeli Shekels, among other foreign currencies.
- Minimum-guarantee obligations totaled $5.8 million. Under Tetris-related agreements, the company had advanced $8.0 million of contingent payments; the filing states approximately $7.1 million could be at risk if the parties fail to perform.
- Pending litigation includes a TeamSava claim seeking 27.3 million New Israeli Shekels and a U.S. shareholder securities class action seeking unspecified damages. The company disputes the claims, cannot reasonably estimate potential losses and recorded no accrual for them.
- Warrants are recorded as liabilities and their fair-value movements affect reported earnings. The Q1 fair-value change produced a $1.1 million expense. The company also repurchased $5.4 million of shares during the quarter; it reported a further $5.7 million of repurchases through May 8, 2023.
Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter. The filing states there were no material changes to the risk factors previously disclosed in the 2022 Form 10-K.
Important facts for investors to verify
- Whether advertising-led revenue growth can offset declining virtual-currency revenue, payer conversion and ARPDAU.
- How much of the DAU and MAU growth reflects acquired titles, and how the differing Brainium user-count methodology affects comparisons.
- Actual restructuring charges, savings and completion timing relative to management’s estimates.
- Cash conversion and working-capital trends, particularly the $6.9 million increase in receivables cited as a driver of lower operating cash flow.
- Developments in the TeamSava and shareholder litigation, Tetris commitments, and minimum-guarantee obligations.
- Share-repurchase pace and remaining authorization, alongside investment needs and the company’s stated liquidity outlook.