Playtika Holding Corp (NASDAQ: PLTK) is an online gaming company that went public on the NASDAQ in January 2021.
Our research indicates that the company was recklessly stripped of its cash and loaded with debt just prior to its initial public o ering. PLTK is basically the only major mobile gaming company with a huge debt balance.
Additionally, the initial public off ering did not raise much proceeds for the company, but instead allowed former shareholders to unload their shares to the public. We dug deeper into the company to determine why insiders seemed so desperate to cash out.
PLTK seems like a low-quality business with a huge regulatory risk that we believe will materialize soon. The company’s focus on online casino games and aggressive monetization is not viewed kindly by regulators and the player base.
The company employs an aggressive roll-up strategy. PLTK is where brands go to die. The company’s incessant monetization of several games has contributed to the top-line but diluted the quality of the assets they acquired and frustrated users. This aggressive roll-up strategy creates the illusion of growth while masking the underlying decline of PLTK’s legacy games.
We believe PLTK’s monetization strategy is implemented immorally and that it will prove economically unsustainable. The company’s targeting of elders and the focus on online casino games is something that users and investors are disliking.
Our research indicates that regulatory risk is on the horizon for PLTK. The state of Washington already charged PLTK with a $38million fine and we believe many other states are to follow as numerous petitions against PLTK games garner attention.
Chinese regulators denied PLTK access to its A-Share market already four times, seemingly because it considers PLTK’s business partly illegal gambling.
PLTK, in our opinion, is a quintessential example of a pattern we frequently see in today’s market environment. Chinese insiders seem keen to bring their companies public in the US when faced with regulatory changes which essentially destroy their business (e.g., Chinese education companies, Chinese online lending platforms, etc.).
~20% of PLTK shares are pledged by insiders in China to Chinese banks which creates a potential overhang on the stock and adds an additional layer of risk for US shareholders. This share pledge is hidden from US investors through a holding structure.
In summary, we believe PLTK’s short-termism comes at the expense of lasting shareholder and business value. Looming regulatory risks and an aggressive monetization strategy make the business unsustainable. We consider PLTK’s insiders’ debt- nanced dividend payment and plans to sell as indicative of their intent to extrac.
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