AI Adoption And Loyalty Ecosystem Will Drive A Powerful Rebound In Gaming Business

Catalysts

About PLAYSTUDIOS

PLAYSTUDIOS develops mobile and web games that blend social casino and casual gameplay with a proprietary real-world loyalty and rewards platform.

What are the underlying business or industry changes driving this perspective?

• Scaling Win Zone sweepstakes across all eligible U.S. jurisdictions positions PLAYSTUDIOS to capture a large and fast growing alternative gaming market. This creates a new, higher margin revenue stream that can offset social casino softness and accelerate top line growth.
• Launching Tetris Block Party as a socially driven, competitive puzzle franchise taps into a globally recognized brand with under-monetized mobile potential. This provides a path to materially expand audience reach and in game spending, which should support sustained revenue growth and improving earnings.
• Rapid adoption of AI across development, UA modeling and live operations is structurally lowering production and operating costs. This enables faster content iteration and smarter marketing allocation, which should support margin expansion and stronger net income over time.
• Continued mix shift toward direct to consumer purchases supported by relaxed platform policies is reducing third party fees and increasing pricing flexibility. This directly enhances gross margins and drives higher EBITDA and free cash flow per dollar of bookings.
• Deepening integration of the playAWARDS loyalty ecosystem with premium real world and digital rewards is strengthening player engagement and retention. This improves lifetime value and monetization efficiency, which should stabilize core revenues and support more profitable user acquisition.

Assumptions

This narrative explores a more optimistic perspective on PLAYSTUDIOS compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming PLAYSTUDIOS's revenue will remain fairly flat over the next 3 years.
• The bullish analysts are not forecasting that PLAYSTUDIOS will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate PLAYSTUDIOS's profit margin will increase from -15.1% to the average US Entertainment industry of 10.3% in 3 years.
• If PLAYSTUDIOS's profit margin were to converge on the industry average, you could expect earnings to reach $25.1 million (and earnings per share of $0.24) by about December 2028, up from $-37.4 million today.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, up from -2.2x today. This future PE is lower than the current PE for the US Entertainment industry at 18.6x.
• The bullish analysts expect the number of shares outstanding to decline by 5.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.28%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent structural headwinds in the social casino category, combined with ongoing shifts toward sweepstakes-style offerings, may continue to drive double-digit declines in MAU and DAU. This would further compress top-line revenue and limit operating leverage.
• The company is already experiencing materially lower adjusted EBITDA and operating margins due to reduced revenue scale and higher investment in new initiatives. If Win Zone and Tetris Block Party fail to ramp quickly or at sufficient scale, sustained margin compression could weigh on earnings and cash generation.
• Regulatory contraction in the sweepstakes market, including state-level bans and potential broader oversight, could further shrink the addressable market after an already cited 25 percent TAM reduction. This would cap the long-term upside of Win Zone and diminish future revenue and gross margin expansion from this higher-margin channel.
• Cost-cutting and reinvention efforts have reduced the fixed cost base but also impaired the pace of new content, live operations and product development. If these trade-offs continue, deteriorating game quality and player experience could accelerate audience erosion and depress recurring revenue and ARPDAU.
• Management acknowledges limited visibility into 2026 given multiple moving pieces and has already guided that full-year net revenue and adjusted EBITDA will fall below prior ranges. If volatility in user activity and monetization persists, increased forecasting uncertainty and execution risk could translate into weaker earnings and a structurally lower profitability profile.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for PLAYSTUDIOS is $2.5, which represents up to two standard deviations above the consensus price target of $1.75. This valuation is based on what can be assumed as the expectations of PLAYSTUDIOS's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $2.5, and the most bearish reporting a price target of just $1.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $242.8 million, earnings will come to $25.1 million, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of $0.65, the analyst price target of $2.5 is 73.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.