Loyalty Platform And Direct To Consumer Shift Will Reshape Long Term Earnings Profile

Catalysts

About PLAYSTUDIOS

PLAYSTUDIOS develops mobile and online games that link virtual play with real-world rewards through its playAWARDS loyalty platform.

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

• Expansion of Win Zone across all eligible U.S. jurisdictions, combined with data driven user acquisition once metrics are validated, can increase chip sales and fee based sweepstakes revenue. This would support top line growth and potentially higher earnings.
• The planned broader rollout of Tetris Block Party, using a globally recognized brand and a deeper social meta game, can capture a wider puzzle gaming audience and extend player lifetimes. This would primarily support revenue and, if scaled efficiently, EBITDA.
• Growth in direct to consumer transactions, already at US$7.7 million and 16.7% of in app purchase revenue, reduces platform fees and can lift gross margin and operating margin as this channel becomes a larger share of sales.
• Ongoing optimization of ad monetization technology in the casual portfolio, which has already supported ARPDAU in Brainium and Tetris Prime, can partially offset DAU pressure and provide a higher margin revenue mix, helping EBITDA resilience.
• Broader use of AI across game development, UA modeling and live operations can lower production and operating costs per title over time. This may support net margins even if headline revenue growth remains constrained.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming PLAYSTUDIOS's revenue will decrease by 2.6% annually over the next 3 years.
• 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 $23.5 million (and earnings per share of $0.22) by about January 2029, up from $-37.4 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 10.3x on those 2029 earnings, up from -2.1x today. This future PE is lower than the current PE for the US Entertainment industry at 20.3x.
• 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 9.23%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The social casino category is under pressure and PLAYSTUDIOS is already seeing year over year declines in DAU, MAU and ARPDAU across most of the portfolio. If this long term shift toward alternative formats like sweepstakes continues or accelerates, revenue from the core playGAMES business could keep contracting and weigh on earnings.
• Management cut fixed costs to protect profitability, but this has reduced the pace of new content, live operations and product development. If this leaner model limits the company’s ability to keep games fresh versus competitors over several years, it could hurt player engagement, chip sales and ultimately net margins.
• New growth projects such as Win Zone sweepstakes and Tetris Block Party are still in test phases and rely on broader regulatory and market acceptance. If player cohorts monetize below expectations, regulations further shrink the sweepstakes total addressable market or user acquisition becomes more expensive, the payoff from these initiatives might not offset current declines in the core portfolio and could pressure earnings.
• Casual titles are already facing DAU pressure and the company is leaning more on ad monetization and direct to consumer channels, which depend on stable advertiser demand and platform policies. Any long term reset in mobile ad pricing or tighter platform rules on off store payments could limit ARPDAU gains and restrict improvement in gross margin and operating margin.
• The company’s valuation is close to its cash balance and management is considering both organic changes and M&A. If future acquisitions, sweepstakes expansion or partnerships in iGaming or content distribution do not deliver sufficient returns on invested capital, shareholders could see dilution of cash resources without a corresponding lift in revenue or EBITDA.

Valuation

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

• The analysts have a consensus price target of $1.75 for PLAYSTUDIOS based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• 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 analysts, you'd need to believe that by 2029, revenues will be $228.7 million, earnings will come to $23.5 million, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of $0.62, the analyst price target of $1.75 is 64.6% 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.