PlayStudios (NASDAQ:MYPS) Surprises With Strong Q1, Provides Encouraging Full Year Guidance

Full Report / May 09, 2023
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Digital casino game platform PlayStudios (NASDAQ:MYPS) reported Q1 FY2023 results that beat analyst expectations, with revenue up 13.7% year on year to $80.1 million. PlayStudios made a GAAP loss of $2.57 million, improving on its loss of $25.2 million, in the same quarter last year.

PlayStudios (MYPS) Q1 FY2023 Highlights:

  • Revenue: $80.1 million vs analyst estimates of $73.4 million (9.12% beat)
  • EPS: -$0.02 vs analyst estimates of -$0.05 ($0.03 beat)
  • The company lifted revenue guidance for the full year, from $310 million to $315 million at the midpoint, a 1.61% increase
  • Gross Margin (GAAP): 75.6%, up from 70.1% same quarter last year
  • Average MAUs: 13.1 million, up 6.17 million year on year

Founded by a team of former gaming industry executives, PlayStudios (NASDAQ:MYPS) offers free-to-play digital casino games.

PlayStudios offers free-to-play casino games (slot machines, blackjack, and poker) that can be accessed through its mobile app myVEGAS. These are free-to-play games, which means that no real money is wagered, won, or lost.

However, players can earn rewards points that can be redeemed for prizes such as hotel stays, dining experiences, and tickets to events such as shows and concerts. Some argue there might be a potential for legal risk because the prizes that can be redeemed have real cash values. Additionally, some of the hotel stays and experiences won are at real casinos, which could feed a cycle of addictive gambling behaviors.

The company generates revenue primarily from the sale of in-game virtual currency, which players can purchase to enhance their playing experience (additional features, themes, game modes). PlayStudios also generates revenue through advertising and by partnering with real-world businesses to offer rewards to PlayStudios’s players. Businesses such as hotels, restaurants, and entertainment venues may pay PlayStudios for the right to be featured in games or to offer rewards.

Since videogames were invented in the 1970s, they have gradually taken more share of entertainment time. Cheap, powerful computing and graphics chips have made ever more realistic versions of classic sports, driving and shooting games while also introducing immersive metaverse-like gaming. Ubiquitous mobile devices have powered a surge in “snackable” games that can be played on the go. Over time, games have developed more social engagement features where friends can play games together over the internet. The business models of games publishers have become less volatile due to digitization of distribution, in game monetization, and like Hollywood, an increasing dependence on surefire hit franchises. Covid driven lockdowns accelerated adoption and usage of videogames – a trend that has not slowed.

Competitors offering casual digital games that may feature casino-like activities include Skillz (NYSE:SKLZ), SciPlay (NASDAQ:SCPL), and Huuuge (WSE:HUG).

Sales Growth

PlayStudios's revenue growth over the last three years has been unimpressive, averaging 6.24% annually. This quarter, PlayStudios beat analyst estimates but reported a mediocre 13.7% year on year revenue growth.

PlayStudios Total Revenue

Ahead of the earnings results the analysts covering the company were estimating sales to grow 5.39% over the next twelve months.

Usage Growth

As a video gaming company, PlayStudios generates revenue growth by growing both the number of players playing its games, as well as how much each of those players spends on (or in) their games.

Over the last two years the number of PlayStudios's monthly active users, a key usage metric for the company, grew 92% annually to 13.1 million. This is among the fastest growth of any consumer internet company, indicating that users are excited about the offering.

PlayStudios Average MAUs

In Q1 the company added 6.17 million monthly active users, translating to a 89.2% growth year on year.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track for every consumer internet product and for PlayStudios it measures how much revenue each user generates, which is a function of how much paying users spend.PlayStudios ARPU

PlayStudios’s ARPU has declined over the last two years, averaging 44.1% annually. While it is not great to see the company losing pricing power, at least the strong user growth somewhat compensates for it. This quarter, ARPU shrank 39.9% year on year, settling in at $6.12 for each of the monthly active users.

User Acquisition Efficiency

Consumer internet businesses like PlayStudios grow by a combination of product virality, paid advertisement and occasional incentives, unlike enterprise products that are typically sold by sales teams.

PlayStudios is efficient at acquiring new users, spending 36.6% of its gross profit on marketing over the last year. This level of sales and marketing spend efficiency is indicative of a relatively solid competitive positioning, which gives PlayStudios the freedom to invest its resources into new growth initiatives.

Earnings & Free Cash Flow

Investors typically look at a company’s operating income to get a sense of how profitable a core business is. Adjusted EBITDA is the most common profitability metric for consumer internet companies, similar to operating profit, but removes various one time or non-cash expenses to give a more normalized measure of profitability.

PlayStudios's EBITDA was $17.8 million this quarter, which translates to a 22.2% margin. Over the last twelve months, the company has exhibited strong profitability with average EBITDA margins of 15.4%.

PlayStudios Adjusted EBITDA Margin

Key Takeaways from PlayStudios's Q1 Results

With a market capitalization of $588 million and more than $127.5 million in cash, the company has the capacity to continue to prioritise growth.

We were very impressed by PlayStudios’s strong user growth this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations and raised full year revenue and EBITDA guidance. On the other hand, revenue growth is overall a bit slower these days. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company is up 2.34% on the results and currently trades at $4.38 per share.

Is Now The Time?

When considering PlayStudios, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in the case of PlayStudios we will be cheering from the sidelines. Its revenue growth has been uninspiring. And while its user growth has been strong, unfortunately its ARPU has been declining.

At the moment PlayStudios trades at next twelve months EV/EBITDA 10.7x. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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