Things are getting “noisy” at mobile game maker Playtika (NASDAQ: PLTK), says the Davidson County DA, prompting the downgrade to Neutral as it sees investors “staying away.”
Analyst Franco Granda sees warning flags several areas, not least in Playtik’s core casino gaming market – where he sees the company losing share to SciPlay (SCPL), AppLovin (APP) and the “exciting private unicorn” Moon Active.
A look at that portfolio left him “unenthusiastic” about the shrinking gaming group and he believes Playtika’s moves to invest in casual gaming and simply optimize costs at Casino are “indicators of underlying operational challenges and the need to diversify”.
Some limited success in developing new games has led to a look at driving inorganic growth, he notes, which in part led to the company’s high premium bid for Rovio ( OTCPK:RVTTY ) .
The strategic rationale for the deal is sound, Granada said, but there is a “bad read” on the ability to organically expand the casual portfolio, and the deal is likely to dilute Playtik’s margins — not to mention that Rovio is holding tight and doesn’t seem to want to jump into the business right now. has a premium of 60%.
Meanwhile, liquidity problems at Playtik’s majority owner Giant are “impacting the company’s balance sheet and creating unnecessary noise in the market.”
The filings show that Giant made the decision last March to put the company up for sale to meet liquidity needs, leading to millions in costs in dealing with dozens of companies. “It is clear to us … that this is a distraction for the board and sets a bad outlook for investors, who are choosing to stay away.”
BTIG’s review of Playtika finds the Rovio offer “confusing.”