Mobile gaming companies like Playtika (PLTK) aren’t exactly a new concept. However, in a lot of places, they’re making plenty of headway. Governments are realizing that allowing people to play casino games on their phones is basically the exact same thing as letting them do so in a building devoted to that purpose.
Playtika surged nearly 6% at one point in premarket trading on Tuesday. It opened higher, but it is now down over 5% at the time of writing. I’m bullish on Playtika; it may have a lot of competition in the field from more well-known firms, but Playtika just got a major note of support from one big new buyer.
Playtika’s last 12 months have not been good for the company. It’s lost over half its value in the last year. The company saw its share value build until a real horror hit just after Halloween. The stock briefly challenged the $30 per share mark until it started to dive over the next few months, briefly threatening to go below $12. A modest recovery followed, and today, the stock is trading at around $13.60.
What drove the latest premarket gains was a report out of Joffre Capital, a tech buyout group. The firm recently agreed to Buy a majority stake in Playtika at $21 per share from its current owner, a Chinese investment group. That represents around a 46% premium over Monday’s closing figure.
Wall Street’s Take
Turning to Wall Street, Playtika has a Strong Buy consensus rating. That’s based on eight Buys and two Holds assigned in the past three months. The average Playtika price forecast of $20.90 implies 53% upside potential.
Analyst price targets range from a low of $16 per share to a high of $35 per share.
Investor Sentiment is Trending Downward
A company with a Strong Buy consensus among analysts does suggest a stock with good potential. However, to look at the investor sentiment metrics, it’s actually a bit shakier than you might think. Playtika currently has a Smart Score of 6 out of 10 on TipRanks.
That’s the second-highest level of “neutral.” This puts it just slightly more likely to outperform the market than underperform. It’s as close to perfect neutrality as an even-numbered scale can produce.
However, the investor sentiment metrics aren’t on this one’s side. Hedge fund involvement, for example, is down. The TipRanks 13-F Tracker reveals that hedge funds slashed their investment in Playtika in the latest quarter.
That’s after they maintained roughly the same level of involvement for most of a year. Hedge funds ditched 2.7 million shares in the last quarter, lowering the current level of ownership to around 2.92 million shares.
However, insider trading in the company is heavily Buy-weighted, especially over the last year. The last three months have seen no transactions at all. The last recorded transaction was one Sell transaction back in March. Over the full year, however, Buy transactions outpaced Sell transactions by 12 to two.
Retail investors, at least those who hold portfolios on TipRanks, are sharing sentiment with the hedge funds. TipRanks portfolios that held Playtika shares were down 0.7% in the last seven days and down 2.8% in the last 30 days.
Finally, Playtika’s dividend history doesn’t yet exist. That’s only to be expected, really, as the company went IPO back in January 2021. Clearly, the focus is on growth rather than redistributing earnings to shareholders.
A Good Way to Get in on Gaming?
Online gambling is a growth industry. With many governments relaxing standards on it, in much the same way they relaxed standards about marijuana, more users will have the opportunity to make bets online.
Sure, the prime conditions for such gambling were back during the pandemic. People stuck at home with stimulus checks from the government in their pockets made for ideal gambling conditions, and certainly, those conditions are a lot less favorable now. Stimulus is gone—at least, in most places—and people can go out again. They just often choose not to because gas prices are a nightmare, and most of their disposable income has been converted to buying necessities.
However, there are attractive points about Playtika that shouldn’t be overlooked. First, the company lost half its value since its IPO. That makes for a worthwhile potential entry point for anyone who wants a slice of the online gaming pie.
It also doesn’t hurt that the company is realizing decent revenue. First-quarter revenues from the company were up 6% over the same time last year. Better yet, Playtika is looking to clear close to $1 billion in adjusted full-year profits, coming in at $940 million.
Just to top it off, Joffre Capital is looking to Buy a majority stake in the company – and at a significant premium. That should, in turn, raise the value of everyone’s investment once it goes through. Plus, reports note that Joffre won’t be taking Playtika private. Shares will continue to trade on the NASDAQ exchange following such a deal. This means no buyout, but it also means further potential gains beyond the $21 mark from Joffre’s Buy.
Online gaming is about to take a hit. There are no two ways about that. While there will always be people dropping a few bucks here and there, the frequency at which said bucks are dropped will decline. The inflationary environment is limiting everyone’s disposable income. Worse, with a potential recession on the horizon, that’s going to force even more retraction of consumer spending.
Consumer debt is already pretty substantial, and the notion that consumers will go further in debt to finance gambling spending is unlikely at best. Again, there will be some who will, but trying to frame an investment around the most desperate gambler is probably not a smart move.
Concluding Views
Playtika is likely to have a tough time in the medium term. If the Buy from Joffre ends up going through, that’s going to give it some short-term boost. Buying a majority stake at $21 per share should increase the value of everyone’s investment by at least a bit.
In the medium term, however, macroeconomic conditions are going to hit this company like a bus hits a grape. Most of its target market is “discretionary income,” and that’s likely to be in shorter supply over the next several months to a couple of years.
For those who look beyond the recession—recessions generally end, after all—there’s great potential here. Investors can Buy in relatively inexpensively on a company that could have a nice segment of the market once the market recovers. Joffre Capital seems to think so as well. That, coupled with the other circumstances surrounding Playtika, leaves me bullish overall.
