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On Tuesday, PlayStudios (NASDAQ:MYPS) received a reiterated Outperform rating and a $3.00 price target from Macquarie. The reiteration follows the company's third-quarter earnings, which surpassed expectations with EBITDA coming in 12% above consensus. Despite maintaining its 2024 guidance with projected revenue of $285-295 million and EBITDA of $55-60 million, PlayStudios has announced a cost reduction program aimed at saving $25-30 million annually starting in 2025. This program includes workforce reduction, the suspension of underperforming game development, and the consolidation of key business functions.
The company is also entering the sweepstakes casino market, with plans to launch an initial offering in the first half of 2025. This move is seen as a potential counter to the industry challenges PlayStudios has faced, particularly due to competition with its playAWARDS loyalty program. While the sweepstakes initiative is not expected to significantly impact the 2025 financials, it is considered a noteworthy opportunity for the company.
Macquarie has adjusted its revenue forecasts for 2025 and 2026 downward, but slightly increased EBITDA estimates, reflecting the anticipated benefits from the cost reduction program. The firm has not included potential gains from the sweepstakes casino market in its current projections, pending further details to be provided in the next earnings call.
PlayStudios is recognized for its valuable assets and is actively seeking to enhance performance. The company is also exploring merger and acquisition opportunities, supported by over $100 million in net cash.
In other recent news, PLAYSTUDIOS, Inc. reported mixed Q3 results for 2024. The company's revenue saw a 6% decrease year-over-year, totaling $71.2 million, while the adjusted EBITDA increased by 8% to $14.6 million, improving margins to 20.5%. Amid a significant restructuring plan, PLAYSTUDIOS has reduced its workforce by 30% and suspended certain games, expecting to save between $25 million to $30 million annually.
Despite the revenue decline, the company has shown confidence by restarting its share repurchase program, buying back nearly 10% of its stock this year. The company's direct-to-consumer segment grew to 7.2% of total revenues, with a goal to surpass 20%. The company is also working on stabilizing its social casino portfolio and enhancing its offerings with sweepstakes promotions.
These recent developments come as PLAYSTUDIOS faces industry pressures and performance concerns with some of its games. However, the company remains optimistic about future results following the restructuring and portfolio optimization.
InvestingPro Insights
PlayStudios' recent financial performance and strategic moves align with several key insights from InvestingPro. The company's cost reduction program and entry into the sweepstakes casino market reflect its efforts to improve profitability, which is particularly relevant given that InvestingPro Tips indicate the company "has not been profitable over the last twelve months." However, there's optimism as "analysts predict the company will be profitable this year."
The company's strong financial position is underscored by InvestingPro data showing a market cap of $181.38 million and the fact that it "holds more cash than debt on its balance sheet." This solid financial footing supports PlayStudios' ability to explore M&A opportunities, as mentioned in the article.
Despite recent challenges, PlayStudios shows potential for value creation. An InvestingPro Tip notes that the company's "valuation implies a strong free cash flow yield," which could be attractive to investors looking for undervalued opportunities in the gaming sector. Additionally, with a price-to-book ratio of 0.69 as of Q2 2024, the stock may be trading below its intrinsic value.
For readers interested in a more comprehensive analysis, InvestingPro offers 8 additional tips for PlayStudios, providing a deeper understanding of the company's financial health and market position.
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