PLAYSTUDIOS, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Context: The past 2 years have been challenging with category headwinds, valuation near cash position, and need to reposition the business. The Board and leadership team are aligned on reshaping the business with discipline.
• Expense Reduction: Actions in Q4 last year reduced fixed cost base but impacted new content and product development, contributing to softening across the portfolio.
• Win Zone: Gaining traction in open beta, on track for broader rollout by year-end, with steady improvements in metrics and high returns on ad spend.
• Tetris Block Party: Encouraging early performance in open beta, with a focused go-to-market test upcoming.
• Core Business: Social casino challenged but direct-to-consumer revenue growing; casual business ARPDAU improved for Brainium and Tetris Prime.
• AI Adoption: Emphasis on modernizing development with AI in game pipeline, creative tooling, UA modeling, and player targeting.
• playAWARDS: Loyalty platform streamlined with higher-quality partners and aspirational rewards, highlighted by the myVIP World Tournament of Slots.

Segment Performance

• Casino Games: The social casino segment faced challenges with year-over-year declines in DAU and ARPDAU, except myKONAMI which saw double-digit year-over-year increases in ARPDAU. Direct-to-consumer revenue was $7.7 million, a 48% quarter-over-quarter increase, representing 16.7% of total in-app purchase revenue (up from 9.1% in Q3 2024). DAU for the Casino segment remained stable sequentially.
• Casual Business: Experienced pressure on DAU, but ARPDAU for Brainium and Tetris Prime improved meaningfully year-over-year, offsetting some DAU declines.
• Sweepstakes: Win Zone is in open beta across 15 states, on pace for broader rollout by year-end. It shows steady improvements in retention, engagement, and monetization with highest returns on ad spend. The broader sweepstakes market faced regulatory contraction, reducing the TAM by ~25%, but growth in remaining open states is strong.
• Tetris Block Party: In open beta in select markets, early performance in UA, retention, engagement, and monetization is encouraging. A focused go-to-market test is ahead of broader rollout in Q1.
• playAWARDS: The loyalty platform was streamlined, with a decrease in retail value of rewards purchased year-over-year but a 16% sequential increase in Q3. The myVIP World Tournament of Slots was a highlight, connecting play to real-world experiences.

Guidance

• Scott Peterson stated that due to recent softness in player activity and monetization, full year results for net revenue and consolidated adjusted EBITDA are expected to fall below the low end of previously provided guidance ranges.

Risks

• Market Headwinds: Category headwinds continue to pressure core markets.
• Regulatory Changes: Regulatory contraction in the sweepstakes market has reduced the total addressable market (TAM) by ~25%.
• Softness in Activity: Continued softness in player activity and monetization is impacting financial results.

Question and Answer

• Q: Sweepstakes, feedback from World Series of Slots players, and Win Zone broader launch. A: Feedback on Win Zone is generally positive, but sample size from World Tournament of Slots is small. Expecting broader rollout by year-end with deployment of modest marketing capital to assess metrics before scaling.
• Q: Ways to stop decay in social casino. A: Hoping sweepstakes alternative keeps players within the ecosystem and recovery in California market helps stabilize performance.
• Q: Sweeps catalyst for iGaming partnerships. A: There is optionality to exploit assets in markets, with potential for sweepstakes regulation and iGaming opportunities, including partnering with iGaming operators or leveraging content.
• Q: D2C growth drivers. A: Effective merchandising within apps, reduced friction allowing easier transactions, with ongoing efforts to improve merchandising and tailor offers.
• Q: D2C revenue percentage and gross margin. A: D2C revenue is increasing, but gross margin forecast is difficult. Focus is on DTC growth, sweepstakes scaling, and complement of ad revenue to drive improved margins.