Playtika Pounded by Short Report, Expert Sees Things Differently

Posted on: February 3, 2022, 02:20h. 

Last updated on: February 3, 2022, 02:30h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Playtika (NASDAQ:PLTK) plunged Thursday after a research firm issued a short report on the mobile gaming company. But at least one industry observer believes the analysis is inaccurate.

Playtika
Playtika highlight at the Nasdaq market site in January 2021. The stock plunged today following a short report by Grizzly Research. (Image: Nasdaq)

Playtika slid 8.53 percent on volume that was triple the daily average. That’s after Grizzly Research issued a scathing report in which it claims the gaming company is sitting on a mountain of debt and that it faces mounting regulatory risk.

The research firm adds that following Playtika’s January 2021 initial public offering (IPO), the company was “stripped of its cash” and loaded up with debt, adding that Playtika is essentially the only mobile gaming company with a massive debt burden.

Additionally, the initial public offering did not raise much proceeds for the company, but instead allowed former shareholders to unload their shares to the public,” says Grizzly.

Playtika’s IPO was comprised of 69.50 million shares. The company offered 18.51 million and 50.98 million sold by Playtika Holding UK. That entity is controlled by Chinese investors that purchased the gaming company in 2016 for $4.4 billion.

Another Dodgy Chinese Firm?

As more Chinese companies have gone public, pursuing listings in the US, many have become targets of short sellers alleging financial fraud and dubious accounting practices, among other claims.

For its part, Playtika is an Israeli company. But its largest investor is Playtika Holding UK II Limited (PHUK II), which is controlled by Chinese investors Giant Network Group Co. Ltd. and Yunfeng Capital. Yunfeng is a private equity group started by Alibaba founder Jack Ma.

There could be something to Grizzly’s assertion that Chinese investors are looking to unload their shares onto ordinary shareholders. That’s because Playtika revealed last week PHUK II is planning a sizable stock sale that could amount to as much as 25 percent of the gaming company’s shares outstanding.

“Playtika, in our opinion, is a quintessential example of a pattern we frequently see in today’s market environment,” adds Grizzly. “Chinese insiders seem keen to bring their companies public in the US when faced with regulatory changes which essentially destroy their business.”

The research firm adds 20 percent of Playtika shares are pledged to Chinese banks by inside investors from that country, which is hidden from US investors while creating more risk for other shareholders.

Grizzly Wrong About Playtika, Says Expert

Short reports often draw claims that the information presented in the research isn’t accurate, and the case of Playtika is no different.

“I’ve done a lot of research on Playtika over past 10-years… 99 percent of the items in this report are wrong, misconstrued, and or misleading,” said Eilers & Krejcik Gaming partner Adam Krejcik in a tweet earlier today.

Krejcik didn’t elaborate on why Grizzly’s analysis of Playtika is inaccurate.

“In summary, we believe Playtika’s short-termism comes at the expense of lasting shareholder and business value. Looming regulatory risks and an aggressive monetization strategy make the business unsustainable. We see over 40 percent downside in the stock in the short to medium term,” concludes Grizzly.

The stock closed at $15.54 today and is 55.71 percent below its 52-week high.