Posted: February 3, 2022, 2:20 a.m.
Last update: February 3, 2022, 2:20 a.m.
Shares of Playtika (NASDAQ:PLTK) plunged on Thursday after a research firm released a brief report on the mobile games company, but at least one industry watcher believes the analysis is inaccurate.
Playtika fell 8.53% on volume that was triple the daily average after Grizzly Research released a scathing report claiming the game company is sitting on a mountain of debt and facing to growing regulatory risk.
The research firm adds that following Playtika’s initial public offering (IPO) in January 2021, the company has been “stripped of cash” and taken on debt, adding that Playtika is essentially the only company in mobile games with massive indebtedness.
Additionally, the initial public offering did not bring much proceeds to the company, but rather allowed former shareholders to unload their shares to the public,” says Grizzly.
Playtika’s IPO consisted of 69.50 million shares. The company offered 18.51 million and 50.98 million sold by Playtika Holding UK. This entity is controlled by Chinese investors who bought the gaming company in 2016 for $4.4 billion.
Another dubious Chinese company?
As more Chinese companies have gone public, pursuing listings in the United States, many have become targets of short sellers alleging financial fraud and questionable accounting practices, among other allegations.
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 established by Alibaba founder Jack Ma.
There could be something to Grizzly’s claim that Chinese investors are looking to offload their shares to common stockholders because Playtika revealed last week that PHUK II is planning a large share sale that could be up to 25% of the outstanding shares of the gaming company.
“Playtika, in our view, is a prime example of a pattern we frequently see in today’s market environment,” adds Grizzly. “Chinese insiders seem eager to take their companies public in the United States when faced with regulatory changes that are essentially destroying their business.”
The research firm adds that 20% of Playtika’s 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 is wrong about Playtika, says expert
Short reports often argue that the information presented in the research is not accurate and that Playtika’s case is no different.
“I have done a lot of research on Playtika over the past 10 years…99% of the material in this report is wrong, misinterpreted and/or misleading,” said Adam Krejcik, Partner at Eilers & Krejcik Gaming, in a tweet earlier today.
Krejcik did not elaborate on why Grizzly’s analysis of Playtika is inaccurate.
“In summary, we believe Playtika’s short-sightedness comes at the expense of sustainable shareholder and company value. Looming regulatory risks and an aggressive monetization strategy make the business unsustainable. We expect the stock to drop more than 40% in the short to medium term,” concludes Grizzly.
The stock closed at $15.54 today and is 55.71% below its 52-week high.