The list of gaming companies looking to IPO continues to grow in 2020 with Playtika joining a list that includes Unity (U), Skillz (FEAC), and Corsair (CRSR). Roblox, as mentioned in a previous newsletter, has not officially filed. Playtika is different from these companies because they are a Chinese-owned entity.
This is important because some Chinese-owned companies have come under intense scrutiny from lawmakers due to differences around auditing and reporting practices. This controversy started earlier this year with Luckin Coffee (reporting fake transactions) and resulted in a bill being passed by the U.S. Senate, which if enacted into law would “make U.S.-listed companies subject to inspection by the Public Company Accounting Oversight Board," regardless of their country of origin (Reuters). Chinese owned companies traded in the US have a cumulative market cap of over $1 trillion. For context, the market cap of the NYSE is ~$25T.
Playtika is an Israel-based mobile gaming company that specializes in casino-themed games and boasts 27M MAUs. They were previously owned by Caesars Interactive Entertainment and was sold to a group of Chinese investors in 2016 for $4.4B. These investors include Giant Network Group Co Ltd and Yunfeng Capital, a private equity firm founded by Jack Ma (Alibaba Founder).
Given the concerns around the reporting practices of some Chinese-owned companies, it’s possible that Playtika will fall under some of that same scrutiny. If Playtika are able to hit their target valuation of a $10B market cap, that would net a $5.6B return in ~4 years (21.6% IRR) for the investment groups that bought Playtika from Caesars in 2016.
Playtika offers an interesting value proposition by not being a traditional video gaming company. All of their titles are gambling or casino-like games. For reference, Activision Blizzard (video gaming focus) trades at roughly 10x LTM revenue while a company like DraftKings (gambling focus) is currently trading at 45x LTM revenue. Given Playtika’s underlying business, I think it is most likely that this IPO will trade closer to DraftKings (DKNG) than Activision Blizzard (ATVI).
This week, Twitch began informing streamers (Polygon article) that, due to the Digital Millennium Copyright Act (DMCA), they would begin removing old content (clips and VODs) that they believe violate the DMCA. The DMCA controls how copyrighted material is used online, and there are provisions (known as a safe harbor) that protect platforms from litigation should the platform remove the offending material once notified about the infringement.
Content creators (streamers) are arguing they are not being told which pieces of content violated the rules. Additionally, Twitch isn't allowing users to submit counterclaims or get a retraction of claims - they’re just deleting content. Twitch has been used for years as a place for streamers to not only livestream but also keep a library of clips from their streams. Now, without notice, streamers are losing those clips.
The solution for Twitch, because of the safe harbor provision, is to immediately delete any potentially infringing material. The issue here is that DMCA claims can be false and without notifying which videos/clips have been removed, streamers have no way of being able to appeal the takedowns or recover their recorded streams. This isn’t good and there has already been a backlash in the community.
The argument against streamers is that Twitch has clearly stated their position regarding DMCA violations in its terms of service. While some may argue that copyright laws written in 1998 do not reflect the current digital economy and that Twitch is not offering proper solutions (like downloading or just hiding specific videos/clips from searches), Twitch doesn’t want to be held liable and must follow the DMCA provisions laid out in 1998.
To top this all off, The Recording Industry Association of America (RIAA) has even begun filing DMCA takedowns of the GitHub repositories of programs used to mass download your content from Twitch and YouTube. These open-source programs were freely available to creators to at least have these videos for themselves but the RIAA seems to want the videos completely deleted.