Playstudios' Q3 2025 Earnings Call: Contradictions Emerge on Sweepstakes Expansion, DTC Strategy, Investment Shifts, and Advertising Outlook

Date of Call: November 03, 2025

Financials Results

• Revenue: $57.6M, down approximately 19.1% YOY and down 2.7% sequentially (YTD $179.7M, down 18.9% YOY)
• Operating Margin: 12.6% operating margin, compared to 20.5% prior year (Adjusted EBITDA $7.2M, down 50.5% YOY; YTD adjusted EBITDA $30.5M, down ~31% YOY)

Guidance:

• Company now expects full-year net revenue and consolidated adjusted EBITDA to fall below the low end of previously provided guidance ranges.
• Intend to be live in all qualified domestic sweepstakes jurisdictions by year-end and deploy modest marketing to validate cohorts/CAC, scaling if metrics hold.
• Tetris Block Party in focused go-to-market test now; broader rollout targeted for Q1 to inform 2026 contribution forecasts.
• Continue disciplined cost control while investing in D2C, sweepstakes and AI-enabled product initiatives.

Business Commentary:

* Financial Performance and Market Challenges: - PLAYSTUDIOS reported revenue of $57.6 million for Q3 2025, down 19.1% year-on-year and 2.7% sequentially. - The decline was due to reduced player activity and monetization, particularly from casual segments, amid ongoing market challenges affecting the social casino category.

• Sweepstakes and Strategic Initiatives:
• Win Zone, the company's sweepstakes initiative, is currently live in 15 states, with plans for a broader rollout before year-end.

• This strategic move aims to capitalize on the potential $3.5 billion to $4 billion market, despite regulatory contraction that reduced the total addressable market (TAM) by roughly 25%.

• Direct-to-Consumer Revenue Growth:

• PLAYSTUDIOS' D2C revenue reached $7.7 million in Q3, up 48% quarter-over-quarter, contributing 16.7% of total in-app purchase revenue.

• This growth was driven by more effective merchandising and promotion within apps, enhanced by relaxed Apple policy changes.

• AI Integration and Modernization:

• The company is actively integrating AI across game development, creative tooling, UA modeling, and player targeting.
• This initiative aims to accelerate production and improve live operations efficiency, with expectations of long-term benefits in gameplay, production, and operations.

Sentiment Analysis:

Overall Tone: Negative

• CFO: "Total revenue for the quarter was $57.6 million, down approximately 19.1% versus the third quarter of '24 and down 2.7% sequentially." "Adjusted EBITDA ... was $7.2 million, down 50.5% versus the third quarter of '24." Management: "we now expect full year results ... to fall below the low end of the previously provided guidance ranges."

Q&A:

• Question from Ryan Sigdahl (Craig-Hallum Capital Group LLC): Sweepstakes — feedback from World Series of Slots on Win Zone; are those existing Win Zone players; thoughts on broader state-by-state launch?
  Response: Small sample from the live event but overall positive; relying on metrics from 15 live markets showing improving retention, conversion and monetization; plan to open more jurisdictions and be live in all available by year-end, then scale UA if metrics hold.

• Question from Ryan Sigdahl (Craig-Hallum Capital Group LLC): Has California's ban produced any benefit to your core social casino games in California?
  Response: No benefit observed yet—the ban takes effect after Jan 1; company will monitor and run targeted marketing promoting its rewarded-play alternative hoping for lift.

• Question from Ryan Sigdahl (Craig-Hallum Capital Group LLC): When you say everything is on the table, is that primarily organic or are you looking at M&A as well?
  Response: Both—ongoing internal efficiency work plus evaluation of inorganic opportunities to accelerate sweepstakes, playAWARDS and casual portfolio, but no transactions to announce.

• Question from Aaron Lee (Macquarie Research): How much visibility do you have into 2026, and will you be able to guide to sweepstakes contribution by year-end?
  Response: Hoping for more visibility by year-end—aim to be live in all domestic sweepstakes jurisdictions and complete Tetris marketing tests to better predict 2026 contributions and speak to them on the next call.

• Question from Aaron Lee (Macquarie Research): Once you're in all jurisdictions, will you lean into marketing or is anything else required before full launch?
  Response: After opening jurisdictions they'll deploy modest marketing to generate cohorts and measure CAC/metrics; if metrics hold, they'll increase marketing and scale.

• Question from Michael Hickey (The Benchmark Company, LLC): You trimmed 2025 revenue and EBITDA guidance—can you size the reduction or comment on Q4 sequential revenue trend?
  Response: No specific magnitude provided—the Q3 trends have continued into Q4 so far, limiting clarity; launches could change outcomes if metrics justify stepping on the gas.

• Question from Michael Hickey (The Benchmark Company, LLC): Excluding hopeful launches, should we expect core business sequential decline in Q4 from Q3?
  Response: Yes—core business is expected to decline sequentially in Q4 absent successful launch-driven upside.

• Question from Michael Hickey (The Benchmark Company, LLC): How do you stop the decay in social casino?
  Response: Strategy is to retain players via a sweepstakes alternative within our ecosystem, use rewarded-play to recapture users where sweepstakes are restricted, and leverage regional dynamics (e.g., California) to stabilize performance—results must be proven.

• Question from Michael Hickey (The Benchmark Company, LLC): Any strategic opportunities to partner with iGaming operators as sweepstakes markets evolve?
  Response: Yes—company has a large U.S. player database and an RGS platform, offering optionality to be a direct provider, partner with iGaming operators or license content as markets regulate.

• Question from Martin Yang (Oppenheimer & Co. Inc.): D2C is consistently improving—what drove sequential growth this quarter and any new channels/partners?
  Response: Growth driven primarily by better in-app merchandising enabled by relaxed Apple policies, reducing friction to off-platform purchases; additional merchandising and tailored offers planned to grow D2C further.

• Question from Martin Yang (Oppenheimer & Co. Inc.): Is the relationship between rising D2C percentage and gross margin linear, and how will a sweepstakes ramp affect gross margin?
  Response: Not strictly linear—D2C growth, sweepstakes (web-based revenue booked fully) and ad-rev mix should support margin improvement, but forecasting the magnitude and timing is uncertain.

Contradiction Point 1

Sweepstakes Market Scaling Strategy

It highlights a shift in the company's strategy regarding the full launch and scaling of the Sweepstakes service, which directly impacts market expectations and resource allocation.

Can you discuss the feedback on Win Zone at the World Series of Slots and your plans to scale it versus a state-by-state approach? - Ryan Sigdahl(Craig-Hallum Capital Group)

2025Q3: By the end of the year, Win Zone will be live in all available jurisdictions, allowing for more meaningful UA capital deployment. - Andrew Pascal(CEO)

What quantitative metrics from the early Sweepstakes launch can you share? Why hasn't the full Sweepstakes launch been accelerated? - Ryan Ronald Sigdahl(Craig-Hallum Capital Group)

2025Q2: The Sweepstakes service is live in 7 jurisdictions. The approach is measured to ensure the integrity of the service and achieve the right return targets to scale. - Andrew S. Pascal(CEO)

Contradiction Point 2

DTC Revenue and Strategic Focus

It highlights differing expectations and strategies surrounding the growth of direct-to-consumer (DTC) revenue, which is a key focus for the company.

What's driving the sequential growth in D2C revenue? - Martin Yang(Oppenheimer & Co. Inc., Research Division)

2025Q3: Improved merchandising within apps and easier transactions. Focus on effective promotion and tailored offers to increase participation in off-platform store. Expects continued improvement in this trend. - Andrew Pascal(CEO)

What's driving the DTC revenue growth, and what's your target for DTC as a percentage of total revenue? - Michael Hickey(The Benchmark Company, LLC, Research Division)

2025Q1: The success is driven by offering incentives for direct consumption and leveraging our loyalty program to provide additional benefits. The ruling in the Apple-Epic case enables more aggressive promotion and deeper loyalty integration. We aim for a significant increase in DTC contribution by the end of the year. - Jason Hahn(CSO)

Contradiction Point 3

Investment Strategy Shift

It highlights a shift in investment focus and strategy, which could impact operational efficiency and financial outcomes.

Is the reevaluation of the business primarily organic or are you considering M&A? - Ryan Sigdahl (Craig-Hallum Capital Group LLC, Research Division)

2025Q3: Both organic and inorganic options are being considered. Cost savings of $25-$30 million are anticipated. Focus is on efficient operations and structural adjustments. Inorganic opportunities include potential acquisitions to accelerate sweepstakes momentum or complement casual and playAWARDS portfolios. - Andrew Pascal(CEO)

What are the 2025 investment plans and how do they align with strategic priorities? - Questioner's Name (Company Name)

2024Q4: Our 2025 investment plan prioritizes growth and strategic initiatives. We plan to invest about $30 billion, with focus areas including TAC, leasing, content, and strategic initiatives. These investments align with our strategic priorities, ensuring alignment with business objectives. - David Viniar(CFO)

Contradiction Point 4

Advertising Revenue Outlook and TAC Impact

It involves the company's outlook on advertising revenue and the impact of traffic acquisition costs, which are critical for investor expectations and financial planning.

Could you clarify the revenue adjustment for 2025 and the expected sequential growth in Q4? - Michael Hickey (The Benchmark Company, LLC, Research Division)

2025Q3: Trends seen in Q3 continue. New launches may provide more clarity, but modeling these is challenging. Expectation is for sequential decline in Q4 revenue. - Scott Peterson(CFO)

What is the revenue outlook for advertising, especially regarding Alphabet's TAC? - Questioner's Name (Company Name)

2024Q4: Advertising outlook is positive, despite TAC growth. Revenue growth is expected to increase. The TAC increase is primarily due to higher rates for distribution partners, but there is significant value exchange for our users and partners. - Philipp Schindler(SVP, CBO)