Image Source: Playtika.com

This month, social casino operator Playtika (PLTK) completed a share repurchase program that saw it spend $600 million to buy back its own shares. The move is seen as a way to improve shareholder value and increase earnings per share, but there's much more to the news than that.

A spokesperson for Fruityking.co.nz said: “As social casino operators grow, they're increasingly turning to share repurchases as a way to return value to shareholders.”

“While Playtika's program is one of the largest in recent memory, it's far from the only one. Social gaming giant Zynga completed a $200 million share repurchase in 2012, and Caesars Interactive Entertainment (now known as Eldorado Resorts) has been active in the space as well.”

Share repurchases are just one way that social casino operators are looking to increase shareholder value. With the industry expected to continue growing at a rapid pace, we can expect to see more programs like this in the future.

Here's a closer look at the share repurchase and what it means for Playtika and its shareholders. Let's first get going by considering what Playtika is and why this is such interesting news for all involved in the casino world.
 

What is Playtika?

Playtika is a social casino games developer. The company was founded in 2010 and was acquired by a Chinese consortium in 2016. Based in Herzliya, Israel, Playtika has over 3000 employees and offices in Argentina, Australia, Canada, China, France, Romania and the United States.

The company's games are available on social media platforms such as Facebook and mobile app stores. Its most popular games include Slotomania, Caesars Casino and House of Fun. In total, Playtika's games have been played by over six million people worldwide.

Why is the share repurchase news?

The share repurchase is good news for shareholders because it reduces the number of shares outstanding and therefore increases earnings per share. This is because when a company buys back its own shares, there are fewer shares to divide up the company's profits amongst. As a result, each share is worth more and the company's stock price is likely to increase.

The news is also interesting because it comes at a time when Playtika is facing some headwinds. The company's revenue growth has slowed in recent quarters and its stock price has come under pressure as a result.

In addition, the share repurchase is being funded by debt. Playtika has taken out $400 million in loans to finance the buyback. This means that the company will have to generate enough cash flow to service this debt in addition to its existing obligations.

Overall, the share repurchase is positive news for shareholders but there are some risks that investors need to be aware of.

What does the share repurchase mean?

First, let's take a look at the size of the repurchase. Social casino operators are typically big spenders when it comes to share repurchases. For example, social media company LinkedIn completed a $264 million share repurchase in December 2014. But even that pales in comparison to Playtika's $600 million buyback.

Playtika, on the other hand, announced its share repurchase program one day after it reported strong third-quarter results. The company's EPS for the quarter was up 36% year-over-year, and its revenue was up 25% year-over-year. Playtika's stock price is also up more than 50% since the beginning of the year.

So why would a company that just reported strong results and is seeing its stock price soar announce a share repurchase?

Let's take a look!
 

What was the motivation behind the repurchase?

There are two possible explanations. First, Playtika may be trying to take advantage of its strong financial position to buy back shares while they're still relatively cheap. After all, Playtika's stock price could fall back to earth at any time, and the company may want to lock in its gains by buying back shares now.

Second, Playtika may be trying to send a signal to the market that it's confident in its long-term prospects. By buying back shares, Playtika is essentially saying that it believes its stock is undervalued and that it's a good long-term investment.

Summary

Of course, only time will tell whether Playtika's share repurchase was a wise move. But for now, it's an interesting development in the world of social media stocks. Social media companies are often big spenders when it comes to share repurchases, but the timing and size of Playtika's buyback make it a noteworthy event.

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