Stephen J. Cloobeck Releases Open Shareholder Letter Demanding Playstudios Replace Management

Rhea-AI Summary

Stephen J. Cloobeck, a major shareholder in Playstudios, has called for the removal of Chairman and CEO Andrew Pascal, citing significant shareholder value erosion and management failures. Cloobeck points to unmet revenue projections, with 2021 revenues at $287 million compared to the expected $328 million, and lowered 2022 guidance of $305 million to $325 million. He criticizes Pascal for mismanagement, including a costly buyback of underwater warrants and failure to deliver on product promises, notably the shelved Kingdom Boss game. Cloobeck urges the Board to act and replace Pascal for better future performance.

Positive

• Cloobeck's call for management change indicates shareholder engagement.
• Potential for new leadership could restore investor confidence.

Negative

• 2021 revenues were only $287 million, missing the $328 million target.
• 2022 revenue guidance lowered to $305 million-$325 million from $435.2 million.
• Management's track record includes inflated projections and product delivery failures.
• Mismanagement allegations include a misguided buyback of underwater warrants.
• Kingdom Boss game development suspended, leading to a potential $9 million write-off.

LAS VEGAS, April 5, 2022 /PRNewswire/ -- Stephen J. Cloobeck, a successful entrepreneur and substantial shareholder in Playstudios Inc. ("Playstudios" or "the Company"), today released a letter to the Company's Board of Directors advocating for the removal of Chairman and Chief Executive Officer Andrew Pascal and his management team due to an erosion in shareholder value under their watch, and a lack of confidence they can execute the Company's strategy.

Full text of Mr. Cloobeck's letter to the Board of Playstudios follows below:

April 5, 2022

PLAYSTUDIOS, Inc.
10150 Covington Cross Drive
Las Vegas, NV 89144

Attn: Board of Directors

Ladies and Gentlemen:

I write on behalf of myself, as a substantial shareholder of Playstudios ("Playstudios" or "the Company"), as well as fellow shareholders who like me are frustrated with the direction of the Company under its current management. I implore you to take immediate action and replace Chairman and Chief Executive Officer Andrew Pascal and his management team before shareholder value is eroded further than it has been already. Under Mr. Pascal, the company has proven time and again that it overpromises and underdelivers on critical product, revenue, and profit goals.

Is it any wonder the company's stock has not only underperformed the market, but also its closest competitors? One commentator called Playstudios "One of (the) Worst-Performing De-SPACed Companies Over Past Year," and that was last August, before the stock plummeted even further. Another, more recently in February, wrote a commentary titled, "Getting Played By Playstudios." Not exactly a public vote of confidence in management.

I and other shareholders are also curious, and the SEC might be too, about how Mr. Pascal profited by selling high into last year's SPAC transaction, then proceeded to miss revenues and lower guidance right out of the gate, cratering the stock. Now, with the stock scraping the bottom thanks to Mr. Pascal's mismanagement of the company, he is a buyer again at prices ranging from $4 to $5. Has the Board taken any measures to ensure that he is not trading on privileged information that other shareholders are lacking?

Most recently in what some might call his latest act of financial malpractice, Mr. Pascal has chosen to squander the company's cash on a misguided buyback of outstanding warrants that ARE UNDERWATER by more than half of their exercise price of $11.50! This, despite Mr. Pascal saying on the February earnings call, "we maintain our belief that the best use of our capital is to deploy it into strategic growth opportunities as opposed to purchasing our own stock." What does he think warrants are if not the right to purchase stock?

Were this the only act of mismanagement, it might be excused as a rookie mistake for someone with limited experience running a public company. But it's not. Of equal concern is his pattern of inflated revenue projections and failed product delivery promises that are undermining confidence that the management team, including Mr. Pascal, can execute the Company's strategy. By way of example, when the Company first announced it would go public in a $1.1 billion merger with a special purpose acquisition company in February 2021, management told shareholders in an investor presentation that it expected 2021 revenues of $328 million, and an estimated $435.2 million in 2022. These projections caused the stock to trade at a high of more than $10 almost a year ago, double the current price.

It's a different story today: Instead of $328 million, 2021 revenues were a disappointing $287 million. And without disclosing the diminished expectations, the company said in its February earnings call that 2022 revenues would instead come in at an underwhelming $305 million to $325 million, far below the previous guidance of $435.2 million. Rather than owning up to management's failure, Mr. Pascal chose to gaslight shareholders, pronouncing on the call, "our top line results continue to outpace the broader market," and "Our revenue growth has generally outpaced the market." What market is he talking about?

It's the same story of unmet promises and lowered guidance with EBITDA. In its February 2021 investor presentation, the Company claimed it would achieve adjusted EBITDA in 2021 of $21.8 million, and $89.9 million in 2022. Wrong again. Management now says it expects 2022 adjusted EBITDA "in the range of $40.0 million to $50.0 million," which would barely beat 2021, which itself plummeted from the $58 million produced in 2020. This is not what the Company's shareholders were led to expect, nor what they deserve, when they invested in the company based upon the representations of the Board and management.

In yet another management blunder, the Company has been opaque at best about the bungled release of its Kingdom Boss game, a game that Mr. Pascal once claimed would produce annual revenues north of $60 million, while gushing that it was "an innovative and beautifully executed RPG game that brings the dynamism of rewards to the $6 billion vertical." Now, after suspending development of the game, management plans to take a charge that will likely be close to $9 million and write it off. In the February earnings call, Mr. Pascal said, "the game has struggled to achieve all the criteria that were established for wholescale launch," and "we really struggled to get all the metrics to a place where we felt like the product was healthy and investible."

What would those "criteria" and "metrics" be? Who knows, the Company has never been specific about the issues. Why would management pull the plug on a game that has actually garnered decent user reviews and a 4.5 star ranking on the Apple App Store, and a similar ranking on Google Play? What is management hiding about this fiasco?

As noted above, this is just a summary but by no means the only examples of the mismanagement under Mr. Pascal and his team. He has fumbled on execution and shareholders are paying the price. I am writing to the Board because it is your responsibility to assess the overall direction and strategy of the business and supervise and evaluate the CEO. I believe the facts show that Mr. Pascal has not performed. I am writing to request that the Board do the right thing and replace Mr. Pascal with someone who can restore confidence that this Company is on a path for success.

Sincerely,

Stephen J. Cloobeck

About Stephen J. Cloobeck

Stephen J. Cloobeck is a self-made entrepreneur with more than thirty years' experience across every aspect of hospitality design, development, and deployment. As the founder and former CEO and chairman of Diamond Resorts International – a business that grew to become the second-largest vacation-ownership company worldwide with more than four hundred properties across thirty-three countries in its portfolio – Cloobeck made a name for himself as an advocate for radical customer service, what he calls embracing the "Meaning of Yes". Diamond was sold to Apollo Global Management in 2016, then sold by Apollo in 2021 to Hilton Grand Vacations. For his commitment to serving the hospitality industry and expanding its economic impact nationwide, Cloobeck was appointed by former Commerce Secretary Gary Locke to serve as the inaugural chairman of the board in Brand USA Inc., a US government-formed nonprofit corporation with the sole mission of promoting travel to the United States. As Brand USA's leading voice, Cloobeck coordinated with the Department of Homeland Security, the Department of State, the Department of Commerce, Congress, the White House, and leading American business in a first-ever effort to efficiently, effectively, and economically make the United States a more welcoming and accessible international travel destination for millions of would-be visitors around the globe. Visit https://stephenjcloobeck.com/ for additional information.

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SOURCE Stephen J. Cloobeck

FAQ

What prompted Stephen J. Cloobeck to demand management changes at Playstudios?

Cloobeck cited shareholder value erosion and management failures under CEO Andrew Pascal.

What were the revenue projections for Playstudios in 2021?

The company projected $328 million but only achieved $287 million.

How has Playstudios' stock performed recently?

Cloobeck claims Playstudios has significantly underperformed compared to the market and competitors.

What specific actions did Cloobeck criticize from Andrew Pascal?

Cloobeck criticized Pascal for unmet revenue projections, a misguided warrant buyback, and the suspension of the Kingdom Boss game.

What is the current guidance for Playstudios' 2022 revenue?

The company has lowered its 2022 revenue guidance to $305 million-$325 million.