Digital expansion drives full-year growth for Aristocrat

The scale of Aristocrat’s rapid digital expansion has been revealed today (November 29) with a near-AUS$1bn increase in revenue, coupled with strong growth in North America, helping the supplier to a 47.7% rise in turnover for the 2018 financial year.

With overall sales rising to $3.624bn (£2.08bn/€2.33bn/$2.65bn) for the 12 months ended September 30, digital revenue rocketed by 250% to $1.339bn. The division's profits rose to $438.2m – up from $158.9 in the previous year.

Aristocrat said that the digital segment’s strong results were “significantly enhanced” by the acquisitions of social gaming companies Plarium and Big Fish Games in October 2017 and January 2018 respectively.

With Aristocrat also highlighting solid performances from the Cashman Casino and Heart of Vegas offerings, supplemented by the launches of FaFaFa Gold and Lightning Link in the 12-month period through to September 30, the company’s total daily active digital users increased almost five-fold to 8.1 million.

Meanwhile the Americas segment – comprising the US, Canada, Mexico and Argentina – now represents 44.7% of Aristocrat’s total sales, in comparison with 12.5% from the company’s traditional home turf of Australia and New Zealand.

A 13.7% rise in revenue for the Americas to $1.620bn generated a 16.7% increase in segment profit to $859.2m. Aristocrat said that a 25% expansion in North America of its Class III premium gaming operations – effectively its casino supply business – had resulted from “broadening product portfolios”.

This was in contrast to the company’s international Class III segment, which reported a 2% fall in revenue to Aus$210.5m.

Aristocrat also posted a big 54.1% increase in design and development (D&D) expenses to $413.6m, with the company’s D&D team now representing almost half of its global employee base.

The company expects to increase D&D investment in the 2019 fiscal year, but said that such expenses would remain broadly in line with the 11.7% costs in relation to revenue reported for 2018.

Aristocrat’s share price actually fell by nearly 9% on Thursday morning before recovering to close at $25.44 – a marginal 2.6% fall for the day – with analysts citing lower-than-anticipated 9.6% growth of total profit after tax to $542.6m.

Bell Direct analyst Julia Lee, putting the market reaction into context, told Bloomberg: “The longer the stock is in an upgrade cycle, the bigger the expectations become. At some point, it just becomes too hard to meet those expectations.”

Aristocrat anticipates further growth in its digital business in the 2019 fiscal year, supported by new game releases and a significant increase of about $100m in user acquisition investment. The company’s earnings are expected to be weighted towards the second half of the 2019 financial year due to the timing of digital game releases and corresponding user acquisition investment.

“Recurring revenue, including gaming operations and digital social casino, accounted for 65% of group revenues, up from 52% in the prior year,” Aristocrat CEO and managing director Trevor Croker (pictured) said.

“This highlights the progress Aristocrat has made in delivering sustainable earnings and cash flow growth over time, consistent with our strategy and shareholders’ interests.”