Social casino finances: Q4 update

After a sluggish third quarter, the social casino market returned to growth in the final quarter of 2016, with strong performances from SciGames, Product Madness and PlayStudios.

DoubleDown was the biggest market share loser over the three months, while Zynga struggled with cannibalisation issues, according to Adam Krejcik of Eilers & Krejcik Gaming.

We estimate the global social casino game market grew by 3.1% quarter-on-quarter (q/q) or 9.9% year-on-year (y/y) in Q4 2016. This follows a sluggish Q3, which saw the industry decline 0.3% q/q.

We estimate social casino revenues generated on Facebook/web were down 0.9% q/q, while mobile was up 4.6% q/q. For 2016, we estimate a total market size of $3.81bn, up 14% y/y versus 21% y/y growth in calendar year 2015.

The social casino market has grown at a CAGR of 23% since 2013.

Performance among the top 15 social casino publishers was mixed. The key standout performers this quarter included SciGames Interactive, Product Madness, PlayStudios, Murka and Huuuge Games.

It was a challenging quarter from a revenue perspective for DoubleDown, Big Fish and Super Lucky.

Company highlights:

• Playtika, which is now owned by Shanghai Giant Technologies, saw revenues increase an estimated 2.1% q/q and 25% y/y. We note that even Playtika is not immune to a maturing market, however, the company’s highly diversified portfolio of games provides it with many avenues for growth. Notably, its biggest game, Slotomania, appeared to be down low-to-mid single digits on mobile this quarter, but this was offset by very strong sequential growth from WSOP and Bingo Blitz and to a lesser extent Caesars Slots and House of Fun. The ability to drive growth from such a wide range of games, including non-slot titles (i.e. WSOP and Bingo Blitz) helps serve as a key competitive advantage, especially in a maturing market.
• SciGames Interactive, which owns Williams Interactive and Dragonplay, was once again a standout performer with revenues up an estimated 6% q/q and 58% y/y (this is on the back of 3% q/q growth in Q3 and 16% q/q growth in Q2). SciGames remained the second largest social casino game publisher, having surpassed Zynga last quarter. Growth in Q4 was largely driven by Jackpot Party Casino, Gold Fish Casino and Hot Shots. The only real weak spot was Quick Hits, which appeared to have a hiccup this quarter following a number of strong periods.
• Zynga had a mixed quarter with revenues up an estimated 2.6% q/q, but up just 1% on a y/y basis. As we noted last quarter, the company continues to struggle with cannibalisation issues, most recently with Willy Wonka having a negative impact on Wizard of Oz slots. Specifically, we estimate Wizard of Oz revenues were down 9% q/q, and while Willy Wonka had another strong quarter (we estimate growth of 40% q/q), the company was unable to drive much growth across its total slot games portfolio. Finally, Zynga Poker appeared to have a strong quarter on mobile, and we believe the problems that negatively impacted the game on canvas last quarter have been mostly resolved.    
• Product Madness (owned by Aristocrat) was once again a standout performer and surpassed IGT/DoubleDown to become the fourth biggest social casino publisher worldwide. We estimate revenues were up 9% q/q and 46% y/y, largely driven by Heart of Vegas, which we believe continues to benefit from improving monetisation and new content and features. We also believe HoV now boasts one of the highest average revenue per daily active user in the industry.
• IGT, which owns and operates DoubleDown Casino, was down an estimated 7.5% q/q and 27% y/y. It was another challenging quarter for DoubleDown and it was once again the clear market share loser in the period. This has been a troubling trend lately, which most industry insiders equate to a lack of execution and unclear strategy. On the positive side, DoubleDown still has access to some of the best content in the world and we believe management is taking a few proactive steps to try to stop the bleeding; however, in such a fast moving and dynamic industry we wonder whether these issues can be fixed in time.
• GSN/Bash Gaming (majority owned by Sony) had a relatively strong quarter, largely driven by growth in Bingo Bash and to a lesser extent the launch of Wheel of Fortune Slots with Vanna White. Overall, we estimate revenues increased 6% q/q, but were still down 8% y/y due to tough comps from GSN Casino and its Facebook exposure. Overall, the company has a very diversified portfolio of games (including bingo, poker and various slot apps) and a large and sticky user base, but it struggles on the monetisation side compared to some of its bigger peers.
• Big Fish (owned by Churchill Downs) had a disappointing quarter with casino bookings down an estimated 4% q/q and 12% y/y. Notably, despite a reasonably strong start new titles such as Jackpot City Slots were unable to offset weakness from Big Fish Casino, a mature game that has been declining for the past few quarters. We also believe Big Fish was far more conservative in terms of its user acquisition spend this period versus some of its peers, which has a negative impact on revenues but likely helped on the bottom line.
• DoubleU Games had another solid quarter with revenues up 5% q/q and 11% y/y. The company has done a good job of transitioning to mobile (now 55% of total revenues), despite historically being very reliant on Facebook. The company’s flagship game, DoubleU Casino, continues to post steady growth on mobile while the canvas version has proven to be amazingly resilient (a common theme among some of the early/dominant casino games on FB). Looking ahead we expect the company to continue to leverage the same formula that has worked to date, as well as further scale its newer titles such as DoubleU Bingo and Take5 Slots.
• PlayStudios had a strong quarter with revenues up 7% q/q and 16% y/y thanks to very strong growth from the recently launched POP Slots. While its flagship game myVegas appears to have suffered from some cross-promotion/cannibalisation from new titles, we note management plans to help revitalise this franchise with new content and a major tech/platform upgrade in the coming months. Finally, the company has a number of new partnerships and titles in its pipeline, including an Asia-themed game that it hopes will allow it to further penetrate these untapped markets.