Social casino Q3 update: a mixed quarter for social publishers

The third quarter of 2016 saw mixed fortunes for social casino publishers: impressive performances from recently-acquired Playtika, Sci Games Interactive, Product Madness and Super Lucky stood in stark contrast to those from DoubleDown, Zynga, and Big Fish, according to Adam Krejcik of Eilers & Krejcik Gaming.

We estimate the global social casino game market grew 13.5% year-on-year (y/y) in Q3 2016, but was down -0.8% on a sequential basis.

This follows a somewhat sluggish Q2 period, which saw the industry grow 1.5% q/q. We estimate social casino revenues generated on Facebook/Web were down 4.4% q/q, while mobile was up 0.7% q/q. For the trailing 12-month period (TTM) ending Sep 30, 2016, we estimate a total market size of $3.7bn or +15.7% y/y growth.

We estimate the social casino market is on track to reach $3.81bn in CY16.

Performance among the top-15 social casino publishers was mixed. Key standout performers this quarter included SciGames Interactive, Product Madness, and Super Lucky. It was a challenging quarter for DoubleDown, Zynga, and Big Fish.

Company highlights:

• Playtika, which is now owned by Shanghai Giant Technologies, saw revenues decline ever so slightly on a sequential basis, but was still up an impressive 29% y/y. The sequential slowdown should not come as a complete surprise given the aforementioned seasonality factors impacting the industry, and it follows an incredibly strong Q2 period for Playtika. In our opinion, management likely made the strategic decision to pull revenue forward (in Q2) in order to maximize the value of its sale.
• SciGames Interactive, which owns Williams Interactive and Dragonplay, was once again a standout performer, with revenues up an estimated 6% q/q and 86% y/y, this on the back of 16% q/q growth in Q2 and +25% q/q growth in Q1). This stellar growth has resulted in SciGames surpassing Zynga this quarter to become the second largest social casino publisher worldwide.
• Zynga had a disappointing quarter with revenues down an estimated 7% q/q or just up 1% y/y. The company continues to struggle with cannibalization issues, this time with newly launched Willy Wonka having a negative impact on Wizard of Oz Slots. Specifically, we estimate Wizard of Oz revenues to be down nearly 20% q/q, and while Willy Wonka made a decent incremental contribution, the overall portfolio decline is likely disappointing to management.
• IGT, which owns and operates DoubleDown Casino, was down an estimated 12% q/q and 21% y/y. It was another challenging quarter for DoubleDown and they were once again clear market share losers in the period. This has been a troubling trend lately, which most industry insiders equate to a lack of execution and unclear strategy.
• Product Madness (owned by Aristocrat) once again saw healthy sequential revenue growth in Q3, which we believe is due to greater exposure to Asia-Pacific markets (notably Australia), which do not have the same seasonality issues as the US. Additionally, Heart of Vegas is still relatively early in its lifecycle on Android (note: Google Play revenues for Heart of Vegas were up double-digits sequentially versus just low-single digits on iOS).
• Big Fish (owned by Churchill Downs), which operates Big Fish Casino, had a disappointing quarter with casino bookings down an estimated 4% q/q and 6% y/y. Big Fish Casino is a mature game and has been declining for the past few quarters.
• GSN/Bash Gaming (majority owned by Sony) once again saw revenues decline, albeit at a more moderate pace versus Q2. Overall, we estimate revenues declined 2.5% q/q and 10% y/y, despite a number of acquisitions in the past year.
• DoubleU Games had a decent quarter with revenues up 5% q/q and 18% y/y. The company has done a good job of transitioning to mobile (now 57% 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.
• Playstudios had a relatively strong quarter with revenues up 3% q/q and 10% q/q thanks to the launch of POP Slots and further gains from myKonami. While its flagship game myVegas appears to have suffered from some cross-promotion/ cannibalization from new titles, we note management plans to help revitalize this franchise with new content and a major tech/platform upgrade in the coming months.
• Murka saw mid-single-digit sequential revenue growth, a slowdown from prior quarters, but still up 360% y/y, which was the fastest y/y growth rate in the industry (among the top-15 publishers). The sequential slowdown was largely a function of reduced marketing and promotional activity in Scatter Slots and Infinity Slots as the company prepares to launch three new titles in Q4 including Spinner Slots, Slots Era, and Scatter Poker.
• Super Lucky had another strong quarter with revenues up 12% q/q and 260% y/y. The company has a unique strategy and seems to be bucking a long accepted principle about the importance of a “long tail” in social casino. Nonetheless, the company has been enjoying success and outpacing the overall industry growth rate for the last few quarters.
• Rocket Games, which is now owned by Penn Gaming had another decent quarterr, with revenues up mid-single digits, albeit a deceleration from prior quarters. Looking ahead, we expect Rocket to play a key role in helping scale the Hollywood Casino franchise, while continuing to focus on profitable revenue growth, in order to try maximize its two-year earn-out.
• Other: One notable standout performer this quarter that was just shy of breaking into our top-15 rankings was Huuuge Games (publisher of Huuuge Casino). Following some fundraising activity earlier in the year, Huuuge seems to have found its stride and was a clear market share gainer this period. The company appears to be focusing heavily on social aspects and similar to Murka, we believe Huuuge is largely relying on innovation to break into what is a very crowded and competitive market.