The social casino sector experienced a second consecutive period of sub-par growth in the third quarter of 2015, with some publishers adapting better than others to the ongoing transition away from Facebook/web gaming to mobile, writes Adam Krejcik of Eilers Research.
We estimate the social casino game market was up 1.2% quarter-over-quarter (q/q) or 14.2% year-on-year (y/y) in Q3 015. We note that this marks the second consecutive quarter of sub-par growth for the industry, and while there remain pockets of strength, most publishers we spoke with classified it as a very challenging quarter.
In our opinion, there are likely two primary factors impacting social casino market growth:
- secular decline of Facebook/web gaming, and
- declining tablet sales (and likely usage), which has not been fully offset by the adoption of larger screen smartphones.
While the install base of iPads is much smaller compared to iPhones, we note iPad users represent some of the highest LTVs in the industry, the larger screen being much more conducive to gaming, and the social casino category as a whole has historically indexed very well on this platform.
As consumers migrate towards 5-inch+ smartphones (serving as replacement for tablets) and non-gaming centric devices (i.e. wearables), it is likely having an impact on mobile revenue trends.
Social casino publishers with heavy exposure to the iPad platform are likely being impacted the most, while publishers who are more diversified and have greater Android exposure aren’t experiencing the same pressure.
Finally, we believe there has been some shifts in terms of wallet share in the social casino category lately as new sub-sectors such as three-reel mechanical slots (e.g. Old Vegas Slots) have emerged. Performance among the top-15 social casino publishers was largely mixed.
Key standouts this quarter included: Aristocrat, Zynga, IGT, and Playtika, while Boyaa, Tencent, Playstudios, DGN, GSN, H5G, and Big Fish all experienced sequential revenue declines, per our tracking.
• Caesars Interactive Entertainment (CIE), which includes Playtika, Buffalo Studios and Pacific Interactive, had another healthy quarter with revenues up 3.5% q/q and 20.1% y/y. Similar to prior quarters, CIE/ Playtika continues to excel in converting non-paying users, which we believe is crucial, especially on maturing platforms such as Facebook, where DAU growth is no longer attainable. Notably, CIE had a paying player conversion rate of 4.44% in Q2 and we believe it eclipsed 4.5% in Q3 2015. Additionally, the company now operates on 13 unique platforms. While some of these are very small, collectively they have become quite meaningful. Finally, CIE/Playtika introduced a new app in the quarter called, Downtown
Vegas Slots, which provides an entrance into the 3RM category. While revenue contributions were modest (especially by Playtika standards), we believe it is actively making adjustments and we expect a much more aggressive UA campaign in the coming months.
• Zynga enjoyed another quarter of revenue growth and remained fi rmly ahead of IGT/DoubleDown as the second largest social casino game publisher worldwide. Once again, growth was largely driven by slot games developed at Spooky Cool, specifically, Wizard of Slots. Zynga is showing no signs of slowing down when it comes to its ambitions in the social casino sector. On the licensing front it recently acquired the rights to Willy Wonka & The Chocolate Factory (note: SciGames licensed this brand on the land-based casino side) and it also recently acquired Rising Tide Games.
• IGT (GTECH), which owns and operates DoubleDown Casino, bounced back in Q3 following a very disappointing Q2, which was negatively impacted by a platform migration and fewer reporting days in the quarter (due to timing of the GTECH merger). We also believe the introduction of some new jackpot features integrated into both the canvas and
mobile app versions of DD likely boosted monetization and user retention metrics. Overall we estimate Facebook revenues were up 6% q/q, but still down 15% y/y, while mobile revenues were up a healthy 7% q/q and 35% y/y.
• GSN/Bash Gaming (majority owned by Sony) remained the fourth largest publisher in our ranking charts and experienced a modest revenue decline during the quarter stemming largely from its Facebook exposure. We believe Bingo Bash mobile revenues have stabilised after a few challenging quarters and the launch of GSN Grand Casino, which appears to have had a fairly sizable marketing campaign behind it, provided incremental gains. That said, it appears some of the incremental growth from GSN Grand Casino came at the expense of the original GSN Casino. Finally, Idle Games (Fresh Deck Poker) appears to still be growing, albeit a modest contribution to GSN’s overall social casino portfolio.
• Big Fish (owned by Churchill Downs), which operates Big Fish Casino, remained the fifth largest social casino game publisher. We estimate casino bookings were down 3% q/q and up just 12% y/y in Q3 2015, which compares to +31% y/y growth in Q2. While casino bookings appear to have plateaued (at least for the time being), we note the company’s match-3 puzzle game, Gummy Drop, and the more recently launched mid-core game Dungeons Boss, are doing exceptionally well and are likely the focal point of the company in terms of resources and marketing dollars (note: we only include casino related bookings in our Social Casino Tracker). Finally, Slots – Vegas Party!, a progression-based slot game, which was launched in Q2 2015 has yet to gain any meaningful traction, and it remains to be seen whether Big Fish will put much marketing support behind this title.
• SciGames Interactive, which owns Williams Interactive and Dragonplay (through its acquisition of Bally Technologies),
was essentially fl at q/q, but still up a healthy 30% y/y. Notably, Jackpot Party Casino (its marquee brand) saw sequential revenue declines on both canvas and mobile as the company reduced its marketing efforts in anticipation of a significant new product update (new 2.0 version launched on mobile in late October). SGI’s other key titles including Goldfish Casino, Quick Hits, and Hot Shots all generated healthy revenue gains, with the latter two titles showing a very impressive growth trajectory and positive KPI trends. Finally, SGI continues to make headway in the social B2B category, with key partners including Mohegan Sun, Affinity Gaming and Penn National.
• Product Madness (owned by Aristocrat) was once again the fastest growing social casino game publisher in Q3 2015 with revenues up 13% q/q and an impressive 143% y/y. The growth was largely attributable to the continued success of Heart of Vegas and specifically its launch on Android. As previously highlighted, this game has enjoyed breakout success in Australia, where it has consistently ranked as the #1 grossing app across all game categories. Aristocrat/Product Madness has fi rmly established itself as a Top 10 publisher, and with a deep library of content and marketing capability it will likely
continue to move up our ranking charts.
• Playstudios’ revenues were down an estimated 7% q/q, but still up a healthy 37% y/y. We attribute the sequential declines to broad-based weakness on Facebook and some softness on mobile. Despite the sequential decline, Playstudios actually moved up in our ranking chart due to meaningful declines at Boyaa and some adjustments to our DoubleU Games revenue model. Moreover, if DoubleU Games successfully lists on the KOSDAQ it will provide an interesting valuation backdrop for
• Boyaa and Tencent both remained in our top-15 list (they generate the majority of their revenues in China and on third party Android stores), but have not been growing for the past few quarters. Notably, Boyaa had a very challenging Q2 with revenues down 24% q/q and we believe Q3 has not fared much better with revenues expected to be down 15% q/q and 35% y/y.
• Other: High 5 Games had a soft quarter with revenues down 4% sequentially and 15% y/y, while Novomatic (owns Cervo Media & Funstage) saw modest sequential revenue growth as newly launched Pharaoh’s Fire and casino games from Funstage were able to offset a continued decline from its marquee title Pharaoh’s Way. Finally, DGN Games, which operates Old Vegas Slots, experienced some weakness due to a slew of new competition on both Facebook and mobile; however, revenues were still up a staggering 406% y/y.
Disclaimer: Eilers Research, LLC is an independent research fi rm and is neither a registered broker dealer nor a registered investment advisor. No information contained in this report shall constitute as a recommendation or solicitation to buy or sell a security.