Social casino update: Q4 2015

The transition from Facebook/web to mobile continued to shape publisher fortunes in Q4 of 2015, writes Adam Krejcik from Eilers & Krejcik Gaming, with performances boosting full-year estimated global revenues by 19% to US$3.3bn.

We estimate the global social casino game market grew 5% quarter-over-quarter (q/q) in Q4 2015. Following a few quarters of sub-par growth, the industry appears to have ended CY15 on a strong note with many publishers recording record results. We estimate social casino revenue generated on Facebook/web was down 1.5% q/q, while mobile was up 8.1% q/q. For CY15, we estimate the global social casino market reached $3.3bn or 19% year-on-year (y/y) growth, which was in-line with our recently revised estimate.

Notable movers in our ranking charts included SciGames Interactive, which moved up two spots to the #4 position (leapfrogging GSN/Bash and Churchill Downs/Big Fish Casino), and Murka and Rocket Games, both of which entered the top-15, displacing Intertain/Gamesys and DGN Games, respectively.

Company highlights

• Caesars Interactive Entertainment (CIE), which includes Playtika, Buffalo Studios, and Pacific Interactive, had another strong quarter, with revenues up an estimated 5% q/q and 30% y/y. Two key competitive advantages CIE/Playtika enjoys include: Two key competitive advantages CIE/Playtika enjoys include: 1) platform diversification – it now operates on 13 different platforms and while many are small, combined they’ve become quite meaningful; and 2) converting non-paying users, whereby it has created tremendous brand loyalty with some of its early users. In terms of game performance, we believe WSOP and House of Fun were the two key standout titles this quarter.​​
• IGT, which owns and operates DoubleDown Casino, was up a modest 3% q/q and 3.5% y/y, which was below the overall industry growth rate. While DoubleDown continues to enjoy healthy revenue growth on mobile (we est. +6% q/q in Q4), we note it still generates nearly half of its revenues from web/Facebook, which has been a major drag on its overall growth rate this past year. DoubleDown executed on two important strategic initiatives this past quarter including: incorporating GTECH slot content, which was largely expected following the merger last year; and 2) implementing in-game advertising into DoubleDown Casino (DDC).
• Zynga had a fairly disappointing quarter by our tracking, with social casino revenues down 2.2% q/q. This was largely due to weakness on Facebook, which we estimate still accounts for roughly 35% of its total casino bookings. On the plus side, we believe slot bookings showed positive sequential growth due to the continued success of Wizard of Oz Slots and incremental contribution from Black Diamond Casino (developed by Rising Tide Games) and Princess Bride Slots. Despite a soft Q4, we believe Zynga remains well positioned to grow and gain market share in CY16 thanks to a strong development team in Spooky Cool, aggressive licensing/branded-IP strategy, and a very large balance sheet that should allow it to pursue additional M&A opportunities.  

• SciGames Interactive, which owns Williams Interactive and Dragonplay (through its acquisition of Bally Technologies), was arguably the biggest winner this quarter, with revenues up an estimated 19% q/q and 35% y/y. Moreover, mobile now accounts for roughly 60% of SciGames Interactive’s social casino revenue mix. After a sluggish Q3, SciGames Interactive appears to be back on track thanks to a major revamp of Jackpot Party Casino, which remains the company’s flagship game, and very strong growth in Quick Hits, which incorporates the Bally library of content. In addition to Jackpot Party and Quick Hits, the company continues to enjoy steady growth from Gold Fish Casino and saw healthy gains from Hot Shots, which was also recognized as one of Facebook’s “Games of the Year” for 2015.
• GSN/Bash Gaming (majority owned by Sony) saw revenues increase 5% q/q, but was essentially flat on a year-on-year (y/y) basis, per our tracking. We believe Bingo Bash revenues were stable q/q, with most of the sequential growth coming from GSN Casino and GSN Grand Casino. GSN is also one of the other few social casino companies that offers in-game ads, which we believe contribute a modest amount to overall gross revenues. The company has also enjoyed moderate success with Fresh Deck Poker, which it acquired through its acquisition of Idle Games earlier this year.
• Big Fish (owned by Churchill Downs), which operates Big Fish Casino, saw a very modest sequential decline in social casino bookings in Q4. This is the same trend we’ve witnessed the past few quarters and believe it is part of a broader strategic decision to focus on other games/genres. We did notice the inclusion of more secondary games embedded in Big Fish Casino, but that likely served more as a retention/monetization tool versus major revenue driver. Outside of casino, Big Fish continues to see very positive results and growth from Gummy Drop (match-3 puzzle game) and Dungeon Boss (mid-core game). Looking ahead, it’s unclear whether Big Fish will continue to focus on non-casino games or whether it will decide to get more aggressive in social casino again.
• Product Madness (owned by Aristocrat) saw healthy sequential growth in Q4, albeit at a more moderate pace compared to earlier this year. We estimate social casino revenues were up 11% q/q and 105% y/y, driven by continued gains on mobile thanks to a full-quarter contribution from Heart of Vegas on Android. Overall, it was a very strong year for Aristocrat/Product Madness in social casino and the company continues to do exceptionally well in Australia, where Heart of Vegas consistently ranks as the #1 grossing app overall on both iOS and Google Play Store. While there have been some recent personnel shifts (Product Madness founders have left following the expiration of their earn-out), we believe the company is well positioned to grow and gain market share in CY16.
• Playstudios, following a weak Q3, the company appears to have rebounded nicely in Q4 with revenues up an estimated 10% q/q and 35% y/y. We believe it made some improvements to game cadence and content delivery (e.g. one new slot per week) as well as a fairly aggressive user acquisition/marketing campaign in Oct/Nov. Playstudios also released a brand new standalone app, KONAMI Slots (a reward-based game that is similar to myVegas, but incorporates Konami’s land-based slot content), which had minimal impact in Q4, but is already demonstrating very impressive KPIs. Playstudios is well positioned for future growth in CY16 thanks to an impressive product roadmap, which includes more standalone game launches including a new virtual world casino app (developed by newly acquired Israeli Group studio).
• Other: DoubleU Games had another healthy quarter as DoubleU Casino remains a top-grossing app on Facebook and continues to do well on mobile. High 5 Games had a challenging quarter with revenues down 11% sequentially and 22% y/y, while Novomatic (which owns Cervo Media and Funstage) was up slightly q/q, but down 3% y/y as revenue growth from Funstage was unable to offset a continued decline from its marquee title Pharaoh’s Way. SuperLucky Casino, Murka, and Rocket Games all saw revenues grow 100% sequentially (with Murka and Rocket Games moving into our top-15 list). Gamesys/Intertain, which operates Jackpotjoy Slots and Bingo Lane, had a weak quarter due to a pull-back in marketing and lack of new content, while DGN Games, which operates Old Vegas Slots, also fell out of the top-15 list due to a significant reduction in sales and marketing and increased competition in the social 3RM category.

Disclaimer: Eilers & Krejcik Gaming, LLC is an independent research firm 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.