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Social Gaming and Betting Report update: Playtika sells for US$4.4bn

| By iGB Editorial Team
The acquisition of Playtika by the Shanghai Giant Network Technology for US$4.4bn shows that the social gaming sector is a serious, cash generative business. But the deal also has repercussions for the sector as a whole, writes Joanne Chrisite.

The acquisition of Playtika by the Shanghai Giant Network Technology for US$4.4bn shows that the social gaming sector is a serious, cash generative business. But the deal also has repercussions for the sector as a whole, writes Joanne Chrisite.

This summer is shaping up to be a scorcher for the social games vertical, with Chinese investors behind two of the biggest acquisition deals ever seen in this space.

In June Tencent Holdings agreed to buy freemium MMO Clash of Clans maker Supercell for US$8.6bn, then at the start of this month news filtered through that a consortium led by the Shanghai Giant Network Technology was buying social casino giant Playtika for US$4.4bn.

The latter deal is particularly important for the igaming sector as Playtika has the largest market share in the social casino vertical, accounting for 23% of the market. Its revenues reached US$725m last year, with key titles including Slotomania, House of Fun, Bingo Blitz and World Series of Poker pulling in 21 million monthly active users.

The sale of the company means a huge profit for Caesars Interactive Entertainment, which bought the firm for just US$103m in December 2011. The sale will be a boon for parent firm Caesars Entertainment, which is currently involved in a large-scale debt restructuring plan aimed at avoiding bankruptcy. 

Given Caesars is in the red to the tune of US$18bn, it is perhaps no surprise it jumped at the all-cash offer, but with Playtika’s success as a cash-generative business, some have wondered if perhaps it may have made more sense for it to retain the company.

In any case, it was this strong cash flow that turned the heads of its new Chinese owners, as opposed to firm plans to expand into their home market, says Derrick Morton, CEO of FlowPlay.

“With the exception of Macau, officially China is very anti-gambling so the market is extremely difficult to break into when it comes to anything gambling-related. This deal has a lot more to do with the cash flow and profitability of Playtika than breaking into the Asian market, so industry observers shouldn’t expect the consortium to disrupt the market. Instead, Playtika can and will continue to remain highly profitable if the new investors step back and allow them to remain on their current growth trajectory.”

Stepping back is certainly what it looks like the investors are planning to do, with the release announcing the deal making clear that Playtika’s current management team would continue to run the company on a day-to-day basis from its existing headquarters in Israel. 

But although the new owners clearly intend to let Playtika get on with it, it’s telling that the other main bidder in the frame for the company was Korean gaming firm Netmarble Games, rather than a US or European buyer.

Morton says it also “represents a huge missed opportunity for both real-money operators and land-based casinos. This was a chance for these companies to break into the social gaming market with a well-established product, and ultimately it was their deal to lose”.

But it’s possible big land-based and online casino names simply didn’t want to take the risk on a vertical that is notoriously fickle. With about half of Playtika’s revenues attributable to Slotomania, it’s likely that if the hit game fell out of favour with social gamers, the company would struggle to continue on its current growth trajectory.

Take Zynga, for example. Once the darling of the social gaming space, its full-year profits for 2015 were down a whopping 54%, with a significant 20% fall in daily active users over the year.

The social gaming space is growing, but as we noted in our recent Social Gaming and Betting Report http://www.igamingbusiness.com.dev.synot.io/social-gaming-and-sports-betting-report-2016 , the runaway growth seen in its early years has slowed down.

The industry is currently worth US$3.4bn, with expectations that this will grow to US$4.4bn by next year.

In any case, a deal of this size shows expectations about future growth are still strong, says Morton. “Overall, this really validates the strength and profitability of the social gaming market.”

The vertical’s strength is often seen as strongest in markets where real-money online gambling is banned, and in this respect it makes sense Chinese buyers are behind the Playtika acquisition.

Shanghai Giant has enjoyed considerable success with MMOs in China, particularly with ZT Online, so perhaps it hopes that by buying a social casino heavyweight it can position itself at the forefront of China’s social casino market.

Although Asia has the world’s largest gambling market in the world, cracking it has always proved challenging for Western companies — a China-backed Western social casino firm could be just the ticket when it comes to moving forward.

Whether or not Shanghai Giant’s acquisition allows it to make any headway into the Chinese social gaming space remains to be seen, but it’s likely there are more mergers and acquisitions to come in the social games space in the near future.

Follow this link to read the iGaming Business Social Gaming and Sports Betting Report 2016 

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