Gaming suppliers, like all areas of the industry, have felt the pinch from the Covid-19 crisis, though their growing digital businesses have proved a bright spot and helped offset the impact of the crisis.
Most of the major gaming suppliers have been growing their online arms in the past few years, with the legalisation of online sports betting and gambling in the U.S. providing a major catalyst.
The recent round of third quarter results has highlighted the strengths of having a fully rounded portfolio and shown their differing strategies for online.
Scientific Games, for example, reported digital Adjusted EBITDA increased nearly 50 percent from the prior year to $25 million in the quarter. Domestic iGaming revenue grew nearly 150 percent from the prior year period, driven primarily by strong growth in New Jersey.
Partnering with operators
During the period, the company announced new and extended partnerships with Hard Rock International, Flutter and Wynn Resorts.
With Hard Rock, SG has become the exclusive provider of sportsbooks under the Hard Rock brand in Iowa and New Jersey, while it expanded a partnership with Wynn Resorts to power its digital sports betting offer in Colorado and Indiana.
The Wynn Sports mobile app first went live in New Jersey in July, which uses SG’s sports betting and iGaming platforms. As well as a managed sports trading service, it includes a content aggregation system featuring titles such as 88 Fortunes, Raging Rhino and Zeus.
Union Gaming analyst John DuCree said SG’s results had beaten expectations in the quarter, although he said the value of its digital and social operations had not yet been fully recognized.
“We continue to see possible opportunities to monetize all or a portion of SciPlay, Digital, and Lottery — all three of which are growing rapidly and undervalued today,” he said in a recent note.
Playing social games
Aristocrat Entertainment has also seen strong growth in the digital sphere, with double-digit growth in bookings, revenue and profit in the first half of its financial year.
It’s approach to digital is different from some of its peers in that it’s focusing on social casino games, which echo its real money titles.
The company will release its third quarter results on Wednesday and analysts are again expecting good top line growth. However, user acquisition levels and investment into new title development will be something to focus on, J.P. Morgan analyst Don Carducci said.
“ALL is approaching levels similar to pre-COVID trading, with multiple factors (iGaming, Digital, & land-based demand shock) all possessing the ability to hurdle the business beyond that level, in our view.”
Aristocrat’s digital offering consists of a range of social casino games, through its business units Big Fish Games, Product Madness and Plarium.
“For Aristocrat specifically, the digital division appears to be broadly holding share and we feel confident around the 1H21 consensus forecast for +16 percent growth,” said UBS in a note. “Looking at individual title performance, Evermerge is now Aristocrat’s second largest social gaming title (behind RAID) and continues to ramp.”
Undervalued assets
Similarly, analysts also see IGT’s digital businesses as being undervalued at present. The company is pushing hard into the now legal U.S. sports betting market and in October signed a deal with the NBA that will allow its customers to use NBA intellectual property, such as official data, team and league logos, in their sportsbooks. It has teamed with FanDuel to bring sports betting in Colorado and Michigan, while it has also reached a long-term accord with Boyd Gaming, under which the operator will use its PlaySports platform in its retail sportsbooks in Nevada.
Boyd will also use IGT’s self-service PlaySports Kiosks in all its gaming venues in the state.
“IGT’s involvement in the US Sports Betting and iGaming industry has been underappreciated,” Union Gaming’s DuCree wrote. “In its new reporting metrics, IGT disclosed historical Sports Betting and Digital Gaming revenue, which totaled $361m LTM. This compares with SGMS at $297m of revenue over the same period.”
DuCree said on a standalone basis IGT’s digital business may be worth about $1.8 billion, or five times forward sales. He notes that digital businesses have been valued as high as 10x sales, which would give a valuation of $3.6 billion, although he thinks it’s probably lower given the group’s exposure to Italy, which is facing regulatory issues.
North America strength
Ainsworth too has been active in the digital space, again pushing hard in the North American market, with multiple partnerships announced over the past year.
Ainsworth Interactive says it has developed and certified 20 new online games for RMG European operators and certified 40 online games in New Jersey for the US market in its fiscal 2020 year, which ended on June 30th.
It has a multi-state content agreement with Golden Nugget casino, which went live earlier this year, as well as accords with BETMGM and Borgata in New Jersey. It has also bought games such as Golden Dollars and Wild Nights to Resorts Casino sites and Mohegan Sun casino sites.
“With the global RMG business expanding into the North American market, Ainsworth Interactive is well positioned for revenue growth as more US states regulate and adopt digitalization of the casino industry in FY21,” it said when announcing its results.
The full embrace of the digital industry has been a lifeline for suppliers and those operators able to accept online bets. In Asia, if the door is opened a crack, the results achieved so far give an indication of the market potential.
