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DoubleDown Casino the star in otherwise disappointing IGT Q2 results

TAGs: DoubleDown Casino, IGT, international game technology, Patti Hart, social gaming

igt-doubledown-casinoSocial gaming was the lone bright spot in the fiscal Q2 results of gaming device maker International Game Technology (IGT). Overall revenue in the three months ending March 31 fell 15% to $513m as the company dealt with decreased demand in the sluggish US casino market. Operating income was down 44% to $72.1m while net income fell 67% to $25.7m and earnings also down two-thirds to 10¢ per share. Last month saw IGT announce it would cut 7% of its 5k-strong global workforce, a move that the company expects will save the company $30m in the current fiscal year and $50m on an annual basis.

IGT’s gaming operations division saw revenue fall 9% to $230.4m and gross profit down 10% to $140.4m. The company blamed the shortfall on lower MegaJackpots take in North America and a 6% drop in installed base of machines but margins were down just one point to 61%. Product sales revenue fell 27% to $202.6m and gross profit fell 28% to $104m as North American replacement shipments fell, but IGT noted that Q2 2013 benefited from a Canadian order for 3,500 replacement units. Here again, gross margins slipped just one point to 51%.

On the plus side, IGT’s interactive division reported a 20% gain in revenue to $79.8m, with social gaming operation DoubleDown Casino once again the star performer. DoubleDown reported revenue up 27% to $68.8m (up 6% sequentially). Monthly average users (MAU) slipped 1% to 6.2m but daily average users (DAU) rose 5% to 1.78m and bookings – real-money in-game purchases – rose 16% to 43¢ per DAU.

Meanwhile, IGTi revenue, which includes product licensing deals with real-money gambling operators in New Jersey and Canadian provincial lottery corporations, fell 11% to $11m. The company cited the late 2013 discontinuation of the Barcrest title, which IGT sold to Scientific Games in 2011, as responsible for most of the slide. On a sequential basis, the New Jersey launch helped push IGTi revenue up 12%.

IGT also announced that Will Daugherty would come on board as DoubleDown’s new general manager. IGT CEO Patti Hart said Daugherty, a former Amazon Payments VP who also did time at Expedia, AT&T and McKinsey, would bring “a strong background in e-commerce and mobile” that would help take DoubleDown to the next level. John Vandemore, who had been heading up DoubleDown in addition to his role as IGT’s CFO, will now refocus on his core finance responsibilities.

DOUBLEDOWN BEATS IGT’S PREDICTION FOR BECOMING GAAP ACCRETIVE
DoubleDown dominated IGT’s post-earnings call with analysts. Wells Fargo analyst Cameron McKnight asked about IGT’s two-year-old prediction that the $500m acquisition of DoubleDown would be GAAP accretive by fiscal 2014. Vandemore said DoubleDown “is in fact completely and totally GAAP accretive right now … Was in Q1, continues to ramp up in Q2 and will be obviously for the full year.”

As for the slight downturn in DoubleDown’s MAUs, Vandemore said he was “not too queasy” about the dip because there were times when the company was focused on going after new players and other times when the focus was on converting existing players to payers. “The more people are engaged, the more they are going to incline to pay for the service which is ultimately what we want.”

Todd Eilers of Eilers Research asked whether IGT would ever consider launching a separate social casino app apart from DoubleDown. Vandemore said he wouldn’t preclude such an app being launched in future if it meant a better experience for players, while Hart noted that the company didn’t want to catch the “disease” of “just generating traffic.” Any different approach would need to ensure that it “not only brings more people in but it helps the conversion rate.”

Hart was asked whether IGT was getting sufficient returns on its R&D, a department in which IGT significantly outspends its competitors. Hart noted that IGT was “utilizing the DoubleDown infrastructure to enhance the effectiveness of R&D.” Hart said IGT “do a lot of work ahead of being able to put the product in the market and have people test it … you actually can increase the home runs and singles and doubles and triples you get when you look back.”

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