Playstudios, SciPlay Vulnerable in Recession, Says Bank of America

Posted on: September 25, 2022, 03:54h. 

Last updated on: September 26, 2022, 02:30h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

A recession is likely to adversely affect video game sales. History proves as much and that precedent pertains to social casino companies and their stocks.

social casino stocks
A screenshot of a scene from a Playstudios game, seen above. Bank of America is bearish on social casino stocks. (Image: OfftheStrip.com)

Potentially, that’s bad news for the likes of Playstudios (NASDAQ:MYPS), Playtika (NASDAQ:PLTK) and SciPlay (NASDAQ:SCPL). In a recent report, Bank of America economists push out recession expectations to the first quarter of 2023 from the fourth quarter of this year. But they forecast a 4% to 6% decline in video game sales during that economic malaise.

We expect some players in the industry to outperform others, as certain product categories, franchises, and monetization strategies may weather through the economic storm better,” wrote analyst Omar Dessouky.

The bank says the retreat in game sales, assuming a traditional recession sets in, will be much milder than during the global financial crisis.

Problems Lurking for Social Casino Stocks

While Bank of America is constructive on some video game equities and neutral on others, it’s not enthusiastic on social casino stocks.

The bank has “underperform ratings on Playstudios, Playtika, and SciPlay, noting those companies face “substitution risk” as consumers look for ways to trim spending in an economic contraction. That’s a sensible thesis, because while many of the games published by the aforementioned trio of companies are free to download and initially play, the companies rely on in-app purchases as significant parts of their revenue streams.

SciPlay’s well-known offerings are Jackpot Party, Quick Hit Slots, Gold Fish Casino Slots, Hot Shot Casino, 88 Fortunes, Bingo Showdown, and Monopoly Slots. The games are free to play but feature in-app purchases.

Formerly a unit of Caesars Entertainment, Playtika was one of the first to offer free-to-play social games on social networks and mobile devices and has more than 35 million monthly users. Its well-known games include Bingo Blitz, Caesars Slots, Slotomania, and World Series of Poker (WSOP) Social.

Rough 2022 for Social Casino Stocks

There’s been broad-based pressure on gaming equities this year, and social casino stocks aren’t immune to that theme. Of the aforementioned trio, the best performer on a year-to-date basis is Playstudios, and that name is down nearly 10%.

Playstudios operates in fast-growing segment analysts and investors are enthusiastic about. Additionally, its business model, including its loyalty program — playAwards — and partnership with MGM Resorts, is viable.

The owner of the Tetris mobile app recently launched a $10 million venture fund aimed at investing in companies publishing rewarded play games,

Through “Future Fund,” Playstudios “will partner with next generation Web3 companies building advanced capabilities at the intersection of gaming, loyalty marketing, and blockchain rewards. The fund’s initial strategic investments in Forte and The Kryptomon Company provide PLAYSTUDIOS with access to expertise in Web3 technology, marketing, and community building that it can leverage as it deepens its capabilities in the space,” according to a statement issued by the company.