SciPlay Scintillating for Investors as Analyst Forecasts More Upside

Posted on: July 22, 2020, 10:40h. 

Last updated on: July 22, 2020, 02:11h.

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

Social casinos delivered epic revenue growth in the second quarter, helping shares of SciPlay Corp. (NASDAQ:SCPL) more than double off the March lows. At least one analyst covering the company sees more upside ahead.

Analyst Sees SciPlay Growth
SciPlay CEO Josh Wilson (left) and founder Aaron Schurman celebrating the company’s 2019 IPO at Nasdaq. One analyst is very bullish on the stock. (Image: Nasdaq)

Macquarie gaming and leisure analyst Chad Beynon recently reiterated an “outperform” rating on SciPlay stock, while lifting his price target on the name to $18 from $15. Revenue for social casino operators surged in the second quarter amid shelter-in-place directives and the shutdown of brick-and-mortar gaming properties forced by the coronavirus.

Social Casino industry trends = US$6.2bn revenues reported in TTM, +14.6%,” said Beynon in a recent note to clients.

“Given the strong 2Q growth, we are increasing our 2020 Social Casino growth forecast to +16% (vs. +8% prior), with MSD growth through 2023. With the top five companies accounting for around ~60% of the market, we believe the space remains ripe for consolidation,” he continued. 

Formerly the social gaming division of Scientific Games, SciPlay was spun-off from that company last year. 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.

A Long Road Back

When SciPlay was separated from Scientific Games, the former’s initial public offering (IPO) was priced at $15.25, and the stock quickly climbed above $16.

Despite rapid support from Wall Street analysts, SciPlay faltered for months, save for a late 2019-early 2020 rally that was cut short by the COVID-19 market swoon. Since March, however, the stock is up 169.42 percent, as analysts and investors fawn over companies with exposure to the booming online casino industry, even touting social offerings that don’t require real money.

SciPlay’s “2Q Social Casino revenues grew 33% year-over-year and 32% sequentially to $157.6m, representing a meaningful acceleration from 1Q growth rates (+1% yoy, +6% seq),” said Beynon.

Important to investors is that the company’s June quarter growth was well-diversified across its product portfolio.

“SciPlay delivered strong growth across all of its titles, with particularly robust performance from Jackpot Party, Gold Fish Casino, Quick Hits, and 88 Fortunes. Daily Average User’s (DAU) grew +4% yoy to 2.8m, while average revenue per daily average user (ARPDAU) grew +25% yoy to $0.60,” notes the Macquarie analyst.

Big Forecasts

At $18, Beynon’s price estimate on SciPlay implies an upside of 16 percent from where the stock currently trades and is nearly 20 percent higher than the Wall Street consensus.

The analyst raised his 2020 revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) forecasts on the name by seven percent and 10 percent, respectively.

Noting that SciPlay trades at 10.4x his 2021 EBITDA projection, Beynon points out the stock sports a roughly 40 percent discount to the online gaming peer group, which is notable because many of these names are considered richly valued.

Including Beynon, 13 analysts cover SciPlay, with nine assigning the equivalents of “strong buy” or “buy” ratings to the stock.