BofA says social casino stocks could be vulnerable in recession

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

Last update on: September 25, 2022, 04:32h.

A recession is likely to negatively affect video game sales. History proves this and this precedent is for social casino companies and their actions.

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

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

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

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

Hidden issues for social casino stocks

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

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

Well-known offerings from SciPlay are Jackpot Party, Quick Hit Slots, Gold Fish Casino Slots, Hot Shot Casino, 88 Fortunes, Bingo Showdown, and Monopoly slot machines. The games are free, but offer in-app purchases.

Formerly a unit of Caesars Entertainment, Playtika was one of the first to bring free social games to social media and mobile devices, and has over 35 million monthly users. His well-known games include Bingo Blitz, Caesars Slots, Slotomaniaand World Series of Poker (WSOP) Social.

Approximate 2022 for social casino stocks

This year there has been widespread pressure on gaming stocks, and social casino stocks are not immune to this theme. Among the aforementioned trio, the top performer year-to-date is Playstudios, and that name is down nearly 10%.

Playstudios operates in a fast-growing segment that has analysts and investors excited. Moreover, its business model, including its loyalty program – playAwards – and its partnership with MGM Resorts, is viable.

The owner of Tetris the mobile app recently launched a $10 million venture capital fund aimed at investing in companies publishing award-winning gaming games,

Through “Future Fund,” Playstudios “will partner with next-gen Web3 companies to build 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 released by the company.

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