BofA says social casino stocks could be vulnerable in a recession

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Posted on Sep 25, 2022 at 3:54 am.

Last updated on: September 25, 2022, 04:32.

A recession is likely to have a negative impact on video game sales. History proves this and this precedent affects social casino companies and their shares.

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

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

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

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

Problems Lurking On Social Casino Stocks

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

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

The well-known offers of SciPlay 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 offer in-app purchases.

Playtika, formerly a unit of Caesars Entertainment, was one of the first companies to offer free-to-play social games on social media and mobile, and has more than 35 million monthly users. Popular games include Bingo Blitz, Caesars Slots, Slotomaniaand World Series of Poker (WSOP) Society.

Rough 2022 for social casino stocks

There has been broad-based pressure on gaming stocks this year, and social casino stocks are not immune to this theme. Of the aforementioned trio, Playstudios is the top performer year-to-date, and that name is down almost 10%.

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

The owner of the tetris Mobile App recently raised a $10 million venture fund aimed at investing in companies that publish rewarded games,

Through Future Fund, Playstudios will “collaborate with next-generation 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 to leverage as it deepens its skills in these areas,” the statement said the company.

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