Digital & Interactive Gaming Market Research March 13, 2017 Adam Krejcik, 714-619-9330 akrejcik@ekgamingllc.com Social Casino Tracker: & CY16 Recap In January, we published the installment of our Social Casino Tracker, a quarterly report that is meant to serve as a useful tool in determining the market size, revenue estimates, and market share for the major social casino game publishers (to view the report please click here). Now that five of the largest social casino game companies have reported earnings (i.e. IGT, Zynga, Churchill Downs, SciGames, and DoubleU Games), we take a look back to see how our estimates compared to actual reported results, as well as key themes and takeaways from this past quarter. Overview: following results from some of the major publicly traded social casino game publishers as well as select data from some private companies, we are making only minor revisions to our market sizing estimate. Specifically, we believe the global social casino game market grew +10.3% y/y in, reaching $978 million (versus our preliminary estimate of $976 million) driven by +20% y/y growth in mobile revenues, partially offset by a -9% y/y decline in Facebook/web revenues. Company performance: overall, it was a mixed quarter with strong results from: SciGames Interactive, Product Madness, PlayStudios, Murka, and Huuuge Games. It was a challenging quarter from a revenue perspective for: DoubleDown, Big Fish, and Super Lucky. M&A: there were no major M&A announcements in the social casino space. That being said, we continue to believe there remains robust demand for social casino assets from various. Moreover, we note SciGames has previously announced plans to spin-off its Interactive division as separate standalone company and we would not be surprised to see IGT look at various strategic ways to unlock value from DoubleDown. Methodology: We believe our tracking is unique as we extrapolate from public data and integrate it with our own proprietary estimates and third party analytics data. All revenue figures detailed in this report are on a gross basis i.e. before platform fees. Disclaimer & Terms & Conditions of Use: Eilers & Krejcik Gaming, LLC is an independent research firm and is neither a registered broker dealer nor a registered investment advisor. No information contained in this report shall constitute as a recommendation or solicitation to buy or sell a security. Individuals receiving this report should consult with an investment advisor or registered representative before making an investment decision related to any information contained in this report. In addition, Eilers & Krejcik Gaming, LLC either does, or may seek to do business with any company mentioned in this report. This report was prepared for and distributed to clients of Eilers & Krejcik Gaming, LLC. If you are not the intended recipient and/or received this report in error, please delete this document and notify Eilers & Krejcik Gaming, LLC at teilers@ekgamingllc.com, or call 949-887-7726. This report is also protected by federal copyright law. Any unauthorized review, dissemination, or copying of this communication is strictly prohibited. By accessing, reading, storing, distributing and archiving this research report, you hereby agree, fully, and without dispute, to all terms and conditions outlined above.
Social Casino Gaming Recap Based on reported figures and our final revisions, we estimate the social casino game market increased +3.3% q/q, and was up +10.3% y/y to $978 million in. This was slightly above our preliminary estimate of $976 million. Growth was driven by mobile: we estimate social casino game revenues on mobile grew +5% q/q and +20% y/y reaching $716 million, while social casino game revenues generated on Facebook/web were down -1% q/q and -9% y/y to $262 million. In the table below, we highlight the Top 15 social casino game publishers by gross revenues. We estimate the Top 15 publishers accounted for roughly 83% of the total social casino games market this qtr. Moreover, social casino revenues generated on mobile accounted for 73% of the total market this quarter vs. 67% in the prior year period. $300 Social Casino Revenues by Company - ($ in M) $250 $200 $150 $100 $50 $0 Facebook / Web Mobile Source: Company reports, Facebook, Sensor Tower, App Annie, Eilers & Krejcik Gaming, LLC Social Casino Gaming: Top-15 Publishers in ($ in Millions) Final Rank Company Key Titles Facebook / Web Mobile Total % chg q/q % chg. y/y Mrkt Share 1 Slotomania, House of Fun, Bingo Blitz, WSOP, CZR Casino $91.0 $157.1 $248.1 2.1% 24.8% 25.4% 2 Scientific Games Jackpot Party Casino, Gold Fish Casino, Quick Hits, Hot Shots $24.5 $57.1 $81.6 5.8% 57.2% 8.3% 3 Zynga Zynga Poker, Hit it Rich!, Wizard of Oz Slots, Black Diamond $18.0 $61.4 $79.4 4.9% 7.0% 8.1% 4 Aristocrat Heart of Vegas, FaFaFa - Real Casino Slots, Hollywood Spins $16.0 $46.5 $62.5 9.3% 46.0% 6.4% 5 IGT DoubleDown Casino $25.9 $35.8 $61.7-6.2% -26.2% 6.3% 6 Sony/GSN Bingo Bash, GSN Casino, Fresh Deck Poker, Mirrorball $14.0 $32.2 $46.2 6.2% -8.5% 4.7% 7 Churchill Downs Big Fish Casino, Big Fish Bingo, Slots - Vegas Party $2.4 $42.0 $44.4 0.5% -7.7% 4.5% 8 DoubleU Games DoubleU Casino, DoubleU Bingo $16.7 $36.7 8.3% 15.0% 3.8% 9 Playstudios myvegas - Slots, Konami Slots, POP Slots $4.5 $27.5 $32.0 7.4% 15.9% 3.3% 10 Tencent Fight the Landlord (Chinese Poker), Tencent Poker $0.0 $30.0 $30.0-3.2% 0.0% 3.1% 11 Murka Scatter Slots, Infinity Slots, TX Poker $2.5 $19.6 $22.1 10.0% 118.8% 2.3% 12 Boyaa Texas Hold'Em Series, Fight the Landlord $7.0 $15.0 $22.0-2.2% -13.6% 2.2% 13 Huuuge Games Huuuge Casino $0.0 $18.9 $18.9 100.0% 894.7% 1.9% 14 Super Lucky Hot Vegas, Doubleup Slots, Slots Favorites, Bingo Heaven $0.0 $14.0 $14.0-9.0% 75.2% 1.4% 15 Penn Interactive Viva Slots Las Vegas, Downtown Deluxe, Hollywood Casino $0.5 $12.8 $13.3 11.8% 41.5% 1.4% Top-15 $223.0 $589.9 $812.9 3.8% 17.2% 83.1% Other $39.2 $125.7 $164.9 1.1% -14.5% 16.9% Total Gross Revenue $262.2 $715.6 $977.8 3.3% 10.3% 100.0% Source: Company reports, Facebook, Sensor Tower, App Annie, Eilers & Krejcik Gaming, LLC 2017 Eilers & Krejcik Gaming, LLC Page 2 of 9
$1,000 Social Casino Revenues by Company - CY16 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 Facebook / Web Mobile Source: Company reports, Facebook, Sensor Tower, App Annie, Eilers & Krejcik Gaming, LLC Top 15 Social Casino Game Publishers CY16 () - FINAL Rank Company Key Titles Facebook / Web Mobile Total % chg. y/y Mrkt Share 1 Slotomania, House of Fun, Bingo Blitz, WSOP, CZR Casino $351.1 $595.7 $946.8 30.5% 24.9% 2 Zynga Zynga Poker, Hit it Rich!, Wizard of Oz Slots, Black Diamond $83.3 $235.5 $318.8 2.3% 8.4% 3 Scientific Games Jackpot Party Casino, Gold Fish Casino, Quick Hits, Hot Shots $98.2 $200.2 $298.4 65.8% 7.8% 4 IGT DoubleDown Casino $125.0 $155.1 $280.1-11.6% 7.4% 5 Aristocrat Heart of Vegas, FaFaFa - Real Casino Slots, Hollywood Spins $64.5 $160.1 $224.6 65.3% 5.9% 6 Sony/GSN Bingo Bash, GSN Casino, Fresh Deck Poker, Mirrorball $57.0 $127.9 $184.9-8.1% 4.9% 7 Churchill Downs Big Fish Casino, Big Fish Bingo, Slots - Vegas Party $10.1 $172.2 $182.3-5.6% 4.8% 8 DoubleU Games DoubleU Casino, DoubleU Bingo $62.1 $73.0 $135.1 20.6% 3.5% 9 Playstudios myvegas - Slots, Konami Slots, myvegas - Blackjack $21.5 $100.9 $122.4 18.0% 3.2% 10 Tencent Fight the Landlord (Chinese Poker), Tencent Poker $0.0 $122.0 $122.0-4.4% 3.2% 11 Boyaa Texas Hold'Em Series, Fight the Landlord $34.0 $58.5 $92.5-18.9% 2.4% 12 Murka Scatter Slots, Infinity Slots, TX Poker $9.0 $67.4 $76.4 306.4% 2.0% 13 Super Lucky Hot Vegas, Doubleup Slots, Slots Favorites, Bingo Heaven $0.0 $54.5 $54.5 197.9% 1.4% 14 Penn Interactive Viva Slots Las Vegas, Downtown Deluxe, Hollywood Casino $2.2 $48.5 $50.7 207.3% 1.3% 15 Novomatic Pharaoh's Way, Pahroah's Fire, GameTwist Slots $0.0 $48.4 $48.4 15.5% 1.3% Top-15 $918.0 $2,219.9 $3,137.9 19.9% 82.4% Other $175.5 $496.6 $672.0 3.9% 17.6% Total Gross Revenue $1,093.5 $2,716.5 $3,809.9 13.7% 100.0% Source: Company reports, Facebook, Sensor Tower, App Annie, Eilers & Krejcik Gaming, LLC 2017 Eilers & Krejcik Gaming, LLC Page 3 of 9
Adj. EBITDA ($ in M) Adj. EBITDA Margin Comparing Actual Results vs. Estimates Actual vs. Estimates: every quarter we compare actual results from publicly traded social casino game companies versus our preliminary estimates. Revenues are reported below are on a gross basis. We note this is the first quarter where no longer highlight s actual performance since it is now owned by privately held, Shanghai Giant Technologies. $90.0 Social Casino Gross Revenue: Actual vs. Estimate $70.0 $40.0 $30.0 $10.0 $- Big Fish Casino (Churchill SciGames Interactive Zynga (social casino only) DoubleDown (IGT) Downs) DoubleU Games Q4 2016 Actual $81.6 $79.4 $61.7 $44.4 $36.7 Q4 Estimate $82.0 $79.0 $60.8 $42.5 $35.5 * estimate based on fiscal 2H16 reported results Social Casino Game Companies Q4 Adjusted EBITDA and Margins $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% $- SciGames Interactive DoubleU Games DoubleDown (IGT) Zynga (social casino only) Big Fish Casino (Churchill Downs) 0% Q4 2016 adj. EBITDA EBITDA margin 2017 Eilers & Krejcik Gaming, LLC Page 4 of 9
Huuuge Games Murka 75.2% 57.2% 46.0% 41.5% Super Lucky Scientific Games Aristocrat Penn Interactive Playstudios DoubleU Games Industry Avg. Zynga Tencent Churchill Downs Sony/GSN Boyaa IGT 1000.0% Social Casino Company Y/Y Growth Rates - 894.7% 800.0% 600.0% 400.0% 200.0% 118.8% 24.8% 15.9% 15.0% 10.3% 7.0% 0.0% 0.0% -7.7% -8.5% -13.6% -26.2% -200.0% $100.0 Social Casino Revenue Trends Based off of Publicly Reported Figures () $90.0 $70.0 $40.0 $30.0 $10.0 $- SciGames Interactive Zynga (Social Casino only) Big Fish Casino Aristocrat (Product Madness) 2017 Eilers & Krejcik Gaming, LLC Page 5 of 9
Public company highlights: SciGames Interactive Social gaming revenues of $81.6 million compared to our Social Casino Tracker estimate of $82 million. Growth in Q4 was largely driven by Jackpot Party Casino, Gold Fish Casino, and Hot Shots, while Quick Hits was the only under performer. Social Gaming (B2C) KPIs in : MAUs = 7.7 million (-5% y/y), DAUs = 2.5 million (+4% y/y) and ARPDAU $0.34 (+55% y/y). SciGames Interactive generated adj. EBITDA of $19.7 million in vs. $13.5 million in and $13.6 million in ; margins declined -90bps y/y, but were up +550bps sequentially to 21.5%. The y/y decline was largely due to increased UA spend & R&D expenses associated with new social casino games. We est. S&M expenses were up +71% y/y and accounted for 34% of interactive revenues. SciGames Interactive generated adj. EBITDA of $67 million in CY16. Zynga (social casino only) Social casino bookings (Poker + Slots) increased +5% q/q or +7% y/y in, which was largely driven by Zynga Poker (mobile bookings were up +29% q/q). The Slots category was relatively disappointing, with mobile bookings declining -4% q/q, which we believe was due to cannibalization issues between Wizard of Oz Slots and recently launched Willy Wonka Slots. We believe the social casino division on a standalone basis is profitable with EBITDA margins around 10-20% range versus 5% consolidated EBITDA margin for Zynga in. IGT (DoubleDown) Social gaming revenues of $61.7 million compared to our Social Casino Tracker estimate of $60.8 million. The upside relative to our estimate was due to slightly better than expected mobile revenues. Nonetheless, DoubleDown was once again a clear market share loser this quarter. Key growth initiatives going forward include: launch of new standalone stepper app in 2Q17 (bringing more of its original land-based content online), platform upgrades, and a new DoubleDown loyalty program (launched in ). Social Gaming KPIs in : MAUs = 3.37 million (-24% y/y), DAUs = 1.41 million (-26% y/y) and ARPDAU $0.48 (+2% y/y). We estimate IGT s interactive business (Social + RMG) generated EBITDA of $20.9 million in vs. $30.1 million in or -31% y/y decline; we est. margins declined by -380bps y/y to 26.9% largely due to the decline in revenues at DoubleDown. Churchill Downs (Big Fish Casino) Social casino bookings were down -8% y/y in, due to a -9% y/y decline in average bookings per paying user, which was partially offset by a +1% y/y increase in average paying users. The increase in new paying users was largely driven by the launch of new slot apps (e.g. Jackpot City Slots), but these users are also currently monetizing at a lower rate versus Big Fish Casino. Casino bookings have been slowly declining for the past 12-months; however, management has stated that it s renewing its focus on this sector. We est. the casino category is likely generating 20-25% EBITDA margins. DoubleU Games - In, generated total social casino gross revenues of $36.7 million or +15% y/y. DoubleU Casino accounted for 90% of its revenues, DoubleU Bingo accounted 4% and Take 5 Slots accounted for remaining 6%. Social Gaming KPIs in (for DoubleU Casino only): DAUs (web) = 242k (-15% y/y) and ARPDAU (web) $0.62 (+7% y/y); DAUs (mobile) = 673k (+2% y/y), and ARPDAU (mobile) = $0.32 (+23% y/y). DoubleU Games generated adj. operating income of $17.2 million in, which was up +78% y/y; operating margins improved 1650bps y/y to 46.8%, and were up from 32.4% last qtr. The y/y improvement in margins was largely due to increased revenues combined with lower OpEx; notably, R&D + G&A costs declined -22% y/y, while marketing costs declined an astounding -58% y/y and accounted for just 9% of gross revenues in the period. 2017 Eilers & Krejcik Gaming, LLC Page 6 of 9
$ in 000s % chg. y/y 1Q11 2Q11 3Q11 4Q11 1Q11 2Q11 3Q11 4Q11 $ in 000s 1Q11 2Q11 3Q11 4Q11 1Q11 2Q11 3Q11 4Q11 Select KPIs In the charts below, we highlight key performance indicators for four publicly traded companies. 50,000,000 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 - MAU Trends 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 - DAU Trends Zynga (social casino only) Zynga (social casino only) DoubleU Games $0.60 ARPDAU Trends $300,000 Revenue Trends ($ in 000s) $0.50 $250,000 $0.40 $200,000 $0.30 $150,000 $0.20 $100,000 $0.10 $50,000 $0.00 $0 Zynga (social casino only) DoubleU Games SciGames Interactive Aristocrat/Product Madness Zynga (social casino only) Churchill Downs/Big Fish Casino $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 Trailing 12-Month Revenue Trends ($ in 000s) 250% 200% 150% 100% 50% 0% -50% Change in Trailing 12-Month Revenue (%) Zynga (social casino only) Zynga (social casino only) 2017 Eilers & Krejcik Gaming, LLC Page 7 of 9
Social Casino Tracker Accuracy Below we highlight our estimates versus actual reported results for the major publicly traded companies that disclose financial results. The variance between our estimates and actual reported revenues has typically been within plus or minus 5%. $260.0 Revenues vs. EK Gaming Social Casino Tracker Est's $90.0 DoubleDown Revenues vs. EK Gaming Social Casino Tracker Est's $240.0 $85.0 $220.0 $200.0 $75.0 $180.0 $70.0 $160.0 $65.0 $140.0 $120.0 $100.0 $55.0 Actual $70.7 $74.7 $90.7 $115.7 $134.4 $151.3 $147.7 $167.6 $175.4 $183.5 $198.8 $218.2 $237.4 $243.1 EKG Estimate $81.3 $71.1 $88.5 $105.0 $140.4 $146.5 $167.3 $161.8 $174.8 $181.5 $192.7 $213.0 $236.5 $236.4 $248.1 $45.0 Actual $61.4 $61.4 $64.8 $68.8 $71.8 $75.1 $79.4 $80.6 $73.0 $79.8 $83.6 $80.2 $72.4 $65.8 $61.7 EKG Estimate $63.1 $64.4 $65.1 $65.9 $72.8 $76.1 $82.7 $86.7 $81.5 $77.6 $82.2 $86.8 $73.3 $63.4 $60.8 Actual EKG Estimate Actual EKG Estimate $95.0 Zynga Casino Rev's vs. EK Gaming Social Casino Tracker Est's $95.0 SciGames Interactive Rev's vs. EK Gaming Social Casino Tracker $90.0 $85.0 $85.0 $75.0 $75.0 $65.0 $70.0 $55.0 $65.0 $45.0 $35.0 $55.0 $25.0 $45.0 Actual $58.5 $47.3 $46.6 $47.7 $53.7 $60.3 $63.1 $71.8 $83.6 $78.1 $74.2 $81.9 $81.6 $75.7 $79.4 EKG Estimate $70.9 $54.5 $54.1 $51.9 $58.1 $62.4 $66.0 $79.0 $82.9 $88.0 $76.3 $84.8 $78.8 $79.0 Actual EKG Estimate $15.0 Actual $22.0 $28.3 $28.7 $27.3 $28.0 $33.9 $37.6 $40.9 $44.5 $42.7 $51.9 $64.8 $74.9 $77.1 $81.6 EKG Estimate $26.4 $23.4 $32.0 $29.8 $30.5 $32.5 $36.9 $38.0 $43.7 $44.5 $50.7 $60.2 $73.5 $79.4 $82.0 Actual EKG Estimate $55.0 Big Fish Casino Rev's vs. EK Gaming Social Casino Tracker Est's $40.0 DoubleU Games Rev's vs. EK Gaming Social Casino Tracker Est's $35.0 $45.0 $30.0 $40.0 $25.0 $35.0 $30.0 $25.0 $15.0 $10.0 $15.0 Actual $17.9 $20.5 $24.2 $29.5 $36.8 $43.9 $46.9 $49.3 $48.3 $47.4 $48.1 $47.4 $46.3 $44.2 $44.4 EKG Estimate $23.0 $25.0 $30.2 $34.5 $40.8 $48.9 $51.9 $51.5 $51.3 $47.0 $47.0 $47.8 $44.9 $44.5 $42.5 $5.0 Actual $8.9 $9.7 $12.7 $12.4 $14.0 $16.0 $18.5 $23.5 $27.7 $28.9 $32.0 $32.1 $32.5 $33.9 $36.7 EKG Estimate $8.1 $8.3 $11.1 $11.9 $16.0 $16.9 $18.2 $26.1 $28.3 $24.0 $26.0 $28.5 $28.7 $34.1 $35.5 Actual EKG Estimate Actual EKG Estimate 2017 Eilers & Krejcik Gaming, LLC Page 8 of 9
--- this page was intentionally left blank --- Disclaimer & Terms & Conditions of Use: Eilers & Krejcik Gaming, LLC is an independent research firm and is neither a registered broker dealer nor a registered investment advisor. No information contained in this report shall constitute as a recommendation or solicitation to buy or sell a security. Individuals receiving this report should consult with an investment advisor or registered representative before making an investment decision related to any information contained in this report. In addition, Eilers & Krejcik Gaming, LLC either does, or may seek to do business with any company mentioned in this report. This report was prepared for and distributed to clients of Eilers & Krejcik Gaming, LLC. If you are not the intended recipient and/or received this report in error, please delete this document and notify Eilers & Krejcik Gaming, LLC at teilers@ekgamingllc.com, or call 949-887-7726. This report is also protected by federal copyright law. Any unauthorized review, dissemination, or copying of this communication is strictly prohibited. By accessing, reading, storing, distributing and archiving this research report, you hereby agree, fully, and without dispute, to all terms and conditions outlined above. 2017 Eilers & Krejcik Gaming, LLC Page 9 of 9