“I am a great believer in luck, and I find the harder I work, the more I have of it.” – Thomas Jefferson
Gambling is sensational and glamorous, yet repulsive and disturbing.
For millennia, the art of risk-taking has tempted the hearts and minds of millions and emptied the pockets of plenty.
But despite the insurmountable odds, wishful gamblers keep crawling back for more, motivated by their innate desire to win.
As such gambling is more than an activity, it is a way of life.
To be a true gambler, not only do you possess a willingness to take risks, but you also enjoy the social aspects and the glamorous lifestyle that it glorifies.
This is exactly what today’s Small-Cap Pick capitalizes on.
Not the desire to profit off of unsuspecting customers, but the ability to replicate the emotional rollercoaster that is gambling.
Through this model, this small-cap generated $606 million in Sales, $19 million in Net Income, and over $150 million in Free Cash Flow in 2021.
All without ever having to win at the expense of its customers.
To learn more, continue reading.
Top Five Small-Cap Gaming Stocks
Two weeks ago, we shared with you our deep dive into the gaming and gambling industry at large and offered five small-cap stocks shaking up the market.
Now that some time has passed, we are ready to settle the debate once and for all by giving you our pick for the best gaming small-cap.
But before we do, here is our company comparables table so that you may decide whether we are hustling you or not.
And the Winner Is…
In recent years, the gambling industry has seen a major shift from the mafia-ruled casinos of the past, to the online entertainment platforms of today.
In part due to the effects of the global pandemic, consumers shifted their focus from slot machines and roulette tables to sports betting, social gaming and speculating on the stock market.
Although the eccentric atmosphere of a casino was lacking, gamblers continued to throw their
For the businesses, this brought on new advantages because they longer required a physical location or bulky games to turn a profit.
Instead, all you needed was a few app developers and a kick-ass app to make millions.
But it gets even better.
While the traditional gambler vs. casino model is quite lucrative (for the company), it also produces additional risks like intense regulatory scrutiny and the potential for losses if customers keep on winning.
However, if you were to gamify the casino via virtual currencies, and eliminate paying out to customers altogether, then you would create a business that bypasses the worst risks associated with the gambling industry.
Fortunately, there are a few companies already doing this and you have an opportunity to invest in them.
So without further adieu, here is the best small-cap gambling stock in the market today…
SciPlay ($SCPL) is a leading developer and publisher of digital casino games on mobile and web platforms.
Operating within the social gaming market, the business generates the majority of its revenues from in-app purchases in the form of virtual coins, chips, and cards, which players can then use to play slot games, table games, or bingo games.
Once obtained (either free or purchased), these digital assets are not redeemable for cash, meaning that consumers may only use them for in-game activity.
The company offers a variety of social casino games, including Jackpot Party Casino, Gold Fish Casino, Quick Hit Slots, 88 Fortunes Slots, MONOPOLY Slots, and Hot Shot Casino.
In addition to its major offerings, SciPlay owns an 80% stake in Alictus, a game developer who has achieved multiple #1 free game statuses in the iOS App Store.
To be successful, SciPlay must grow and retain its customer base by investing in its existing games and developing new games in both existing and international markets.
Since it is in a highly saturated industry, with low barriers to entry, it relies heavily on its brands and intellectual property to effectively maintain its competitive advantage.
Fortunately, the company’s management team has done an excellent job of leveraging its assets, all while producing a strong and healthy balance sheet.
Overall, SciPlay has created a durable business with multiple high-yielding products.
Under its current strategy, they are well positioned to capitalize on the many lucrative opportunities within the online gambling market.
SciPlay’s Three Edges and a Risk
Edge #1: Lucrative Game Portfolio
To be successful in the gaming industry, a company must consistently produce games that are both entertaining and can generate high payer conversion rates.
Since SciPlay’s games are free to download and rely heavily on in-app purchases, they must create valuable offerings for their paying customers and find new ways to attract more of these high-value players.
While it is unclear how much revenue each game generates, SciPlay outlines in its annual report that Jackpot Party Casino is its most valuable game, generating 52% of the company’s total revenue, or $315 million in 2021.
As its key asset, the game has over 10 million players and effectively retains them by offering an abundance of in-game bonuses and access to over 300 slot games.
Although this is its best example, the company has produced multiple cash-generating apps as demonstrated by its $606.1 million in revenue (89% on mobile), 6.2 million Average Monthly Active Users, 8.5% Payer Conversion Rate, and $95.26 per paying user (monthly) in 2021.
Overall, SciPlay’s game development has been excellent with total downloads reaching over 300 million since 2019. The company continues to invest in new game development, while also seeking strategic acquisitions when the opportunity permits itself.
Edge #2: Valuable Third-Party Partnerships
Through its majority owner Scientific Games (80.8%), SciPlay gained access to Scientific’s massive library of more than 1,500 iconic casino titles.
Not only that, but the subsidiary owns the third-party licensing rights to multiple highly recognizable brands including MONOPOLY, THE FLINSTONES, JAMES BOND, and PLAYBOY.
By leveraging its access to this content, SciPlay creates a competitive advantage whereby it may uniquely position itself in the social gaming market.
As these brands and Scientific Games’ titles possess an enduring and favorable relationship with their customers, SciPlay directly benefits from these relationships and may use them to produce new product offerings well into the future.
Edge #3: Consistent growth and Healthy Balance Sheet
When comparing SciPlay to the other Small-Cap Picks in this newsletter, one thing that stood out immediately is the company’s ability to generate consistent growth year-over-year.
Although the business faces seasonal challenges in the second and third quarters (2021 Annual Report), SciPlay maintains a healthy balance sheet and has successfully grown every year since 2018; even during the 2022 economic slowdown.
With the threat of a recession looming, predictability is important because it helps eliminate uncertainty during highly volatile periods, and makes it easier for investors to determine what the business is worth
In addition, having a strong balance sheet during a slowing economy may present opportunities to increase their market share, while their competitors struggle to stay afloat.
To demonstrate its efficient growth here are the company’s key financial metrics over the past 4 years:
Risk: Product Dependence
As mentioned earlier, SciPlay’s game, Jackpot Party Casino, makes up 52% of the company’s revenue as of 2021.
Given its major dependency on the success of this game, SciPlay may run into challenges that would hinder growth if they are unable to produce new games that achieve significant popularity in the marketplace.
Since each game requires significant research and development, engineering, marketing, and other resources to develop, it would be damaging to the company’s top and bottom lines if they fail to produce more high-value products for their customers.
To overcome these risks, SciPlay emphasizes the importance of understanding consumer preferences, retaining the rights to its intellectual property, including Scientific Games, and effectively marketing new games and enhancements to existing and new players.
All-in-all, the company plans to continue reinvesting into Jackpot City and feed off of its success, until it produces a game of equal caliber.
We are not brokers, investment or financial advisers, and you should not rely on the information herein as investment advice. If you are seeking personalized investment advice, please contact a qualified and registered broker, investment adviser or financial adviser. You should not make any investment decisions based on our communications. Our stock profiles are intended to highlight certain companies for YOUR further investigation; they are NOT recommendations. The securities issued by the companies we profile should be considered high risk and, if you do invest, you may lose your entire investment. Please do your own research before investing, including reading the companies’ public filings, press releases, and risk disclosures. Information contained in this profile was provided by the company, and extracted from public filings, company websites, and other publicly available sources. We believe the sources and information are accurate and reliable but we cannot guarantee it. The commentary and opinions in this article are our own, so please do your own research.
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