Aristocrat digital rejig success, work to do: JP Morgan
Australia-listed Aristocrat Leisure Ltd, traditionally a maker of slot machines for land-based casino operations, has so far successfully managed an adjustment to offering digital online products. But challenges remain as the latter market matures and the costs of acquiring online players remain competitive.
So said a Wednesday note from JP Morgan Securities Australia Ltd, giving commentary on Aristocrat’s fiscal-year results to September 30, issued that day.
“Aristocrat Leisure has significantly increased its digital exposure (40.1 percent of financial-year 2019 revenue) and continues to develop titles for both land-based and digital platforms,” stated analysts Donald Carducci and Abhinay Jeggannagari in their memo.
Aristocrat on Wednesday reported net profit after tax and amortisation for the fiscal year ending September 30 up 28.2 percent year-on-year, on revenue up 25.3 percent.
But the firm also told the Australian Securities Exchange on Wednesday that margin on earnings before interest, taxation, depreciation and amortisation (EBITDA) for the reporting period had declined by 0.8 percentage points, to 36.3 percent, with “margin expansion across the land-based business partly offsetting the expected moderation driven by the full period impact of the lower-margin digital acquisitions.”
Over several years the Aristocrat brand has undergone a development and acquisition phase in digital operations. It now has three key brands in that field: Product Madness; Big Fish; and Plarium.
Referring to the digital business, JP Morgan noted: “As evidenced by reduced daily active users but increased average bookings per daily active user, Aristocrat Leisure has curtailed investment in low-quality players to grow profitability in later periods”. The lower-value players were likely to be from the so-called “social casino” segment, said the analysts.
Aristocrat had said in its Wednesday results that user acquisition spend for the digital business was “expected to remain between 25 percent to 28 percent” of overall digital revenues.
Digital revenues in fiscal year to September 30 had been nearly AUD1.79 billion (US$1.22 billion), up 33.6 percent year-on-year.
Key “downside risks” for Aristocrat included “consistent decline of electronic gaming machine expenditure,” noted JP Morgan, referring to the land-based segment.
“Australian per-capita gaming expenditure has declined 0.7 percent on average since 2007-2008, which could indicate a shift of preference within the gaming sector,” noted Messrs Carducci and Jeggannagari.
“This shift, coupled with technological advances, may favour emerging industries such as virtual reality or skills-based gaming,” they noted.
“Aristocrat Leisure is also susceptible to foreign exchange exposure because it generates revenue in multiple currencies, particularly U.S. dollars,” the analysts observed.
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