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Gambling giant Aristocrat Leisure is under pressure to explain the performance of its mobile games business amid concerns downloads of its most popular products have slowed dramatically, which has weighed on its sagging share price.
While best known as one of the world’s biggest poker machines manufacturers, the $22.5 billion ASX-listed group now generates just over half its revenue from its growing suit of online games.
Concerns that players are turning off Raid: Shadow Legends (pictured) are weighing on Aristocrat’s share price.
The digital business is set to be a major focus for investors when Aristocrat hands down its half-year results on May 19, with analysts saying that fears two of its most successful mobile games were losing popularity was one factor behind its tumbling share price.
Aristocrat’s shares have fallen 29 per cent over the past six months, closing at $33.66, after rising to an all-time high of $49.65 in November largely on optimism around the digital business while many people were seeking entertainment during the COVID-19 pandemic.
But the digital games business declined by 9 per cent in March versus a year earlier, according to analysts at Barrenjoey based on app store download data from Sensor Tower. Downloads of the fantasy role-playing game Raid: Shadow Legends, one of Aristocrat’s most successful, were down 27 per cent and puzzle game EverMerge fell 43 per cent.
“While this is a short period, we can’t ignore the slowing growth trajectory,” Barrenjoey analyst Matt Ryan said in a research note.
Morningstar equity analyst Angus Hewitt said one of the big questions investors would have for Aristocrat at its half-year results would be “how quickly the digital gaming business is growing, or how much it’s slowed”.
“There’s not been a lot of market updates to justify what’s happening [to the share price], but we’re potentially seeing slowing growth in the digital gaming business,” Hewitt said in an interview.
“My sense is that… the optimism backed into that business had brought Aristocrat’s valuation into a pretty expensive area and that’s just come back to reality.”
Goldman Sachs analyst Desmond Tsao agreed that the falling Raid download numbers had driven Aristocrat’s recent share price weakness. However it may be an over-reaction, he said, which ignored the fact Raid players were shifting from mobile to the company’s PC platform Plarium.
“This coupled with data showing overall higher user time on Raid… and rising visitation on Plarium suggest to us that perhaps short-term app-only data for Raid is becoming less and less meaningful,” Tsao said.
Aristocrat’s games work on a “freemium” model, meaning they are free to download and play but users pay for “in-play purchases”. That means engagement of existing players is as important as attracting new ones.
Hewitt said the other key areas of focus at Aristocrat’s earnings updates would be the level of investment in its legacy poker machine manufacturing operations – which he believed is a higher quality albeit slower growth business than digital – and its entry into “real money gaming”, or online casino gambling.
Aristocrat pledged to develop an online casino gambling business earlier this year, after its takeover bid for British industry leaders Playtech collapsed.
An Aristocrat spokesman declined to comment because the company is in a black-out period ahead of its half-year results.
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