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State of the Social Casino Industry – Q4 2017 | Adam Krejcik

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Delivered at Casual Connect USA 2018. In this session you will learn about the latest trends and data as it relates to the social casino games industry including: market size, top publishers, revenue by platform, biggest titles, KPIs, marketing expenses, latest M&A activity and sector outlook. A must-attend session for anyone involved or wanting to learn more about the $4B+ social casino games market from one of the industry’s most respected analysts.

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State of the Social Casino Industry – Q4 2017 | Adam Krejcik

  1. 1. Casual Connect USA 2018 Presentation Adam Krejcik, Principal, Eilers & Krejcik Gaming, LLC January 16, 2018 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of Eilers & Krejcik Gaming is strictly prohibited Social Casino Industry Review & Outlook
  2. 2. 2 of 14 Eilers & Krejcik Gaming, LLC is a boutique research & advisory firm focused on servicing the gaming equipment, technology, and interactive gaming sectors within the global gaming industry. Products and services include market research, company research, and advisory services designed specifically for traditional land based & online casino companies, gaming technology providers, digital & interactive gaming companies, and institutional investors. • Market Research - proprietary market research offering includes multiple surveys and internally developed reports that are designed specifically to track key industry and product demand drivers, operating metrics, market share trends, and technology adoption rates. • Company Research - company research offering includes the active coverage of all major gaming equipment and technology providers, as well as social gaming companies. • Consulting & Advisory Services - consulting & advisory services division provides a wide range of customized research products and advisory services for both gaming companies and investors including, but not limited to, M&A advisory, customized surveys, new market analysis, asset valuation, and competitive landscape analysis. About Us
  3. 3. 3 of 14 Social Casino Market - History Five key trends over the past 5-years: 1. Shift to mobile 2. Playtika’s dominance 3. Gaming suppliers & land-based slot content 4. M&A wave 5. Steady as she goes… Social Casino Market – Review $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 2012 2013 2014 2015 2016 2017 Social Casino Market Size ($Bln) Desktop Mobile $1.3bln $4.5bln 5-year CAGR = +28% Source: Eilers & Krejcik Gaming, LLC
  4. 4. 4 of 14 Social Casino Market - History Shift to mobile in retrospect is one of the most obvious trends, BUT it’s easy to forget that in 2012 & 2013 Facebook was the dominant platform and a lot of companies were making a lot of money. Those who pivoted too late or did not properly allocate resources to mobile have now mostly been forgotten... 1. Shift to Mobile Source: Company reports, Eilers & Krejcik Gaming, LLC $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 2013 2017 Social Casino Market Size $ in millions Facebook Mobile CY13: FB = 59% of market CY17: FB = 23% of market Missed opportunities: Publisher Mrkt Sh. CY13 Mrkt Sh. CY17 Blue Shell Games 1.3% 0% Diwip 0.8% NM Plumbee 1.2% NM High 5 Games 2.7% 1.2% Gamesys 2.0% NM NM = Not meaningful Diwip was acquired and now owned by Tangelo Games Plumbee was acquired by GSN Games
  5. 5. 5 of 14 Social Casino Market - History • Playtika’s market share has increased from 15% in CY13 to 26% in CY17 • Revenues have grown at CAGR of +41% past 4-years vs. industry average of +22% • #1 grossing slot game (Slotomania), #1 grossing bingo game (Bingo Blitz), #2 grossing poker game in (WSOP) • EBITDA margins in excess of 40% (making it category leader) • $4.4bln exit in CY16 (largest social casino exit to date) 2. Playtika’s Dominance * Pro-forma includes Double Down Interactive Source: Company reports, Eilers & Krejcik Gaming, LLC Playtika 15% Double Down 12% Zynga Inc. (social casino only) 11% SciGames Interactive 5% GSN Games 4% Other 53% Social Casino Mrkt Share - 2013 Playtika 27% Scientific Games 9% DoubleU Games* 9% Zynga 7% Product Madness 7% Other 41% Social Casino Mrkt Share - 2017
  6. 6. 6 of 14 Social Casino Market - History Key theme: Land-based content serves a key competitive advantage due to superior monetization (better Math), retention (familiarity with certain slot titles). 3. Gaming suppliers & land-based content Source: Eilers & Krejcik Gaming, LLC M&A Strategic Partnerships & Other Licensing Publisher ARPDAU (CY13) ARPDAU (CY17) % uplift Aristocrat / Product Madness $0.16 $0.56 250% SciGames Interactive $0.29 $0.42 45% Double Down (formerly owned by IGT) $0.40 $0.52 30% High 5 Games $0.45 $0.65 44% Gaming Suppliers ARPDAU Lift Screenshot: Cashman Casino Featuring “Lightning Link”
  7. 7. 7 of 14 2011 2012 2013 2014 2015 2016 2017 4. M&A Wave Over $8bln worth of M&A transactions in the social casino sector over the past 6-years.
  8. 8. 8 of 14 Social Casino Market - History Perhaps biggest surprise over past 5-years is how little things have actually changed: • The oldest social slot game (Slotomania) still remains the biggest and most popular today • Zynga’s oldest game (Zynga Poker) still remains its most popular/biggest title and the largest poker game in the market • Playtika’s remains the largest social casino publishers and most of the top-10 publishers remain familiar (albeit there has been considerable consolidation) • Growth has been amazingly consistent (5-year CAGR of +28%) and industry has never seen revenues decline on a sequential basis (per our tracking) • Industry has largely avoided any meaningful regulation and or negative Press (in fact media coverage of this sector remains nascent) • Despite some early attempts and predictions, social casino never converged with RMG and remains an independent category with no signs of cannibalization • Land-based casino operators have increased their exposure (largely through B2B/white-label and few investments/M&A), but are not major players in this industry. And land-based slot content still remains “exclusive” for social casino. 5. Steady as she goes… M&A
  9. 9. 9 of 14 Social Casino Market - History Three key trends to watch over the next 5-years: 1. It’s all about conversion and monetization 2. Small changes (lots of them), but big rewards 3. Crossing over or morphing into other sectors Social Casino Market – Outlook $3.0 $3.5 $4.0 $4.5 $5.0 $5.5 $6.0 $6.5 $7.0 2017 2018E 2019E 2020E 2021E 2022E Social Casino Market Size ($Bln) $6.5bln $4.5bln 5-year CAGR = +7% Source: Eilers & Krejcik Gaming, LLC
  10. 10. 10 of 14 Recent growth in the social casino market has largely been driven by higher monetization rates as user levels have largely remained steady. Looking ahead we don’t believe this dynamic will change as the social casino market becomes increasingly saturated. User levels (LEFT CHART) among top-publishers have been steady, BUT monetization (RIGHT CHART) has been rapidly increasing… Paying player conversion rates for F2P MMO’s in Asia: • China = 7-10% • Japan = 10-12% • Korea = 12-15% • World of Tanks (popular F2P MMO Tank game) is rumored to convert 25%+ of its active users to payers. We estimate social casino industry has average paying player conversion rate of approx. 3%. By our calculation, increasing the paying player conversion rate by 100bps (ex. from 3% to 4%) would drive a 30-35% increase in total revenues (assuming a constant monetization level). Outlook – Conversion & Monetization - 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 DAU Trends Playtika DoubleDown SciGames Interactive Aristocrat/Product Madness Zynga (social casino only) $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 ARPDAU Trends Playtika DoubleDown SciGames Interactive Aristocrat/Product Madness Zynga (social casino only)
  11. 11. 11 of 14 Social Casino Market - History Improving conversion rates and driving higher monetization is “easy” to say in principle, but much harder to execute. While we do not profess to be product experts, our discussions and analysis leads us to the following conclusions: • Rising tide should help lift all boats. Our thesis is that consumers and especially younger generations are becoming increasingly comfortable with the ‘freemium’ model (i.e. making in-app purchases for entertainment experiences they deem as valuable). In our opinion, all forms of entertainment should see a gradual rise in paying conversion rates as mobile users become more accustomed to consuming content in this fashion. • Small changes can lead to big rewards. One notable observation from following the social casino industry over the last 5- years is that you don’t need to be disruptive to be successful. In other words, the companies that are growing or even successful new incumbents are largely making lots of small tweaks to products and features. We are not dismissing the importance of having good content, but rather we believe the key is constant optimization. In terms of specifics, we believe companies that can excel at live operations, predictive analytics and machine learning for A/B testing and user acquisition will be well positioned for future growth. Outlook – Small Changes Can Lead to Big Rewards
  12. 12. 12 of 14 Social Casino Market - HistoryOutlook – Crossing Over into Other Sectors Social casino companies expanding beyond “casino” the genre as evidence by Aristocrat’s recent acquisitions of Plarium and Big Fish, Playtika’s Vegas Words (slots + Puzzle game), Playstudios & King Digital partnership. Additionally, companies like Murka have begun to explore “cross-over” appeal by incorporating RPG type elements into classic slot games e.g. Scatter Slots has quests & missions, and dark/gothic feel to the game, which has helped it appeal to a younger/male audience. Finally, non-social casino companies have also been incorporating “gambling” like features into various game genres, most notably “loot boxes” which is essentially just a simple slot machine. Unsurprisingly, this feature has proven to be a highly effective monetization tool, but also attracted a lot of controversy.
  13. 13. 13 of 14 Questions? Contact info: Adam Krejcik Eilers & Krejcik Gaming, LLC 714.619.9330 akrejcik@ekgamingllc.com
  14. 14. 14 of 14 Disclosure 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@eilersresearch.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.

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