• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

CALL NOTES AND Q&A


  • Price was based on comps, growth rates, management expertise, etc.  They will include Double Down in their interactive division which is incorporated in their gaming operation revenue.  Unclear how accretive the acquisition will be at this time.
  • Rumor floating around of a $140k a day in revenue attributed to Double Down
  • Allows them to reach a younger demographic with their core products.  Also allows them to add a social media layer to their casino games.
  • Zynga is the most recent comparable transaction 
  • How do you use the metric of DoubleDown's active users?  Are those actual paying users?
    • They need to look at their revenues net of what they pay to Facebook
    • Double Down generates revenues to FB and FB then remits 70% of the revenue to DoubleDown
  • Why not build the business organically?
    • Issue of time to market of at least 2 years and they believe that time to market is important for first mover advantage.  Land grab for liquidity = product performance over time
    • Worried about the distraction from their core business if they were to build from scratch - hard to do within the core business
    • From a cost standpoint, it would cost them roughly the same
  • How do their clients feel about this acquisition - i.e. IGT competing with them?
    • Thinks that this is positive for their existing customers since it's another service that they can offer 
  • Double Down has every intent to move into mobile applications.  The lion's share of their expenses is R&D.
  • They may break out interactive going forward
  • They would think about the price paid on an EBITDA multiple basis
  • Interactive is currently less than 5% of their revenues... if they fold in Double Down into their revenues they will be north of 5% but they don't need to disclose until revenues reach 10%. 
    • Sounds like it won't be 10% but they are still debating whether to break it out
  • Think that liquidity is the number one barrier to entry.  They can also quickly provide a pipeline of products into this distribution channel since they already have the games. Since it's a B to B model they rely on Facebook for customer acquisitions.
  • Wouldn't necessarily think of this acquisition as the hub of their interactive division but rather a spoke in the wheel... like Entraction. This one allows them to access the social media channel. 
  • Retention bonuses are widely distributed - paid out over 2 years based on a number of factors. 
  • There is nothing that prevents DoubleDown from expanding outside of Facebook
  • IGT's unbranded (unlicensed) products can move online in short order, but they are reviewing their license agreements to see if they can go online as well or if they require additional payments.
  • There is also a 3rd year performance based earn out. 
  • Entraction is their real money wagering product. 
  • Unclear if online gaming becomes legal and whether that will cannibilize their virtual business.
  • Monetization rate for DoubleDown is a little better than Zynga's since their gaming experience is more volatile. 
  • Expect their next 12 months of growth to be similar to what they have experienced so far

HIGHLIGHTS FROM THE RELEASE

  • IGT reached an agreement to acquire DoubleDown Casino for "$250MM in cash, $85MM in retention payments over the next 2 years and up to $165MM million in cash payable over the next 3 years subject to Double Down meeting certain financial performance targets.  IGT expects to fund the transaction from cash on hand."
  • "The addition of Double Down provides IGT instant size and scale in the fast growing world of casino-style social gaming and is expected to broaden IGT's popular gaming titles beyond the physical casino to Facebook, the world's largest social network with over 800 million global users." 
  • "The transaction is estimated to be accretive to IGT's fiscal 2012 adjusted earnings and is projected to close within the second quarter of its current fiscal year.  Greg Enell will continue to lead Double Down and the company's operations will remain inSeattle, WA after the acquisition is complete.  Through the integration, IGT will operate Double Down with the appropriate level of independence needed to continue to foster exceptional growth."
  • Double Down Interactive LLC:
    • "Launched in April 2010, the DoubleDown Casino is the world's largest virtual casino and one of the top 4 social media games in 2011 as rated by Facebook.  "
      • "Currently has 4.7 million monthly active users, up from 3.3 million in October 2011." 
      • "Offers blackjack, slots, slot tournaments, video poker, and roulette to social gamers all around the world."