In 2014, Israeli games startup DragonPlay was acquired by Bally, a veteran US company, for $100 million. Shortly afterwards, Bally itself was acquired in a huge $5.1 billion deal by Scientific Games, and the Israeli startup became part of Scientific Games. The Israeli company went through another metamorphosis a few months ago, when Scientific Games decided to split off its digital activity into an independent company that would hold an offering on Nasdaq. Thus was born SciPlay, a company that now has 150 of its 500 employees in Israel, with three of the seven games that it is developing coming from Israel. SciPlay CEO Joshua Wilson, 43, says that he spends half of his time in Israel: "I rent an Airbnb apartment in Tel Aviv, I belong to a fitness club I attend regularly, and I feel at home here," he says.
SciPlay develops and markets games, mainly for mobile devices, with a focus on social casino games - games in which no money is involved (games of chance, bingo, etc.). The company held its IPO on Nasdaq in May, but has given its investors little reason for satisfaction to date; its market cap is $1.6 billion, 21% less than at its IPO.
"The average customer is a 45 year-old woman"
Wilson began his career in the gaming industry in 2001 when he joined Phantom EFX, which developed casino games. A decade later, the company was acquired by Scientific Games, which merged it with it and DragonPlay. Wilson was COO at Scientific Games until it split.
"Globes": As someone who has been in the industry for 20 years, what were the most prominent changes in it?
Wilson: "The industry changed significantly during this time. When I began, we worked with disks sold at Walmart or Target. The game had a beginning and an end. Around 2010, Facebook showed up, and everything became digital overnight. After two years came the switch to mobile devices, and it changed the whole world again, because the games had to be adapted to a smaller device. At that time, the cellular connection improved to 3G, 4G, and today 5G, with the emphasis now being on speed. Who know what the next stage will be? Maybe we'll play on a smartwatch. I don't think anyone knows, but we have to be ready for change."
You are probably trying to figure out what the next stage will be and prepare for it.
"I think that in the end, television will be the next platform, because today, everyone's buying smart televisions. At the same time, mobile isn't going away. Everyone's connected to their phones, and you can play on them wherever and whenever you want. Once upon a time, you had to sit in a room for hours in order to play games. Today, if you have a few minutes in the middle of the workday, you take out your phone and play."
Who is your average customer?
"A 45 year-old woman. That's the case for every casual game (games designed for the general public, such as Solitaire and Candy Crush Saga, in contrast to niche games, S.H.-V.). In my opinion, the reason is that women can concentrate on something, do it, and put it aside. That's why it's super important for us to be a diversified company, because I don't prepare the game for myself; I prepare it for other people, and I have to understand what they want. The video games industry was always controlled by men, and that's been changing in recent years. We now have 30% women."
Analysts forecast that SciPlay will finish 2019 with $473 million in revenue. The company made a $64.9 million net profit on $353 million in revenue in the first three quarters of the year (the profit attributable to SciPlay was $28 million). Today, 90% of the company's revenue comes from the US, but Wilson says that the company sees a great opportunity in global expansion, and is working on solving a technical problem relating to this matter. Most of the company's revenue comes from mobile, and a smaller proportion from the Internet. Wilson emphasizes that as an independent company, SciPlay is more aggressive in searching for acquisition opportunities and organic growth. "The direction is growth. There's no reason why we shouldn't be a billion-dollar company within three years," he declares. SciPlay's main competitors are Israeli company Playtika, Zynga, Aristocrat, and DoubleU.
"The good news is that we have many lawyers"
SciPlay raised $352 million in its IPO in May at $16 a share, the upper bound of the price sought by the company in the offering. The share price plunged to $9 less than half a year later, and has since recovered somewhat to $12.80 at present.
How are your relations with investors?
"Excellent. Scientific Games is still the largest investor, and five large concerns hold the rest. Other than the quarterly reports, the investors are fairly quiet; as long as we work well, they're satisfied."
SciPlay has two types of shares, which gives Scientific Games an advantage of the other investors in voting rights. Scientific Games holds 82% of SciPlay's share capital, but 97% of the voting rights in the company. "It doesn't affect us at all," Wilson says. "They're the big shareholders and part of the board of directors. But we manage the company independently. The only significant influence is that there's no float, so it's hard for an investor to say, 'I'll spend $50 million on buying shares,' because there aren't any shares. From outside, it looks like the main barrier. On the other hand, Scientific Games regards us as a company that will continue growing, so why should it sell shares?"
Are there investors who refrained from participating in the IPO because of the ownership structure?
"There were investment companies that couldn't invest in us because of their rules, because we have a shareholder who holds more than 95%, but in any case, there was surplus demand in the IPO, so there wasn't any problem."
How do you explain the negative return since the IPO?
"Bad timing. After the IPO, we had a technical problem that affected our customers, and we lost some of our customers. This was a component of a plug in that detracted from the speed, and made it hard for users to play. Every customer we lost is an asset that we lost, so our original guidance was lowered. Since then, we've had a good quarter, and the shares has started to climb."
As someone who looks at the share page on Yahoo Finance, I see announcements by law firms investigating whether the company made false reports.
"The good news is that we have many lawyers. I can't say much about it, but it's not an infrequent occurrence after an IPO. Lawyers look for investors and tell them, 'We'll sue if you'll join.' We expected this, and we're doing what we can to protect the company."
Most of the money raised went for payments relating to the split from the parent company, but some went into SciPlay's coffers, which had $81.3 million in cash as of the end of the third quarter. Asked whether acquisitions are planned, and if so, whether they will be in Israel, Wilson answers yes. "We're very active in Israel, and we want to expand from the social casino market to the casual market, the size of which is estimated at $85 billion. We're looking for a company that has built a good game, but lacks something for scale. We're looking both in Israel and elsewhere. Games appear in all sorts of strange places," he says.
Wilson has a lot of good things to say about the company's existing activity and employees in Israel. "The attitude, the ethics, and the will to win and solve problems is something I haven't seen anywhere else in the world," he enthuses. "There's a family culture, and people are concerned about each other's success. In the past two years, we've doubled the activity here, and we have a commitment to growth in Israel."
Published by Globes, Israel business news - en.globes.co.il - on December 20, 2019
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