SciPlay Corp. (NASDAQ: SCPL) had a very bad day on Wednesday. What is awkward here is that SciPlay has been public for just over two months. After selling 22 million class A common shares at $16 per share in early May, SciPlay already had traded below that price as a busted IPO before this last wrecking ball of a trading session.
SciPlay closed down $2.04, for a drop of 16%, at $10.70 on Wednesday. While the drop is huge, barely a million shares had traded hands on the news.
Wedbush Securities’ Michael Pachter issued a note late on Wednesday that the weakness and recent negative sentiment around SciPlay are overdone. Pachter has maintained his Outperform rating and $20 target price.
Investors should take note that it is not normal for a stock with a recent initial public offering to drop this much, and it had traded as high as $18.75 after going public in May. In short, analyst calls of this sort are sometimes treated with the response, “Well, you were wrong on your first look so why are you right on the second look?” That is how some investors may feel.
Las Vegas-based SciPlay was considered a unit of gambling products maker Scientific Games Inc. (NASDAQ: SGMS) at the IPO.
Still, Wedbush has made proprietary app store channel checks into the health of the company, and those checks indicate a modestly positive quarter with sequential growth for its game portfolio in the second quarter. Jackpot Party Casino, which Wedbush referred to as the company’s largest game at 44% of 2018 revenues, and Bingo Showdown showed sequential domestic grossing rankings improvement on Apple’s App Store. That said, the rest of the portfolio was roughly flat or even down modestly. Pachter said of the news:
88 Fortunes Slots and Bingo Showdown saw sequential domestic grossing rankings improvement on Google Play, with the rest of the portfolio, including Jackpot Party Casino, roughly flat or down modestly. The improvement for Jackpot Party Casino on the App Store (with Apple accounting for 42.7% of revenue in Q1:19) should be enough for SciPlay to deliver the modest sequential revenue growth contemplated by consensus estimates.
SciPlay’s earnings report for the second quarter is not due until August. The Wedbush report went on to say:
While we would be surprised by a miss, if the company misses the Street’s estimates for its first quarter as a publicly-traded company, management would suffer a loss of credibility. Our channel checks give us confidence that Q2:19 will reflect sequential growth, and we expect the growth to continue for the foreseeable future. We do not expect SciPlay to provide third quarter or fiscal year 2019 guidance, but note that the third quarter and and fourth quarter have historically seen seasonal growth.
Wedbush was not the only firm positive on SciPlay coming into this latest disappointment. Deutsche Bank had rated shares at Buy with a $20 target, and Morgan Stanley was at Equal Weight with a $17 target price. Goldman Sachs started coverage in May with a Buy rating and a $19 target price.
After falling 16% to $10.70, the post-IPO trading range since May has been $10.63 to $18.75. That trading volume of 1.008 million shares was the highest since the 1,080300 shares trading hands back on June 21, when it was a $14.42 stock. It also may be worth noting that SciPlay has not traded more than 500,000 on a single day since then.