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How resilient Aristocrat is playing the long game

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At Medallion, while facing tough conditions in the current climate we continue to be encouraged by the prospects for Aristocrat, which has a portfolio of very highly regarded electronic gaming machines in an industry with significant barriers to entry.

An area where Aristocrat has invested very heavily in recent years is the diversification away from physical gaming machines and into the online and mobile gaming markets.

Off the back of this success and rapid growth, the digital business has been transformed in recent times, underpinned by the acquisitions of Plarium for US$500 million, in the social gaming space and Big Fish in the social casino and social gaming space for US$990 million.

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The market opportunity in these areas is of particular interest, with the social casino market estimated at $4.5 billion, and the social gaming market estimated at $45.9 billion. The increase in scale is key to capturing a large portion of this market which has high levels of recurring revenue and strong margins.

So far in 2020 casino revenues have proven more resilient than expected which is supportive of the medium-term outlook for the company. While unit sales for the company are estimated to be down 43% year-on-year, this is actually better than expected.

Over the past 12 months, Aristocrat appears to be demonstrating its resilience, with all aspects of the business progressing ahead of restated COVID expectations. As it stands, digital bookings increased 31% for the FY20 period with even more impressive second-half growth of 43% rounding off gains in market share, both in land-based games and in the digital space.

While land-based gaming revenues have fallen we'd expect this side of the business to bounce back quickly post-COVID, while the mobile gaming side of the business should continue to pick up the slack in the meantime. When looking at the long term picture it appears that COVID has actually provided Aristocrat with the ability to take market share from smaller competitors who have quickly become more focused on staying afloat than driving business growth.

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Michael Wayne is the managing director of Medallion Financial Group. With considerable experience in financial markets, Michael provides advice to a range of clients in both domestic and international equities, exchange trade funds (ETFs), managed funds and corporate deal flow.
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