Las Vegas based slot machine manufacturer IGT announced that its 2nd Quarter profits fell by 67%, due to declining sales of its gaming machines. News of the announcement caused shares to fall $1.45, a decline of 10%, down to $12.62.
The profit decline forced the company to announce lay-offs, with 350 jobs or 7% of the workforce set to lose their positions. The layoffs should save the money $30 million in the remaining fiscal year, and should save the company about $50 million a year in 2015, 2016, and beyond.
Comparison with 2nd Quarter in 2013
Last year, International Game Technology had 2nd Quarter profits of $78.2 million, which amounted to 29 cents per share. This year's decline to $25.7 million profits equaled 10 cents per share. On the other hand, IGT's adjusted earnings fells 44% down to 20 cents, though this was a cent better per share than analysts had expected. For the purposes of these earnings, the purchase of DoubleDown and other special items, along with restructuring, was excluded.
IGT says two factors played heavily in their revenue decline. One, the overall decline in U.S. gaming revenue on a nationwide basis meant that sales from the affected companies would be down. Two, IGT is facing tougher competition from small vendors.
DoubleDown Profits Increased 27%
The one part of the business which showed marked gains was the online social gaming site, DoubleDown. DoubleDown is the interactive casino game apps available on Facebook. IGT's social gaming revenues increased by 27% up to $68.6 million in the second quarter. An IGT spokesman said these increases were driven by more daily active users. The DoubleDown casino applications attract more than 6 million players each month. Also, the average player spent more on virtual tokens.
About International Game Technology
International Game Technology was founded in 1975 by William S. Redd. The company is headquartered these days in Las Vegas, but has offices in 14 other countries worldwide, including the UK, China, and Russia. About half of the slot machines in the United States have been manufactured by IGT, while the company is the single biggest provider of pokies in Australia. IGT has revenues of around $2 billion each year, and is listed on the New York Stock Exchange and S&P 500.
IGT became dominant in the American slot machine industry when it became a leader in the video slots market in the 1980's. It was International Game Technology which innovated such concepts as the computerized player tracking and player rewards programs (slots clubs), microprocessor-driven spinning-reel slot market (random number generators), and wide-area progressive jackpots. IGT produces MegaBucks Slots, which still holds the record for the largest slots jackpot ever--and 8 of the 10 top spots for progressive jackpots. In 1996, IGT marketed Wheel of Fortune Slots, which remains one of the most popular slot machines ever produced. The company also designs many licensed slots, such as the Elvis Slot Machine.
IGT Interactive
In 2005, IGT purchased the UK-based Wagerworks company. This marked the company's first foray into the online gambling industry. The online wing of International Game Technology is "IGT Interactive". As of 2014, IGT Interactive is becoming the most profitable division in the company. In fact, 2Q of 2014 marks the first time that online profits exceeded traditional land-based profits.
International Game Technology is also active in the online gambling. IGT makes online video slots software which is found in dozens of the most popular casino websites in the world. IGT provides slots titles through a license with an online casino. Often, IGT is not the only software provider with that particular website, so it is easy to overlook its contribution to the Internet gaming world. You might see a site with table games and video slots powered by Playtech or Cryptologic, but also offering select IGT slot machines. This is a testament to the popularity of the brand, because it is employed even though the normally software supplier offers its own line of games.
Despite the fine reputation, IGT Interactive is facing serious competition in its brick-and-mortar business. The basics of electronic slot machine design are known by many manufacturers now. As technological advancement increases, what once required a cutting edge company can be mimicked by companies with fewer resources. For that reason, IGT is beginning to receive competition from several lesser-known competitors. The drop in profits by 67% and the loss of 350 jobs is all the sign you need to understand who tough the competition is nowadays.
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