Casino gaming, entertainment and systems technology provider International Game Technology (IGT) and High 5 Games recently announced an extended partnership. As per the terms of the deal, High 5 Games will continue to develop new games, which will be published by IGT over the next several years.
As per the extended agreement, High 5 Games will develop exclusive titles for all IGT markets that include land-based, online and mobile games. The companies plan to release 16 new games including Big Dragon Lounge, GoldenThree Kingdom and That's A Hit over the next few months.
IGT and High 5 Games relationship dates back to 2004. Since then High 5 Games has developed more than 100 games for IGT, which includes popular titles such as Golden Goddess, Cats, Da Vinci Diamonds, Shadow of the Panther, and Sirens.
IGT continues to bear the brunt of a sluggish domestic market due to lower play levels, higher unemployment rate and weak replacement sales. To combat this scenario, the company is looking for growth opportunities in the fast growing social and mobile games market over the long term.
According to market research firm BI Intelligence, the U.S. social gaming market (including mobile games) is expected to more than double from approximately $2.0 billion in 2011 to approximately $5.5 billion by 2015.
IGT is banking heavily on partnerships to solidify its position in these fast growing markets. We believe that the newly extended partnership with High 5 Games will further boost International Game Technology’s casino-based gaming portfolio, which will drive its market share going forward.
IGT is also seeking expansion opportunities in international territories to boost profitability. Over the past few months, the company has entered into a number of partnerships with overseas players including EspaceJeux.com. We believe that the company will continue to focus on expanding its presence in international markets and will further sign licensing agreements with leading local providers over the long term.
However, we believe that the increasing investment in product development will drive operating costs, which will remain an overhang on the stock in the near term. Moreover, fewer new openings and increased competition from Bally Technologies Inc. (BYI) and WMS Industries Inc. (WMS) will keep the stock range bound in the near term.
We have a Neutral recommendation on the stock over the long term (6-12 months). Currently, IGT carries a Zacks #4 Rank, which implies a Sell rating in the short term.
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