The big spending acquisitions funded by cheap money wasn't looked on favourably when it was announced. It's definetly a period of higher risk for ALL. They're spending the treasure from the dominance of the core slots franchise to pivot to a higher risk industry with only some adjacencies. The debt is also to high given the digital products are highly discreationary. If the US has a downturn in the next year or so, the massive amount of goodwill could write off years of profits.
However, I do like how they're investing heavily in the digital, and the founders of plarium, for example, are still on earn outs for this year. I think this investment should set up the didital business for the next couple of years. There is a big opportunity in digital, and ALL will have a lot of scale to give it the best chance to diversify away the hit and miss nature of app creation.
In any event, the casino side of digital will remain very strong due to the competitive advantage of using ALL's games. I'm not worried about that, and that's a fair chunk of the digital revenue. The casual and rpg less so, but scale is at least one advantage ALL will have.
In terms of intergration, I'm fairly sure Plarium and Big Fish are run as seperate enterprises and report to ALL. The risk is really whether the acquisitions live up to the growth they were purchased for, or miss them and prove overpriced.
It's been sold down because short term expectations of profits, due to higher investment and slower digital ramp up, are reducing NPAT forecasts. Perhaps not entirely 'dumb money' taking to much risk, but the short term nature of the market. It was well into the $30s last year prior to the big sell off in everthing if you recall. Certainly is a 'believe it when I see it factor' as well, like you say.
Don't forget the core slots sales and revenue share machines business is humming along very well. Best games by far on the casino floor, and the revenue share machines are high quality reccuring earnings. I think even if digital is well below expectations, the business will still muddle along paying down the debt.
So risks of big losses are probably low, particularily given the resources being directed to digital. If management bolted on the businesses and extracted as much from them as possible this year and next, the shares would probably be at a record high. Although, thats almost certainly a poor long term strategy. They're spending more than ever on D&D and (should) have every chance of continuing the best in class games going forward.
They just really need to pay down debt! Dividends are probably innapropriate, not that they'll cut them as an actual owner would, gotta take the good with the bad. It's one of the very few locally listed stocks that's a global market leader and priced reasonably.
(I've changed my tune since first impressions on acquisitions, but still cautious given track record of big acquisitions of other companies.)
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