Scientific Games

Scientific Games (SGMS) reported earnings & the market reaction was beautiful with a powerful short squeeze causing the stock to jump 15%. I figured they were going to have a positive reaction to their earnings announcement, if for no other reason the ability to shift narrative.

  • they had just recently spun out their SciPlay mobile gaming subsidiary (SCPL) via an IPO, raising $301 million for a 17.4% stake. Funds were used to lower leverage on the parent corporation by paying down debt
  • as of this morning, SciPlay is valued at $1.86 billion
  • they still own most of that mobile subsidiary (much like IAC’s stake in Match)
  • outside of their 82.6% equity stake in SciPlay (valued at $1.54 billion), the remaining core business is highly debt leveraged but has limited enterprise value beyond the heavy debt load
  • many spin outs (or new line reporting) have led to a revaluation upward of the core remaining business
  • they would not have had strong incentive to spin out the other company while retaining the majority of its equity unless they felt the parent company was healthy enough to continue servicing the debt
  • Zynga’s stock (ZNGA) has been on fire this past year as mobile gaming keeps growing

Scientific Games has been beaten down for the past year & I figured even if they bombed the numbers the narrative shift would carry the day.

Last week I put most of my liquid savings in a low-yield Vanguard bond fund so I would sort of ignore the stock market & focus on other stuff, so I only put a tiny position on just before close yesterday using a bit of money that was in my IRA to quick flip Scientific Games around the quarterly results.

The short squeeze is still going with the stock up over 19% now, so I certainly sold too soon, but it will likely trend down later in the day as shorts finish covering & new shorts re-engage.

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