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Why Scientific Games Stock Popped on Friday

By Jon Quast – Updated Jul 24, 2020 at 3:44PM

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Two of its business segments grew during the pandemic, helping the company beat low expectations.

What happened

Shares of Scientific Games (LNW 3.15%) traded higher on Friday, after the gambling products and services company reported results for the second quarter of 2020. As of 3:30 p.m. EDT, the stock was up 13% for the day. It was a small reprieve for shareholders who are still down more than 30% in 2020. 

So what

Scientific Games generated $539 million in revenue in Q2, down 36% year over year. But analysts expected around $460 million in revenue, resulting in a large relative outperformance. 

A dollar bill is folded into the shape of an upward pointing arrow.

Image source: Getty Images.

Scientific Games generates revenue in four business segments. Gaming is its largest segment, and it was greatly impacted by casinos being closed by the coronavirus pandemic. Revenue for the gaming segment was down 79% from 2019. That hurts, but the company offset some of this lost revenue with strong revenue growth in its SciPlay (SCPL 0.65%) and digital business segments.

The sharp drop in overall revenue led to a $198 million net loss for Scientific Games. If there's a silver lining, the company amazingly generated $64 million in free cash flow in the first six months of 2020. It has over $900 million in liquidity and no major debt maturities until 2024. In other words, the company has a little breathing room during this tough time.

Now what

The gaming revenue segment remains the most important piece of Scientific Games' business. The company noted that 85% of casinos have now reopened. And most of its gaming business comes from First Nations and regional markets, which it says are recovering faster than tourist destinations. If true, that bodes well for this small-cap stock.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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