International Game Technology Recent Drop Is A Good Buying Opportunity

| About: International Game (IGT)

On Friday, shares of International Game Technology (NYSE:IGT) fell over 15% due to weak guidance and slow North American growth. However, the company is expanding its presence in online gaming and international growth will power shares back the $20 mark, representing upside of around 25%.

In the first quarter, International Game Technology reported revenue of $541 million, a small increase of 2%. Adjusted operating income and earnings per share fell from the prior year. However, social gaming revenue of $65 million increased a staggering 57%. Total interactive revenue increased 41% to $74.6 million in the first quarter. Daily active users and monthly active users increased 17% and 26% respectively. More importantly bookings were up 35% for daily active users, as monetization of users continued to be a key bright spot for the company.

International Game Technology also completed its $200 million share buyback. In the past four years, the company has now returned over $1 billion through buybacks and dividends. The first quarter also marked the fifth consecutive quarter that International Game Technology raised their dividend payout. Shares now yield over 2% at current prices.

The company is still at the start of a new growth plan, introduced during a December investor presentation. International Growth Technology announced its three key priorities for 2014 as: enhancing content, expanding distribution, and maximizing shareholder returns. Here is a look at the company's long term growth priorities, as announced at the December investor presentation:

· Online (Social): Growth opportunity 15%, opportunities include: mobile revenue, international expansion, and enhanced product breadth.

· Online (Real money gaming): Growth opportunity 10%, opportunities include Canada, New Jersey, Delaware, Italy, and Spain.

· International: Growth opportunity 7-9%, opportunities include Philippines, Macau, Greece, Italy, Japan, and Brazil.

· North America: Growth opportunity 1-3%, opportunities include New York, Massachusetts, Maryland, Texas, and Florida.

The legalization of real money gaming in new states will prove to be a huge catalyst for the company. International Game Technology continues to be ahead of the game in online real money gaming. In November, IGT launched real money online wagering in New Jersey. The company launched slot and video poker games through casino partners.

In the first quarter, IGT had this to say on growth in legalized gambling, "We are optimistic that the New Jersey casino style model will become a successful example for other states to follow. IGT is uniquely positioned to capitalize on this opportunity, given the breath of our premium product portfolio and our proven track record in real money wagering outside the United States."

International markets continues to be a huge growth opportunity for International Game Technology. Unit volume for the Asia-Pacific region was up 21% in the first quarter. International growth was slowed by Latin America, which saw a 53% drop in units due to increased regulations. Total international revenue fell 3% in the first quarter.

I have been a bull on several international casino plays like Melco Crown (NASDAQ:MPEL) for some time. The growth in Macau and new regions like the Philippines and Japan continue to offer opportunity for casino-related companies. IGT had this to say, "We feel that Asia is poised for growth over the next 2 to 3 years. Macau, Philippines, Singapore may provide higher-than-average growth for the industry and we will attack this market like never before with products, with partners, and with content."

I think there are several keys there for IGT investors. Obviously, IGT sees the growth coming in a short 2-3 year period, which means the current depressed shares should see some steady returns for shareholders through 2017. Hearing the word attack is also good for investors to see the focus on this key high growth area.

In the first quarter, interactive revenue continued to be the huge growth opportunity for International Growth Technology. Higher social gaming revenue and the addition of Double Down Casino revenue were the key drivers in the quarter. The company continues to have huge user bases online and strong monetization rates compared to peers.

Investors were scared off by International Game Technology's poor North American results. As you can see from the growth items listed above, the company doesn't see North America as its key opportunity. The keys to future shareholder profits are international, real money gaming, and interactive gaming. The company knows this and will continue to succeed. I expect shares of International Game Technology to bounce back and see $20 by the end of 2014.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in IGT, MPEL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.