Light & Wonder's big bet: Can it reclaim the jackpot?
Light & Wonder (ASX: LNW), formerly Scientific Games, is the world's second-largest supplier of electronic gaming machines, just behind Aristocrat Leisure Limited (Aristocrat). Despite this position, it was not so long ago that LNW was in a tough spot: heavy debt, shrinking market share and a business that desperately needed new direction.
The turnaround started when Jamie Odell and Toni Korsanos joined the board from Aristocrat and injected fresh energy and direction into LNW. Since 2020, LNW has been cutting debt, ramping up research and development, and reclaiming its competitive edge, especially in the US which is the world's biggest gaming market.
The numbers tell the story of a rejuvenated company: AU$1.1 billion in adjusted EBITDA in 2023, aiming for AU$1.4 billion in 2025, and a bold target of AU$2 billion by 2028.
What's under the hood?
The business is largely powered by three revenue sources:
- Gaming: The heart of the global business is casino poker (slot) machines, systems, and table games. The strategy? Lease machines for steady, higher-margin revenue and keep rolling out new games that players love.
- SciPlay: If you've played a social casino game on your phone, you've probably tried SciPlay, LNW's digital arm. It adopts a freemium model that keeps users engaged and spending, with impressive growth and healthy margins.
- iGaming: As online gaming takes off in the US, LNW is leading the charge in online slots (pokies) content. This segment is set for double-digit growth and LNW's content pipeline is ready to capture the opportunity.
The cloud over the table
The biggest issue hanging over LNW is the ongoing legal battle with Aristocrat over the Dragon Train slot series.
Those machines have already been pulled from casino floors, and Aristocrat claims the disputed mathematical logic has been used in other games too.
Patent disputes in gaming aren't rare, and most settlements in this sector range from a few million to tens of millions of dollars.
The big payouts - hundreds of millions - are unusual. In our view, the current discount to Aristocrat represents over A$3 billion in value and compensates for any negative outcome from the court cases.
Why we like LNW in our portfolio
The market has long admired Aristocrat as an industry benchmark, but in our view, Light & Wonder's story is now just as compelling.
It is a business with similar earnings growth but trading at about a 30% discount - a rare value opportunity.
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