Light & Wonder expansive at investor day

May 17, 2022 10:48 PM
  • David McKee, CDC Gaming Reports
May 17, 2022 10:48 PM
  • David McKee, CDC Gaming Reports

Although slot and icasino gamemaker Light & Wonder may be trading just above $48 a share, one expert watched the company’s investor-day presentation and came away impressed. Jefferies analyst David Katz put a price target on LNW stock of $96 a share. His optimism was motivated by taking the long view, that Light & Wonder “should ultimately be positioned for growth beyond our 2023 forecast horizon.”

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Executives of Light & Wonder outlined a business plan that extends through 2025, laying out goals that include growing adjusted cash flow at a compound annual growth rate of 17 percent. They intend to convert fully 45 percent of their earnings before interest, taxes, and depreciation into free cash flow and generate $10 billion in cash on hand, “including the asset sales completed and pending,” per Katz.

Even more crucially for the Jeffries analyst, Light & Wonder bosses put forward a strategy to capture market share in both terrestrial and digital gaming that he found convincing. “Notably, the personnel in place have demonstrated success in the past, which we believe adds credibility.”

Moreover, Light & Wonder’s economic position is protected, according to CEO of Gaming Matt Wilson, by “economic moats.” These include the highly regulated nature of the casino industry, the importance of long-term customer relationships, a limited pool of leading talent, and the long lead time and capital investment that are inherent in successful game development. Using a PowerPoint slide showing a Chinese dragon, Wilson pegged the total addressable market for game manufacturers, pending full economic recovery, at $7 billion, with 80 percent of that coming from North America.

As of 2019, Light & Wonder (then Scientific Games) enjoyed a 50 percent share of the table-game market, 40 percent of gaming systems, and 20 percent each of game leases and outright sales. At the time according to Wilson’s presentation, the company was “decentralized and regionally structured” and not building the right games for the right markets. Today, research-and-development spending is described as increasingly disciplined and 12 percent higher.

While Light & Wonder may be more centralized, it has three headquarters, with offices in Las Vegas, Chicago, and Australia, headed by Roger Snow, Michael Mastropietro, and Qin You, respectively. Among the accomplishment executives emphasized were a doubling of Australian sales and moving 3,400 slot machines in North America in the first quarter of this year alone, with Light & Wonder positioned to capture a larger percentage of the important slot-replacement cycle.

As for igaming, Light & Wonder emphasized its content platform, which encompasses such development partners as ostensible rival International Gaming Technology and operators including BetMGM, DraftKings, and FanDuel. Projecting a total addressable market of internet gambling of $27 billion by 2025, the company said it was “positioned to capture a meaningful share” of same, including the Canadian provinces and the United Kingdom. In the latter, Light & Wonder execs boasted of having a quarter of the market and three times the average-sized bet. Domestically, last year the company had a total addressable market of $4 billion and twice as much gross gaming revenue as online sports betting operators.

At present, Light & Wonder says it is reaching 13 percent of the U.S. population and could grow its total addressable market to more than $23 billion, by combining the European Union and UK with half of the U.S. Executives stated that they have 16 of the top 20 online casino games in the U.S., as well as the top-grossing one (88 Fortunes) and the biggest game launch (Hurricane Horse Coin Combo).

Regarding leverage, executives showed a dramatic graph, showing reduction of debt from $8.3 billion one year ago to $3.3 billion now, and lower still once sale of the sports-betting unit has been consummated. The company also set aside $750 million for share repurchases, of which $147 million has been expended, taking 2.5 million shares off the market.