“Sue-sue-studio.”
Riffing on Phil Collins’s song “Sussudio,” that was how Truist Securities analyst Barry Jonas boiled down the current legal contretemps between Aristocrat Leisure and rival Light & Wonder. Jonas sat down with the executives of the latter and expressed his reactions in an investor note published today.
The Aristocrat lawsuit, involving Light & Wonder’s Dragon Train game, alleges intellectual-property theft. Executives of Light & Wonder “strenuously denied any impropriety,” pointing out that studio chief Emma Charles hadn’t worked at Aristocrat for seven years.
Observing that such patent-infringement cases normally drag on for years at a time, Jonas expressed a belief that Light & Wonder would seek to have the lawsuit dismissed. “In the interim,” he wrote, “we believe it’s unlikely that LNW will see material legal charges or significant disruptions to Dragon Train marketing and potential derivative developments.”
Dragon Train is already shipping to U.S. casinos and Light & Wonder leadership characterized the initial response as “very strong,” potentially leading to further installations. Jonas added that any success from the game hadn’t been computed into the company’s 2025 earnings forecast.
Possible market-share gains could come at the expense of competitor International Game Technology, execs said. The latter is engaged in a significant merger with Everi Holdings, a move that Wall Street believes could preoccupy IGT.
The execs used the term “chaos” to describe IGT’s situation. Jonas espied an opportunity for Light & Wonder incursions, “especially as lower performing LNW legacy units have already been removed over the past few years.”
Present for Jonas’s Boston meeting were Light & Wonder CEO Matt Wilson, CFO Oliver Chow, and Vice President for Investor Relations Nick Zangari. Jonas wrote that they “sounded positive” about hitting their cash-flow target for next year ($1.4 billion) and that growth ought to continue beyond that point.
Jonas stood pat on his $115 per share price and “Buy” rating. Shares of LNW were trading at $102.69 at the time of his dispatch.
He saw growth opportunities for the company in Georgia, Oregon, and Quebec, as well as in the Pacific Rim, plus “modest” market-share gains in existing markets. “Cost optimization across the organization remains an opportunity for upside cushion, with [management] noting this would not be in R&D or any other area to negatively impact the top-line,” Jonas added.
Turning to igaming, Light & Wonder conceded live-dealer games had been “slow to develop” as an offering, but said it had four customers in Michigan and that it would look to optimize its Wolverine State product before rolling it out to other online jurisdictions. “Demand is high, as we think operators want a second viable offering for the market,” Jonas opined.
A second online growth area was perceived to be social gaming. Jonas said Light & Wonder was “outpacing the market, given increasing monetization optimization to level the field with competitors.”
Light & Wonder bosses ended by saying “organic investment” was their best use of money. Stock buybacks would continue, but dividends were a lower priority. Citing “execution risks” and higher leverage, the execs said they would evaluate mergers and acquisitions, but in an “extremely disciplined” manner.
