Right on the heels of Scientific Games’ announcement that it was changing its name to Light & Wonder, Inc., Truist Securities analyst Barry Jonas huddled with Executive Chairman Jamie Odell and Vice Chair Toni Korsanos. Citing their previous success at Aristocrat Technologies, Jonas concluded that “both have orchestrated SGMS’ transformation from a ‘low-growth levered-equity story’ to a double-digit growth-equity story across both Gaming and Digital.” He added that the major strategic shifts were nearly complete and Light & Wonder would be focused on executing strategies that integrated all its major units.
If the renamed company, Jonas theorized, were able to achieve a 50/50 revenue mix of gaming and digital product, it would throw off free cash flow of $5 a share in 2023. He noted that Scientific had been created by bolting together WMS Gaming, Bally Technologies, and Shufflemaster. As a result, “The businesses were never fully integrated, while there was no overall portfolio strategy within gaming, igaming, or social.”
Reviewing the five core segments of the company, management decided to concentrate on gaming, igaming, and social gaming. To this end, Scientific sold off its lottery and sports-betting units – accomplishing some deleveraging in the process – the better to focus on management’s goals for a synergistic company, to which the jettisoned divisions were deemed extraneous. The three remaining divisions are described by Jonas as having “a connection with content and common players.”
Accompanying the rebranding of Scientific is a raft new of new hires, including Odell and Korsanos. Still to come are a new chief product officer and chief technology officer, along with a staffing-up of the game studios. As Light & Wonder (ticker symbol: LNW), the company will institute a new, performance-based, compensation system that, Jonas opined, “should increase the quality of offerings across all segments and systematic approach to making games, while LNW has also added more game studios to drive more content.”
Premium-gaming operations were described as having seen six consistent quarters of growth. But according to management, Wall Street is in for a surprise. Jonas was told that those six quarters were mere “green shoots of slightly better performance,” fertilized by superior hardware and content.
Light & Wonder management is now taking the long view, looking toward 2025, when the impact of the new hires bears fruit. After all, remarked Jonas, “Creation to delivery plus regulatory review could take 18-24 months, which leaves [less than three] years for the sizable growth potential.” Even product showcased at Global Gaming Expo 2021 won’t be available for deployment until next year. “Given the Hollywood nature of game development, it’s more conservative to factor longer to see real success.”
Still, Jonas thinks Light & Wonder could rival Aristocrat by 2025, or 2027 at the latest, adding, “The board and management team are now less distracted by the company’s debt burden, which also likely had diverted some attention away from innovation.”
While LNW execs downplayed tribal gaming in their presentation, Jonas glimpsed sizable opportunity in Class II machines, both through existing strength in stepper electronic-bingo machines and a new stepper product debuting in early 2023.
As for the larger, three-year plan, he wrote, “Recent investments should yield some growth, while continued investments should continue that trend at a faster clip as the quantity and quality of product continue to improve.”
Jonas reiterated his “Buy” rating on the stock.
