Thursday, December 1, 2022

Light & Wonder Sees $70B Addressable Market, Shares Soar

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Posted on: May 17, 2022, 11:40h. 

Last updated on: May 17, 2022, 12:09h.

In its first investor day as Light & Wonder (NASDAQ:LNW), the gaming company offered up a bullish outlook, including a forecast of a total addressable market of $70 billion, sparking a rally in the shares.

Light & Wonder
Light & Wonder slot machines. The shares soared today following bullish investor day comments. (Image: Twitter)

In late trading, shares of the company formerly known as Scientific Games are higher by more than 8%, making the name one of Tuesday’s best-performing gaming equities. Light & Wonder is the result of a lengthy transformation that included Scientific Games shedding its OpenBet sports wagering business and its SG Lottery unit to raise cash.

This results in an enviable and durable financial profile, which includes double-digit growth, a high mix of recurring revenues and robust margins, all translating into robust cash flow generation,” said CEO Barry Cottle in a statement.

At the investor day event, the Las Vegas-based company forecast adjusted earnings before interest, taxes, depreciation, and amortization (AEBITDA) growth of $1.4 billion through 2025, or 15% on a compound annual growth rate (CAGR) basis.

Light & Wonder Investment Story Getting Cleaner

By shedding the aforementioned businesses, L&W previously noted that its debt burden is now $4 billion, down from $8.8 billion.

As a result of the debt reduction, Light & Wonder reduced its net debt leverage ratio to 3.7x from 6.2x, putting the company on pace to reach its desired net debt leverage ratio range of 2.5x to 3.5x. With interest rates rising and inflation soaring, the slot machine manufacturer is shoring up its balance sheet at exactly the right time.

Speaking of the balance sheet, L&W is aiming to have $10 billion in capital available by 2025 with which to pursue a variety of plans.

“Targeting a total of $10 billion of available capital to deploy through the company’s balanced and opportunistic capital allocation priorities,” according to an investor presentation.

The digital gaming firm previously noted that as cash flow increases, it could pursue strategic mergers and acquisitions, and perhaps boost shareholder rewards. It’s currently in the midst of a $750 million share repurchase program.

Big Market Forecast

With the lottery and sports betting businesses gone, L&W can sharpen its focus on gaming machines and table games in land-based casinos and iGaming, social gaming, and casual mobile gaming. That could prove to be a lucrative endeavor, as the company sees a total addressable market (TAM) of up to $70 billion.

“Our unique asset mix and leading market positions provide unparalleled advantages to deliver games fully cross-platform,” adds Cottle.

There are already signs L&W’s plans are materializing in the form of robust growth. For example, Light & Wonder’s social gaming business drove more than $50 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) last year, up from just $10 million in 2015.

 

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