Light & Wonder Inc (LNW) $137.11

Light & Wonder (LNW) generates revenue by developing casino-style games and monetising them across physical casinos, online platforms and mobile apps. In land-based venues, it sells or leases slot machines to operators, often earning a share of the revenue those machines generate. It also licenses its content to online casinos and operates social gaming apps that monetise through in-app purchases. In essence, it is a global gaming content and technology provider that earns revenue wherever its games are played.

AI appears more likely to enhance LNW’s competitive position than undermine it, with the potential to improve game design, sharpen player analytics, lift monetisation and drive operating efficiencies across both its land-based and digital businesses. Smarter data tools can help optimise machine performance on casino floors, personalise offers in their mobile apps, and accelerate content development cycles, all of which support margins and returns. However, the benefit is not automatic. Execution will be critical. If competitors harness AI more effectively to produce better games faster, reduce development costs or improve customer acquisition, the advantage could quickly shift. In that scenario, what is currently a tailwind could become a source of competitive pressure.

Gaming ETFs have fallen over the past six months as concerns around softer consumer spending, regulatory scrutiny and intensifying competition have weighed on sentiment toward casino and online betting stocks. At the same time, a broader rotation out of mid-cap growth and elevated valuations has driven multiple compression across the sector – it looks and feels like they’ve fallen away in the AI disruption downdraft. The likes of ASX stocks Aristocrat (ALL) and LNW are held in the two ETFs shown below.

• In a similar fashion to the software stocks, we see the BETZ and BJK ETFs at least bouncing from current levels, i.e. they are looking for a low.

ALL and LNW have similar business models with both operating diversified, content-driven gaming platforms spanning land-based and digital. ALL don’t report in this reporting season but they delivered an update this week at their AGM Here which didn’t help the stock as it came without an anticipated upgrade which saw the stock retreat towards 2-year lows.

• We are keen for exposure to the sector at current levels, with the obvious question being ALL or LNW?

This morning, LNW have just reported their 4^th quarter results:

• Revenue of $891mn missed consensus of $914.6 million
• Adjusted Ebitda of $405mn beat consensus of $399.1 million.
• Gaming adjusted Ebitda of $323mn beat consensus of $321.4 million.
• Gaming revenue of $602mn beat consensus of $597.4 million.

With the company’s conference call still to come, the result is mixed with revenue a miss but earnings a beat – However, having successfully settled the Dragon Train litigation and moved to a sole primary listing on the ASX, the company is well-positioned to drive incremental share gains in the higher value segments of a resilient gaming market.

• We continue to like LNW pending the earnings call: MM owns LNW in its Active Growth Portfolio and Emerging Companies Portfolios.