Stock Story -
Gaming products and services provider Light & Wonder (NASDAQ:LNW) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 12.8% year on year to $756 million. It made a GAAP profit of $0.88 per share, improving from its profit of $0.24 per share in the same quarter last year.
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Light & Wonder (LNW) Q1 CY2024 Highlights:
- Revenue: $756 million vs analyst estimates of $717.4 million (5.4% beat)
- EPS: $0.88 vs analyst estimates of $0.65 (34.7% beat)
- Gross Margin (GAAP): 71%, down from 83.9% in the same quarter last year
- Free Cash Flow of $93 million, down 13.1% from the previous quarter
- Market Capitalization: $8.82 billion
Gaming SolutionsGaming solution companies operate in a dynamic and evolving market, and the digital transformation of the gaming industry presents significant opportunities for innovation and growth, whether it be immersive slot machine terminals or mobile sports betting. However, the gaming solution industry is not without its challenges. Regulatory compliance is a crucial consideration as companies must navigate a complex and often fragmented regulatory landscape across different jurisdictions. Changes in regulations can impact product offerings, operational practices, and market access, requiring companies to maintain flexibility and adaptability in their business strategies. Additionally, the competitive nature of the industry necessitates continuous investment in research and development to stay ahead of competitors and meet evolving consumer demands.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Light & Wonder's revenue declined over the last five years, dropping 2.5% annually. Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Light & Wonder's annualized revenue growth of 14.7% over the last two years is a reversal from its five-year trend, suggesting some bright spots.
We can better understand the company's revenue dynamics by analyzing its three most important segments: Gaming, Social Gaming, and iGaming, which are 63%, 27.2%, and 9.8% of revenue. Over the last two years, Light & Wonder's revenues in all three segments increased.Gaming revenue (slot machines, casino games) averaged year-on-year growth of 15.5% while Social Gaming (digital games) and iGaming (free-to-play games) averaged 14% and 12.3%.
This quarter, Light & Wonder reported robust year-on-year revenue growth of 12.8%, and its $756 million of revenue exceeded Wall Street's estimates by 5.4%. Looking ahead, Wall Street expects sales to grow 7.2% over the next 12 months, a deceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
While Light & Wonder posted positive free cash flow this quarter, the broader story hasn't been so clean. Over the last two years, Light & Wonder's demanding reinvestments to stay relevant with consumers have drained company resources. Its free cash flow margin has been among the worst in the consumer discretionary sector, averaging negative 3.7%.
Light & Wonder's free cash flow came in at $93 million in Q1, equivalent to a 12.3% margin and down 29.5% year on year.
Key Takeaways from Light & Wonder's Q1 Results We were impressed by how significantly Light & Wonder blew past analysts' EPS expectations this quarter. We were also excited its operating margin outperformed Wall Street's estimates. On the other hand, its gross margin was 71%, down from 83.9% in the same quarter last year. The stock is flat after reporting and currently trades at $96.52 per share.
