Light & Wonder (LNW)

Gaming products and services provider Light & Wonder (NASDAQ:LNW) missed Wall Street’s revenue expectations in Q3 CY2025 as sales rose 2.9% year on year to $841 million. Its non-GAAP profit of $1.81 per share was 35.8% above analysts’ consensus estimates.

Company Overview

With names as crazy as Ultimate Fire Link Power 4 for its products, Light & Wonder (NASDAQ:LNW) is a gaming company supplying the casino industry with slot machines, table games, and digital games.

Gaming 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.

Light & Wonder competes with Aristocrat Leisure, International Game Technology (IGT), and Konami in the land-based gaming market. In the social casino space, SciPlay faces competition from Playtika, Aristocrat's Product Madness/Big Fish Games, and DoubleU Games, while the iGaming segment competes with Evolution Gaming, Games Global, and Playtech.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Light & Wonder grew its sales at a sluggish 4.7% compounded annual growth rate. This wasn’t a great result compared to the rest of the consumer discretionary sector, but there are still things to like about Light & Wonder.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Light & Wonder’s annualized revenue growth of 7% over the last two years is above its five-year trend, but we were still disappointed by the results.

Light & Wonder also breaks out the revenue for its three most important segments: Gaming, Social Gaming, and iGaming, which are 66.3%, 23.4%, and 10.2% of revenue. Over the last two years, Light & Wonder’s revenues in all three segments increased. Its Gaming revenue (slot machines, casino games) averaged year-on-year growth of 8.3% while its Social Gaming (free-to-play games) and iGaming (digital games) revenues averaged 3.4% and 9.9%.

This quarter, Light & Wonder’s revenue grew by 2.9% year on year to $841 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 12.4% over the next 12 months. While this projection suggests its newer products and services will fuel better top-line performance, it is still below the sector average. At least the company is tracking well in other measures of financial health.

Light & Wonder’s operating margin has been trending up over the last 12 months and averaged 22.3% over the last two years. On top of that, its profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

In Q3, Light & Wonder generated an operating margin profit margin of 27.2%, up 7.8 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Light & Wonder’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.

In Q3, Light & Wonder reported adjusted EPS of $1.81, up from $0.71 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Light & Wonder’s full-year EPS of $5.06 to grow 33.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Light & Wonder has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.5% over the last two years, slightly better than the broader consumer discretionary sector.

Light & Wonder’s free cash flow clocked in at $136 million in Q3, equivalent to a 16.2% margin. This result was good as its margin was 10.3 percentage points higher than in the same quarter last year. Its cash profitability was also above its two-year level, and we hope the company can build on this trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Light & Wonder has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 10%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Light & Wonder’s ROIC has increased. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

Light & Wonder reported $324 million of cash and $4.97 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.35 billion of EBITDA over the last 12 months, we view Light & Wonder’s 3.4× net-debt-to-EBITDA ratio as safe. We also see its $209.9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Light & Wonder beat analysts’ EPS expectations this quarter. We were also happy its iGaming revenue narrowly outperformed Wall Street’s estimates. On the other hand, its Social Gaming revenue missed and its revenue fell slightly short of Wall Street’s estimates. Overall, this print was mixed. The stock remained flat at $73.43 immediately following the results.

Updated: November 11, 2025 at 9:54 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Light & Wonder is a fine business. Although its revenue growth was weak over the last five years, its growth over the next 12 months is expected to be higher. And while Light & Wonder’s relatively low ROIC suggests management has struggled to find compelling investment opportunities, its projected EPS for the next year implies the company’s fundamentals will improve. On top of that, its Forecasted free cash flow margin suggests the company will have more capital to invest or return to shareholders next year.

Light & Wonder’s P/E ratio based on the next 12 months is 14.2x. Looking at the consumer discretionary space right now, Light & Wonder trades at a compelling valuation. For those confident in the business and its management team, this is a good time to invest.

Wall Street analysts have a consensus one-year price target of $107.01 on the company (compared to the current share price of $91), implying they see 17.6% upside in buying Light & Wonder in the short term.