Light & Wonder Stock Tumbles as Aristocrat Wins ‘Dragon Train’ Injunction

Posted on: September 24, 2024, 02:27h. 

Last updated on: September 24, 2024, 02:42h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of Light & Wonder (NASDAQ: LNW) plunged Tuesday after the company told investors a court granted rival Aristocrat Technologies a preliminary injunction pertaining to Light & Wonder’s “Dragon Train” series of slot machines.

Light & Wonder stock
The Light & Wonder logo. The stock plunged Tuesday after a court granted rival Aristocrat an injunction pertaining to the “Dragon Train” slots. (Image: PR Newswire)

In late trade trading, Light & Wonder is off nearly 19% on volume that’s more than 50% above the daily average after the US District Court for the District of Nevada granted the injunction. Australia-based Aristocrat initiated the litigation in March, claiming L&W’s “Dragon Train” slots are highly similar to its own “Dragon Link” games.

(Aristocrat) is extremely likely to succeed in demonstrating L&W misappropriated Aristocrat’s trade secrets in [L&W’s] development of Dragon Train,” according to Judge Gloria Navarro’s ruling.

L&W’s Dragon family of games found success with bettors in Australia, and some analysts said the new series could be a catalyst for upside to earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates. That solid start came at a price. Earlier this year, the Federal Court of Australia granted Aristocrat presuit discovery against L&W, and Aristocrat is now mulling legal remedies against its rival in its home country.

Light & Wonder Reiterates Earnings Guidance

Amid the legal kerfuffle, Light & Wonder reaffirmed its 2025 EBITDA guidance, telling investors it disagrees with Navrro’s ruling and that it will continue defending itself.

“Light & Wonder reaffirms its 2025 $1.4 billion Targeted Consolidated adjusted EBITDA,” said the company in a statement. “We expect continued strong growth across all our businesses. The Company is moving forward on a number of key initiatives to mitigate the immediate impact and any continuing business disruption from today’s order.”

L&W added that Dragon Train games were expected to account for less than 5% of that $1.4 billion, reminding investors it has an extensive suite of offerings “of which Dragon Train is only one.” The company also said its research and development efforts are paying dividends, indicating that its financial performance isn’t tethered to a single title.

“Light & Wonder has the #1 share and #1 performance position overall for top new sold games and has the top performing game in all 5 for sale categories in North America,” added the Las Vegas-based company. “Additionally, Light & Wonder has 8 of the top 25 premium leased and wide-area progressive parent theme games.”

Analysts Discuss Near-Term Outlook for L&W

Following Navarro’s ruling, which some market observers deemed surprising, analysts chimed in on how L&W could proceed over the near term. Jefferies said it expects the company will soon file a motion for clarification on whether or not it can keep “Dragon Train” slots in use.

Analyst David Katz said in a note to clients that before the ruling, shares of L&W were expensive — and justifiably so — given the company’s growth initiatives, but he said those expectations could be reset in the wake of the court decision. Katz added that Tuesday’s decline by the stock looks to be a case of too much too soon.

“We expect the coming days and weeks to answer the key questions about impact from the case and whether the market has overreacted,” he observed.