Company Reports

Our prior note displayed the incorrect fair value estimate. While the fair value estimate was correct in the note text, the associated datapoint did not update. This is corrected, and there are no material changes to the note.

We expect Aristocrat Leisure to continue to dominate the electronic gaming machine market, particularly in North America. With a strong balance sheet and commanding market position, Aristocrat's research and development expenditure is unmatched by peers. This investment is the lifeblood of any electronic gaming manufacturer, especially given rapidly changing technology and consumer demands, and allows Aristocrat to maintain game quality, differentiate products from lower-end competitors, and defend its wide economic moat.

Shares in Aristocrat and Light & Wonder have sold off amid fears of disruption at the hands of artificial intelligence. We view the market concerns as twofold: AI will lower the barrier to entry, producing new competitors, and strengthen weaker incumbent competition.

Aristocrat's interim fiscal 2026 underlying net profit lifted 8% on last year to AUD 794 million. Constant-currency growth of 10% in the core electronic gaming machine, or EGM, business was offset by the stronger Aussie dollar and weakness in digital gaming businesses. Shares rose 13%.

We expect Aristocrat Leisure to continue to dominate the electronic gaming machine market, particularly in North America. With a strong balance sheet and commanding market position, Aristocrat's research and development expenditure is unmatched by peers. This investment is the lifeblood of any electronic gaming manufacturer, especially given rapidly changing technology and consumer demands, and allows Aristocrat to maintain game quality, differentiate products from lower-end competitors, and defend its wide economic moat.

Light & Wonder has agreed to pay Aristocrat USD 128 million relating to litigation around its Dragon Train and Jewel of the Dragon games. Light & Wonder shares rose about 18%, while Aristocrat shares were flat.

Aristocrat's fiscal 2025 underlying net profit increased 12% to AUD 1.6 billion, driven by strong performance in gaming machines and a full-year contribution from NeoGames. Revenue lifted 11% on last year, and operating profits grew in all segments. Still, shares fell 8% on the result.

We expect Aristocrat Leisure to continue to dominate the electronic gaming machine market, particularly in North America. With a strong balance sheet and commanding market position, Aristocrat's research and development expenditure is unmatched by peers. This investment is the lifeblood of any electronic gaming manufacturer, especially given rapidly changing technology and consumer demands, and allows Aristocrat to maintain game quality, differentiate products from lower-end competitors, and defend its wide economic moat.

We expect Aristocrat Leisure to continue to dominate the electronic gaming machine market, particularly in North America. With a strong balance sheet and commanding market position, Aristocrat's research and development expenditure is unmatched by peers. This investment is the lifeblood of any electronic gaming manufacturer, especially given rapidly changing technology and consumer demands, and allows Aristocrat to maintain game quality, differentiate products from lower-end competitors, and defend its wide economic moat.

In the five years since March 2020, we estimate the number of Aristocrat's North American leased electronic gaming machines has increased by 51% to around 74,000 units. Rival Light & Wonder's units have grown by 13% over the same period, while we estimate IGT's installed base has declined slightly.

We expect Aristocrat Leisure to continue to dominate the electronic gaming machine market, particularly in North America. With a strong balance sheet and commanding market position, Aristocrat's research and development expenditure is unmatched by peers. This investment is the lifeblood of any electronic gaming manufacturer, especially given rapidly changing technology and consumer demands, and allows Aristocrat to maintain game quality, differentiate products from lower-end competitors, and defend its narrow economic moat.

Aristocrat's interim 2025 underlying net profit of AUD 733 million was 6% higher than last year. Revenue lifted 9% on last year, and operating profit grew in all segments. The company still expects net profit growth in fiscal 2025. Aristocrat shares were down 9% by close.

With tariff rates raised to levels not seen in a century, US President Donald Trump's "liberation day" has rattled global markets. Higher tariffs will likely set in motion a cascade of supply-demand side shocks, all acting to weigh on the rate of economic growth.

Aristocrat Leisure expects to deliver underlying net profit growth in fiscal 2025 after adjusting for the USD 620 million divestment of mobile gaming business Plarium Global during the year. The company also intends to buy back up to AUD 750 million in shares and restructure Big Fish Games.

We expect Aristocrat Leisure to continue to dominate the electronic gaming machine market. With a strong balance sheet and commanding market position, Aristocrat's research and development expenditure is unmatched by peers. This investment is the lifeblood of any electronic gaming manufacturer, especially given rapidly changing technology and consumer demands, and allows Aristocrat to maintain game quality, differentiate products from lower-end competitors, and defend its narrow economic moat.

Aristocrat's fiscal 2024 underlying profit increased 17% to AUD 1.6 billion, driven principally by strong performance in electronic gaming machines. The company also announced the sale of its Plarium mobile gaming business for up to USD 820 million.

The United States District Court of Nevada has granted Aristocrat a preliminary injunction against no-moat Light & Wonder’s Dragon Train game, prohibiting further sales in the US. The case centers around similarities between Light & Wonder’s game and narrow-moat Aristocrat’s highly successful Dragon Link series, including allegations of copyright infringement and misappropriation of trade secrets. Specifically, intellectual property and game mechanics, and the role former Aristocrat employees, now at Light & Wonder, had in its development. The court decision finds Aristocrat is “extremely likely to succeed” in demonstrating trade secrets were misappropriated in the development of Dragon Train.

Aristocrat Leisure is performing better than expected. Underlying fiscal 2024 first-half net profit lifted 16% on the prior corresponding period to AUD 764 million. The core electronic gaming machines business continues to capture share, increased monetization in digital gaming is more than offsetting falling player numbers, and profitability in the nascent iGaming business is improving. We lift our fiscal 2024 underlying net profit forecast by 13% to AUD 1.5 billion, a 17% improvement on the PCP as earnings from the NeoGames acquisition come online during the second half. We lift our fair value estimate by 7% to AUD 48 per share due to the increase in near-term earnings, a larger installed base leading to higher longer-term earnings, and the time value of money.

We expect Aristocrat Leisure will continue to dominate the electronic gaming machine market. With a strong balance sheet and commanding market position, Aristocrat's research and development expenditure is unmatched by peers. This investment is the lifeblood of any electronic gaming manufacturer, especially given rapidly changing technology and consumer demands, and allows Aristocrat to maintain game quality, differentiate products from lower-end competitors, and defend its narrow economic moat.

Narrow-moat Aristocrat’s deep portfolio of highly popular and profitable gaming machine titles, like Dragon Link, has allowed the firm to capture a significant share of the key North American market. We estimate the three major players—Aristocrat, no-moat Light & Wonder, and International Game Technology—together command the vast majority of both North American outright sales and a similar proportion of leased machines. In the four years since December 2019, we estimate the number of Aristocrat’s North American leased machines has increased by 34% to around 65,000 units. This is in stark contrast to Light & Wonder, where unit numbers have been roughly flat over the last four years, and to International Game Technology, where the number of machines has fallen by about 5%. Aristocrat’s leased units in North America are roughly the size of IGT's and Light & Wonder's combined.