Shares of Light & Wonder (NASDAQ: LNW) plummeted on Tuesday after the company informed investors that a court granted Aristocrat Technologies a preliminary injunction concerning Light & Wonder’s “Dragon Train” slot machine series. In late trading, Light & Wonder shares fell nearly 19% on volume exceeding 50% above the daily average following the US District Court for the District of Nevada’s decision. Aristocrat, based in Australia, had initiated litigation in March, alleging that Light & Wonder’s “Dragon Train” games bore a striking resemblance to its own “Dragon Link” series.
According to Judge Gloria Navarro’s ruling, Aristocrat stands a strong chance of proving that Light & Wonder misappropriated Aristocrat’s trade secrets in developing the “Dragon Train” games. The “Dragon” family of games from Light & Wonder had enjoyed considerable success with bettors in Australia, with some analysts suggesting this new series could be a significant catalyst for boosting earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates.
However, this promising start came at a cost. Earlier this year, the Federal Court of Australia granted Aristocrat presuit discovery against Light & Wonder. Aristocrat is now considering further legal actions against its rival in its home country.
In the midst of this legal entanglement, Light & Wonder reiterated its 2025 EBITDA guidance, maintaining confidence in its financial projections despite the legal setback. “Light & Wonder reaffirms its 2025 $1.4 billion Targeted Consolidated adjusted EBITDA,” the company stated, assuring investors of continuous robust growth across all business segments. The company also emphasized ongoing initiatives aimed at mitigating the immediate impact and any potential business disruptions resulting from the court’s order.
Light & Wonder highlighted that the “Dragon Train” games were projected to contribute less than 5% of the targeted $1.4 billion, underscoring the breadth and depth of its product suite, which includes top-performing games across multiple categories. The company boasted of having the top overall share and performance position for new sold games in North America.
Following Navarro’s unexpected ruling, analysts weighed in on Light & Wonder’s near-term outlook. Jefferies predicted that the company would soon file a motion seeking clarification on the continued use of “Dragon Train” slots. Analyst David Katz noted in a report to clients that shares of Light & Wonder were previously considered expensive due to growth initiatives, but these expectations might be adjusted following the court’s decision. Katz suggested that Tuesday’s sharp decline in the stock price might be an overreaction by the market.
“We expect the coming days and weeks to answer the key questions about the impact of the case and whether the market has overreacted,” Katz observed.
