While 2026 “earnings shape” for Light & Wonder Inc might be “broadly similar” to 2025, “margin resilience” could be hard to achieve given the gaming technology firm’s cost burdens and persisting trade tariffs, suggests JP Morgan Securities Australia Ltd. It gave the view in a Wednesday memo following Light & Wonder’s release on Tuesday of its fourth-quarter 2025 results.
Light & Wonder’s consolidated adjusted earnings before interest, taxation, depreciation, and amortisation (EBITDA) rose 28.6 percent year-on-year to US$405 million in the final three months of 2025. It took the company’s full-year 2025 adjusted EBITDA to US$1.44 billion.
JP Morgan estimated the supplier’s adjusted EBITDA for 2026 and 2027 will reach US$1.53 billion and US$1.65 billion, respectively.
“Cost control and efficiency helped,” in the reporting quarter, but the brokerage added “we believe the path to sustaining consolidated margins in the mid-40s” of percent “is unlikely.” It cited factors including trade tariffs, and capital expenditures required to produce compelling products; as well as the impact of certain legal expenses.
Light & Wonder posted a net loss of US$15 million in the three months to December 31, citing impact from an approximately US$128-million settlement with market rival Aristocrat Leisure Ltd over Light & Wonder’s slot product “Dragon Train”.
JP Morgan also made reference to the potential positive role of artificial intelligence (AI) in Light & Wonder’s business.
The institution’s analysts noted: “The AI-led development claims – carbon platform, code generation/test automation – may improve engineering throughput, but management acknowledges AI does not substitute for creative breakthroughs – the true driver of hit rates in gaming and engagement in SciPlay.” The latter was a reference to Light & Wonder’s social-gaming business unit.
The analysts added: “Near-term capital intensity – new cabinets, market entries – will require a tangible payoff in ship share and ADRPU [average daily revenue per unit] to avoid FCF [free cash flow] backsliding.”
The banking institution said it has a “neutral” rating on Light & Wonder’s shares due to the company’s “elevated gearing”, as well as uncertainty around achieving certain adjusted EBITDA performance targets by financial year 2028.
“More consistent cash generation from here is now critical, given Light & Wonder sits at the top end of the target gearing range (3.5x versus 2.5x to 3.5x target) post the Grover acquisition – and ongoing share buyback through the second half of 2025,” remarked the JP Morgan analysts.
They noted Light & Wonder’s management had said it would maintain an “opportunistic” approach to share buybacks, and that the company would prioritise leverage reduction.
The analysts stated this was “not a negative in and of itself,” but added it was “worth considering the heavier investment planned through first half of 2026 – including Grover ramp/Indiana entry, hardware launches – and the settlement of the Aristocrat Leisure litigation”.
The JP Morgan team added that “phrased differently, optionality” for the technology firm “is now reduced, with a narrower window on execution risk” in relation to its business strategy.
