Daily Winners Premium Tier And B2C Focus Will Increase Future Player Engagement Worldwide

Key Takeaways

• Strategic cost management and a new loyalty program aim to boost engagement and revenue, even in low jackpot periods.
  
• Expansion in international markets and a focus on B2C opportunities are set to drive future revenue and growth.
  
• Subdued jackpots and competition challenge revenue and margins, with risks from jackpot reliance, unstable international ops, and a costly B2C shift.

Catalysts

Engages in the retail of lottery tickets through internet and mobile devices in Australia, the United Kingdom, Canada, Fiji, and internationally.

• The introduction of the Daily Winners Premium Tier loyalty program is expected to boost player engagement even in low jackpot periods, potentially leading to increased future revenue from core Powerball and OzLotto games.
  
• Expansion efforts in the U.K. and Canada, along with partnerships and agreements like those with Endeavour and Deaf Connect, are positioned to drive future revenue growth in international markets.
  
• Strategic cost management during a subdued jackpot period positions Jumbo Interactive to capitalize on future periods of stronger jackpot activity, which could positively affect earnings and margins.
  
• Increased digital penetration and the shift to a marketing strategy focusing on reactivating existing players, along with recruiting new ones, are expected to enhance revenue and overall player engagement.
  
• The renewed focus on B2C opportunities, driven by insights from Jumbo's proprietary products, aims to capture higher growth rates, potentially leading to a strong boost in future revenue and earnings.

Jumbo Interactive Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jumbo Interactive's revenue will grow by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.1% today to 29.0% in 3 years time.
• Analysts expect earnings to reach A$53.2 million (and earnings per share of A$0.85) by about March 2028, up from A$41.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$45.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.1x on those 2028 earnings, up from 15.7x today. This future PE is lower than the current PE for the AU Hospitality industry at 22.4x.
• Analysts expect the number of shares outstanding to decline by 0.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.59%, as per the Simply Wall St company report.

Jumbo Interactive Future Earnings Per Share Growth

Risks

• Subdued jackpot environment has led to a decrease in Total Transaction Value (TTV) and revenue, impacting overall earnings and cash flow. This trend, if persistent, could continue to negatively affect revenue and net margins.
  
• Increased competition in the online lottery market has resulted in a higher cost per lead and challenges in efficiently acquiring new customers, potentially impacting marketing expenses and net margins.
  
• The reliance on jackpot cycles for growth, with current low jackpots leading to decreased player engagement and revenue, poses a risk to predictable revenue generation and earnings consistency.
  
• Declines in Canadian revenue and challenges in renewing lottery contracts in key markets indicate potential instability in international operations, which could impact earnings and net margins.
  
• A strategic shift towards B2C operations could require significant investment, posing risks if growth projections are not met and impacting both capital allocation and future revenue.

Valuation

• The analysts have a consensus price target of A$14.094 for Jumbo Interactive based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$17.85, and the most bearish reporting a price target of just A$11.6.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$183.2 million, earnings will come to A$53.2 million, and it would be trading on a PE ratio of 20.1x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of A$10.27, the analyst price target of A$14.09 is 27.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.