North American Digital Expansion Will Broaden Markets Despite Risks

Key Takeaways

• Continued expansion of digital offerings and innovative products is expected to boost revenue, margins, and long-term profitability through higher operating leverage and new revenue streams.
  
• Shifts to capital-light, recurring-revenue models and regulatory liberalization are set to expand markets, strengthen free cash flow, and improve earnings quality.
  
• Exposure to regulatory, market, and customer risks across multiple regions threatens consistent revenue growth, margin expansion, and effective execution of key restructuring and deleveraging strategies.

Catalysts

A gaming technology company, supplies content, platform, and other products and services to online and land-based regulated lottery, betting, and gaming operators in the United Kingdom, Greece, and internationally.

• Continued expansion and rapid growth of the Interactive (digital) segment, particularly in North America where revenues grew 90% year-over-year, positions Inspired to benefit from the ongoing transition to online gambling globally-this trend will likely drive higher revenue and structurally improved net margins, as digital has higher operating leverage and lower CapEx intensity.
  
• Rollout and scaling of new, innovative products like Hybrid Dealer (combining live and virtual dealer elements) with major partners such as BetMGM and Caesars are expected to open new revenue streams and contribute increasing EBITDA from high-margin offerings as adoption accelerates across multiple markets.
  
• Regulatory liberalization and market expansion, especially in U.S. states seeking new sources of taxable revenue, as well as the legalization and regulation of iGaming and virtual betting products in additional states and countries, are set to expand Inspired's addressable market and drive top-line growth.
  
• Ongoing shift toward capital-light, recurring-revenue business models-through the sale of legacy assets (like the holiday park business), restructuring of traditional segments (such as U.K. pubs), and focus on digital offerings-is slated to strengthen free cash flow and improve the company's net margin profile.
  
• Strategic partnerships with major operators and lotteries (e.g., new launches in Delaware, West Virginia, South Africa, and the Virginia Lottery) support predictable, recurring revenue streams and earnings visibility, which is likely to bolster long-term profitability and earnings quality.

Inspired Entertainment Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Inspired Entertainment's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 24.1% today to 9.3% in 3 years time.
• Analysts expect earnings to reach $29.5 million (and earnings per share of $1.44) by about July 2028, down from $71.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.0x on those 2028 earnings, up from 3.6x today. This future PE is lower than the current PE for the US Hospitality industry at 24.5x.
• Analysts expect the number of shares outstanding to grow by 1.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

Inspired Entertainment Future Earnings Per Share Growth

Risks

• Sharp declines and ongoing volatility in the Virtual Sports segment-especially related to regulatory changes and new tax regimes in key markets like Brazil-indicate that sudden legal or fiscal policy changes can materially depress revenue and introduce instability in the company's most internationally-exposed business.
  
• Softness and slow growth in major European retail markets such as the UK, Greece, and Italy, along with some key customers underperforming despite new product rollouts, highlight risks of stagnant or shrinking addressable markets, potentially depressing recurring revenues and margin expansion in these regions.
  
• The company's deleveraging strategy depends on successful and timely divestment of capital-intensive segments (like the holiday park business) and restructuring of UK pub operations; delays or unexpected challenges in executing these asset sales and transitions could prolong high interest expense and debt service, constraining net margin and free cash flow.
  
• High customer concentration in several markets, including Brazil (where just a few operators make up a large market share), increases vulnerability to adverse contract negotiations, integration delays, or individual customer performance, heightening risks to revenue stability and earnings predictability.
  
• Growing regulatory scrutiny on gambling and emerging social/political pressures around safe gaming-particularly in key jurisdictions-could result in stricter advertising controls, higher compliance costs, or outright restrictions, suppressing long-term growth in user volume and ultimately impacting both revenue growth and EBITDA margins.

Valuation

• The analysts have a consensus price target of $13.333 for Inspired Entertainment 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 $20.0, and the most bearish reporting a price target of just $10.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $318.8 million, earnings will come to $29.5 million, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 11.6%.
• Given the current share price of $9.39, the analyst price target of $13.33 is 29.6% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.