Favorable Digital Trends And Renewed Contracts Will Secure Lottery Future

Key Takeaways

• Expansion of digital channels and contract renewals are providing stable, long-term revenue growth and higher-margin opportunities.
  
• Investments in technology, cost-cutting, and product innovation enhance customer engagement, reduce expenses, and strengthen recurring revenues.
  
• Regulatory risks, earnings volatility, geographic concentration, rising competition, and high contract costs threaten revenue stability, margin growth, and financial flexibility.

Catalysts

Provides lottery solutions in the United States, Italy, rest of Europe, and internationally.

• Accelerating digital adoption and smartphone penetration are driving double-digit growth in iLottery wagers globally (over 30% growth cited), with Italy and US adoption rates outpacing the overall market-likely supporting higher future revenue growth and improving the business mix toward higher-margin digital channels.
  
• Regulatory liberalization and successful contract renewals (notably Italy Lotto secured through 2034 and new/extended deals in Missouri, Portugal, and France) are expanding the addressable market and extending Brightstar's average revenue-weighted contract life to 7 years, thus providing long-term revenue stability and enhanced cash flow visibility.
  
• Ongoing investment in proprietary digital platforms (including the MYLOTTERIES app and integrated OMNIA solution) is reducing customer acquisition costs while bolstering direct-to-consumer engagement, suggesting further net margin expansion as platform scale and technology investments pay off.
  
• Implementation and expansion of structural cost-cutting initiatives (OPtiMa 3.0) are expected to drive $50 million in annualized savings by 2026 (60% realized this year), helping to offset temporary profit headwinds and support a rebound to normalized EBITDA and free cash flow, directly benefiting earnings in the coming years.
  
• Secular trends toward gamification and instant play, combined with innovation in ticket technology (Gleam, Infinity Instants) and expanded instant ticket printing capacity (running 25% above last year's output), position Brightstar to capture sustained demand and cross-selling opportunities, increasing both recurring revenues and customer lifetime value.

Brightstar Lottery Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Brightstar Lottery's revenue will grow by 2.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.8% today to 39.5% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $5.52) by about August 2028, up from $-167.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.3x on those 2028 earnings, up from -18.5x today. This future PE is lower than the current PE for the US Hospitality industry at 21.8x.
• Analysts expect the number of shares outstanding to grow by 0.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.28%, as per the Simply Wall St company report.

Brightstar Lottery Future Earnings Per Share Growth

Risks

• Increasing regulatory scrutiny and possible tightening of gambling regulations or tax changes in key markets (such as the U.S., Italy, or emerging international markets) could limit growth opportunities, heighten compliance costs, or reduce overall profitability, negatively impacting revenue and net margins.
  
• Heavy reliance on extremely large, sporadic multistate jackpots for windfall periods of higher revenue creates ongoing earnings volatility and uncertainty, as periods without such jackpots have already shown EBITDA compression and weaker momentum in top line growth and profit, affecting both revenue and earnings stability.
  
• Geographic concentration risk remains, as Italy is described repeatedly as the company's most important market and a major profit driver; any adverse regulatory, economic, or competitive changes in Italy could significantly disrupt the company's revenue streams and earnings consistency.
  
• The lottery sector faces intensifying competition from both new digital entrants (including private operators and government-backed platforms) and alternative entertainment options (like digital gaming and esports), which may erode Brightstar's market share, create pricing pressures, and stagnate or reduce ticket sales, impacting long-term revenue growth and net margins.
  
• The high upfront capital requirements and ongoing amortization costs of securing long-term operator contracts (as seen with the Italy Lotto license) may pressure cash flows and constrain financial flexibility; if growth or margin expansion does not offset these significant obligations, free cash flow and profitability could be negatively affected.

Valuation

• The analysts have a consensus price target of $18.517 for Brightstar Lottery 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 $28.0, and the most bearish reporting a price target of just $12.52.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.6 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 5.3x, assuming you use a discount rate of 13.3%.
  
• Given the current share price of $15.22, the analyst price target of $18.52 is 17.8% 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.