New Jersey gamblers and casinos hit the jackpot Tuesday when
Gov. Chris Christie approved online gambling within the state's
The new law legalizes Internet gaming for New Jersey residents
and allows casinos in the state to set up websites that take bets
With the passage of the bill, New Jersey becomes the most
populous state so far, and the third state in the U.S., to allow
online gambling after Nevada and Delaware. Nevada became the
first state to allow intrastate online poker a few days before
the Garden State nod.
The New Jersey measure paves the way for the state's casino
operators to offer all legal brick-and-mortar games online to
anyone present in the state, says analyst Brian McGill.
That would be a positive for casino game makers, such
asInternational Game Technology (
), the No. 1 maker of slot machines in terms of global
"The opportunity for IGT would be to place its slots content
on operator websites once online gaming is set up," said McGill.
"IGT has some of the best content and slot machines in the space,
such as their big-title Wheel of Fortune."
The casinos would pay IGT a portion of the revenue they
generate from the IGT games people play.
McGill says while the impact of legalized Internet gaming in
New Jersey on IGT is something he's watching, he hasn't factored
it into his estimates because it's difficult to determine a
precise impact on earnings per share. It's likely to take a while
to get regulations in place, he adds, and it can be delayed.
He estimates the overall size of the New Jersey online gaming
market could be $1 billion. Of that, the gaming equipment
companies, which includeBally Technologies (
),SHFL Entertainment (
) andWMS Industries (
), could share an estimated $100 million to $150 million in
He estimates it will take until 2014 for the New Jersey online
gambling platform to get up and running and a couple of years for
it to grow.
The big opportunity for IGT, says McGill, would be if and when
online gaming spreads to more states in the U.S. beyond New
"We're just at the beginning of the potential wave of online
gaming being legalized over the next few years," he said. "IGT
has the ability to be licensed and supply games to those
jurisdictions where online gaming is legalized."
IGT's stock closed 1.07% higher the day after the New Jersey
measure was signed as investors looked to cash in on the
potential for online gaming.
IGT designs, develops and manufactures casino games, gaming
equipment and systems technology for land-based and online social
gaming and wagering markets. Its far-flung lineup of slots
includes some recent additions, such as the "Family Guy," "Sex
and the City" and "Judge Judy" video slots.
Lately, the company has been on a bit of a winning streak
itself. Profits and sales have been up by double digits the past
In the first quarter, earnings climbed 65% to 28 cents a
share, ahead of estimates for 24 cents. Revenue rose 19% to $530
million. Analysts polled by Thomson Reuters see full-year
earnings rising 21% to $1.26 a share.
Share buybacks that have reduced the comparable share count
have helped drive earnings growth, says Deutsche Bank Securities
analyst Carlo Santarelli.
But strategic efforts by a new management team headed by Chief
Executive Patti Hart, who took the helm in April 2009, have been
key to the uptick in IGT's results, analysts say.
Hart became CEO at a time when IGT was hard on its luck.
"It was an industry giant that was losing share to companies
like Bally," said McGill.
Enter Hart, who led the efforts that turned IGT around and put
it in the position to be the leader in slots again, says McGill.
Hart, he adds, has done a good job turning the company around as
she's focused on leveraging IGT's game titles and content to more
avenues, including online and social gambling.
On the social media front, IGT last January acquired Double
Down Interactive, an online social gaming company and developer
of the DoubleDown Casino found onFacebook (
). The DoubleDown Casino is the world's largest virtual casino,
the company said at the time of the buy.
IGT's North America-based DoubleDown operation generates
revenues from the sale of virtual casino chips to players for use
within the DoubleDown Casino.
Santarelli says DoubleDown has "provided a nice layer of
growth" for the company.
On the first-quarter conference call, Hart said the DoubleDown
franchise adds to the company's top-line growth, while holding
its position as the No. 3 top-grossing application on
As of Jan. 22, the average revenue per daily active user was
more than 30 cents, up from 28 cents in the fourth quarter.
IGT manages its operations in two geographic business
segments, North America and international. Each incorporates all
revenue categories, gaming operations, product sales and
interactive. Gaming operations and interactive revenue are
generated by providing products and services under a variety of
recurring revenue arrangements. Product sales revenue is
generated by the sale of its products or services.
McGill says the outlook for its business is positive. He
expects slot machine replacements in the U.S. and Canada to
increase this year to 60,000 from 55,000 in 2012. He says there
could be "upside" to that estimate as casino operators focus on
their core business of slot machines and away from non-gaming
amenities. Recent channel checks indicate trends are favorable
Still, Santarelli says the replacement environment remains
tough. He sees more expansion opportunities on the horizon with
more states legalizing gambling. He says there's also a
large-scale slot machine replacement opportunity in Canada, which
is in the process of replacing roughly 40,000 machines over an