On track to achieve revenues of some US$2.5 billion for fiscal 2006, IGT is highly profitable with gross margins swelling to 54%.
The company collects a stream of recurring income from about 60,000 machines installed throughout casinos in key gaming markets around the globe. IGT has international operations in Russia, Europe, Australia, New Zealand, Latin America, South Africa, Japan and Macau (a small territory on China's south coast that serves gamblers from mainland China, Hong Kong and Taiwan).
Slot machines are generally more profitable than traditional table games such as blackjack and roulette. This is due in part because slots require no dealer and therefore have lower labour costs. Increasingly casino floor space is filled with row after row of machines, with casino managers eager to try out the latest models knowing that a successful slot machine can pay for itself within weeks. An average slot at a busy Las Vegas casino can generate about US$300 daily.
According to Casino Player magazine, IGT has produced 7 of the top 10 most popular video slots. Some are based on favourite television game shows such as Jeopardy!, Wheel of Fortune and The Price is Right. Best-selling poker titles include Triple Play Poker and World Poker Tour video slots.
Due to strict regulations and stiff barriers to entry, IGT faces few competitors yet continues to invest almost double what others spend on research and product development. The company launches about 200 new gaming products annually, the latest being an extensive series of flamboyant Marilyn Monroe slots.
IGT customizes gaming machines exported to international clients so that they meet the demands of local cultures. For example, Japan's Pachisuro slot machines differ from U.S. slots in that they feature a small pull-lever that looks like an arcade joystick on the front of the machine. Players spin the reels by activating the lever, and have 3 small buttons on the front of the machine to stop each reel.
And The Winner Is...
Key to IGT's success as a world leader in the global gaming industry is technology. Below are drivers that fuel IGT's success.
- The company's EZ Pay Ticket System features gaming machines that print and receive tickets rather than coins. Casinos prefer cashless slots because the machines eliminate the need for workers to supply change and to stock the machines with coins, thus saving some 30% on labour costs.
- IGT engineers comprehensive systems that allow operators to remotely manage game bonuses, player tracking, ticketing and payout rates of machines. Again, these reduce labour costs.
- IGT offers multi-site progressive slot systems that combine payouts from a group of networked casinos. Higher 'pooled' winnings attract more gamblers and encourage more plays for bigger prizes.
- In August 2005 IGT acquired WagerWorks in a deal that enables the company to distribute its vast portfolio of gaming content across online channels, including the Internet, mobile devices and interactive television. Such new offerings could significantly increase company revenues should online gambling be legalized.
While supplying slots and related software to North American casinos remains profitable, that market is reaching maturity and is increasingly competitive.
However, the booming international appetite for new slots technology should drive IGT's revenues for many years. International operations now contribute 25% of total company revenues, up from 20% just last year. Many experts believe that, with Macau becoming the Las Vegas of fast-growing Asia, the growth rate for slots in international markets is set for explosive growth.
Odds are that the 'Slot Machine Monster' (IGT on NYSE) will continue to offer substantial payouts to its shareholders.
Note: Suite101 does not offer investment advice. Instead, we seek to educate and inform our readers by writing about the latest trends in world trade. Armed with these insights, you are in a much better position to make your own decisions. We encourage you to add your thoughts to our analysis by starting a discussion below.
