Stock of the day: Jumbo Interactive

(AI video summary)

This video was created on 8 November for IG audiences by ausbiz.

ASX code: JIN

Position in the lottery market

Jumbo Interactive, a prominent player in the lottery sector, has reaffirmed its fiscal year (FY) 2025 guidance despite reporting an 8% revenue decline in the first four months ending in October. This decline reflects the cyclical nature of the lottery business, where revenue often depends on jackpot sizes. When jackpots reach significant levels, like $8 billion, consumer interest spikes, driving sales. However, smaller jackpots typically lead to revenue dips.

Through these cycles, Jumbo has shown resilience and adaptability, maintaining steady performance through market fluctuations.

Financial performance and investment appeal

Jumbo’s financial performance remains robust, even with periods of share price stagnation. The company’s shares are at multi-year lows, yet its 50% earnings before interest, taxes, depreciation, and amortization (EBITDA) margin highlights strong profitability.

With minimal capital expenditure (capex), Jumbo generates solid cash flow and maintains a high dividend yield. At 17 times earnings, the stock offers an appealing valuation, particularly given Jumbo’s average 20% revenue growth year-over-year (YoY) the last five years.

Investors should remain mindful of potential regulatory and competition risks, particularly with the Lottery Corporation, though Jumbo’s long-term growth outlook remains positive.

Strategies for growth

Beyond managing lottery cycles, Jumbo is actively pursuing new revenue streams. One key initiative is the 'daily winners scheme,' aimed at converting free users into $15 per-month subscribers, aligning with the industry shift towards subscription-based models for stable, recurring revenue.

Jumbo’s efforts to optimise its platforms and engage customers through regular offers and new subscriptions reinforce its growth strategy. While the stock may have been overvalued in the past, current valuations could present an opportunity for investors focused on steady growth and income.