On Wednesday, two ASX tech stocks crashed lower after releasing updates.
Those stocks were Life360 Inc (ASX: 360) and Light & Wonder Inc. (ASX: LNW)
While their declines were disappointing for shareholders, one leading broker believes it has created a buying opportunity for non-shareholders.
Let's see what this broker is saying about these ASX 200 tech stocks.
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Life360
Bell Potter notes that this location technology company delivered a strong third quarter update. And while it has downgraded its revenue guidance for FY 2024, this is due to delays impacting its hardware revenue. The core Life360 business continues to perform very strongly. It said:
Life360 updated its 2024 guidance and modestly downgraded the revenue guidance (now US$368-374m vs US$370-378m previously) but upgraded both the adjusted and statutory EBITDA guidance (now US$39-42m and US$(7-10)m vs US$36-41m and US$(8-13)m previously). The downgrade in revenue guidance is solely due to lower-than-expected Hardware revenue due to the delay in product launch while core subscription revenue is still expected to grow by >25%.
Highlight of the result was very strong paying circle growth of 159k q-o-q which materially exceeded our forecast of 121k and was a new record. Cash at 30 September was US$160m.
In light of the above, the broker has reaffirmed its buy rating with an improved price target of $26.75 (from $22.50). Based on its current share price of $22.39, this implies potential upside of almost 20% for investors over the next 12 months. It concludes:
We have increased the multiple we apply in the EV/Revenue valuation from 7x to 8x due to the continued strong subscription revenue growth and lowered the WACC we apply in the DCF from 8.6% to 8.2% due to a reduction in the market risk premium. The net result is a 19% increase in our PT to $26.75 and we maintain the BUY.
Light & Wonder
Another ASX 200 tech stock that Bell Potter is tipping as a buy is Light & Wonder.
The broker notes that the game developer delivered a result short of expectations during the third quarter. It said:
LNW reported +12% YoY revenue growth to US$817m below BPe of US$869m and consensus of US$837m, supported by +15% YoY growth in Gaming to US$537m (BPe US$581m), +5% YoY growth in SciPlay to US$206m (BPe US$212m) and -4% YoY growth in iGaming to US$24m (BPe US$24m). Adj. EBITDA was US$319m (BPe US$324m). Adj. NPATA of US$122m was up +23% YoY (BPe US$123m).
Nevertheless, the broker has seen enough in this result to remain bullish on the ASX 200 tech stock. This morning, Bell Potter has reaffirmed its buy rating with an improved price target of $180.00 (from $151.67). This implies potential upside of almost 19% for investors. It concludes:
Our Buy rating is predicated on LNW's cross-platform strategy and leading scale producing a portfolio of high-performing games in both land-based and digital markets. We continue to expect improvement in product quality to strengthen LNW's competitive advantage, supporting higher ROIC and share gains. In addition, at 12x NTM EV/EBIT(A), LNW trades at a ~30% discount to close comp ALL.
