Who knows how many fortunes can be attributed to International Game Technology (NYSE:IGT). Not only has IGT produced thousands of jackpot winners from its slot machines and progressive jackpot systems at casinos around the world, but IGT stock had two notable runs as a classic growth stock. IGT's stock market success came as a wave of casino-building and strong market share fueled an impressive earnings run.

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The last few years have not been so kind, though, as lady luck has moved on to favor rivals WMS (NYSE:WMS) and Bally Technologies (NYSE:BYI). Is IGT a rebound in the making or is it destined to spend its days recounting past glories?

A Quarter Lacking Encouragement
Nothing in the company's fiscal fourth quarter report jumps out as a sign of imminent recovery. Revenue was down 3%, as both the product and gaming segments struggled. Product revenue dropped 1% on a 3% decline in shipments, with international sales growth helping to mitigate the damage of ongoing declines in the North American business. Gaming revenue was down even more (5%), as the installed base dropped 7% and customers migrated to lower-end machines. (For related reading, see Casino Stats: Why Gamblers Rarely Win.)

With a tough revenue backdrop, IGT pulled no miracles on the profit side. Gross margins fell about 80 basis points, though adjusted operating margin was flat at 23%. On an adjusted (and thus non-GAAP) basis, income from continuing operations was basically flat.

It's Not Just About The Buildings
It is true that this recession has been rough on the gaming industry and that new casino construction in the United States has been extremely weak. The problem is, though, that WMS has that same operating environment and is managing double-digit product growth. Moreover, while WMS too has some issues with its gaming revenue, the company is doing better than IGT in terms of sales growth (down just 1% in the last quarter), installed footprint and average yield per machine. Oddly enough, while Bally is struggling on the equipment side, its gaming business is also doing better than IGT's.

The bigger issue for IGT, then, is market share. In fact, it appears that WMS and Boyd have whittled IGT's share down from a seemingly-commanding 70% or so to perhaps less than 50% today. While IGT may still have a competitive advantage with overseas casino operators (where there is still good growth in new construction), it is hard to win with falling market share. To that end, the company says it has been refocusing on developing new games and acquiring attractive IP licenses, but the proof will be in the revenue. (For more, see Analyzing Operating Margins.)

The Bottom Line
A rebound in IGT's fortunes is not going to come about simply because MGM (NYSE:MGM), Las Vegas Sands (NYSE:LVS) or Penn National (Nasdaq:PENN) build more gaudy palaces on the Strip or casinos in the Midwest and Southern U.S.. Granted, a recent increase in gaming traffic is good for the gaming industry in general, but there's that nagging question of whether this traffic is going to play IGT's games.

Investors can take some encouragement from that fact that IGT committed no unforgivable sins and is still a solid brand both at home and abroad. But for this stock to really work, IGT needs an answer for new products like WMS's Bluebird xD, and it needs to once again become the leader and not the chaser. (For related reading, see Going All-In: Comparing Investing And Gambling.)

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Tickers in this Article: IGT, WMS, BYI, MGM, LVS, PENN

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