Shares of gaming industry and lottery supplier Scientific Games (NASDAQ:SGMS) jumped as much as 15.1% in trading Friday after documents were filed with the SEC that laid the groundwork for the IPO of a subsidiary. Shares gave back some gains as the day wore on but were still up 11.8% at 11:30 a.m. EDT.
The social gaming subsidiary will be offered to the public under the company name SciPlay and trade on Nasdaq under the ticker symbol "SCPL," assuming the IPO is completed. The business covers interactive lottery and gaming products, which could become core to the expansion of both businesses over mobile devices.
We didn't get much detail about what stake Scientific Games would be selling or what it would do with the money, but we know SciPlay earned $39.0 million in 2018 on $416.2 million of revenue. That's a sizable business and could be used to pay back $9.2 billion of debt on the balance sheet.
A confidential draft registration was submitted in December, so investors have known this IPO was on its way. But filing an S-1 Form with the SEC is a big step toward making a public offering a reality. That's what investors are reacting to today, and they like what they're seeing so far. I wouldn't buy Scientific Games stock based on this potential IPO alone, but it's an event worth keeping a close eye on because it could help deleverage the company and improve profitability and flexibility for the business in the long term.