Jumbo Interactive: A Bet on Digital Lottery Growth

Jumbo Interactive is a key player in the digital lottery market, starting in Australia and now expanding internationally. Its main business is Oz Lotteries, an online platform where customers can buy official lottery tickets, but the company has also grown into providing lottery software and full-service lottery management for charities and governments in the UK, Canada, and Australia. With a business model that requires little investment to generate strong profits, high returns on capital, and a clear strategy to reduce reliance on its Australian retailing segment, Jumbo is transforming from a local reseller into a global lottery technology company. The question is: Can this growth story continue to reward long-term investors?

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The Business

Jumbo Interactive is a global digital lottery specialist that began as a small software company in 1995 and has since grown into one of the leading online lottery retailers and software providers. Headquartered in Australia, it now employs more than 250 people across Australasia, the United Kingdom, and Canada. The company operates through three business areas. Lottery Retailing is its flagship operation through Oz Lotteries, which acts as an intermediary for players who wish to purchase official Australian lottery tickets online. Software-as-a-Service, branded “Powered by Jumbo,” provides its proprietary lottery platform to government and charity operators, enabling them to run their lotteries digitally with greater efficiency and scalability. Managed Services offers complete lottery solutions, from game design and marketing to prize procurement and operations, primarily serving charity lotteries in the UK and Canada. Strategically, the company is shifting from reliance on its domestic reseller business to becoming a diversified global lottery technology provider, with 30% of revenue in fiscal 2025 generated outside Australia. Jumbo Interactive’s competitive moat rests on its proprietary technology, scale, and strategic positioning. Its lottery platform is the product of decades of focused investment and is difficult for competitors to replicate, giving the company a defensible technological edge. The business model is capital-light because running a digital platform requires relatively little in the way of physical infrastructure or inventory, allowing the company to grow without tying up significant resources. In its home market, Jumbo holds a strong position as a leading digital lottery retailer with significant brand recognition and a large active customer base of nearly one million players each year, providing scale advantages and network effects. The company is also founder-led, with CEO Mike Veverka remaining a significant shareholder, ensuring long-term alignment between management and investors. This combination of technology, market position, and disciplined leadership gives the company durability and the ability to grow as a global lottery technology provider.

Management

Mike Veverka serves as the CEO, founder, and executive director of Jumbo Interactive, a company he established in 1995 and has since grown into a leading global digital lottery retailer and software provider. He holds a Bachelor of Civil Engineering from Queensland University of Technology and brings a strong background in both business and computing. His entrepreneurial drive emerged early; at the age of fifteen, he developed and sold his first software package to Hewlett Packard. Before founding Jumbo Interactive, Mike Veverka worked as a design engineer and computer programmer and went on to establish Squirrel Software Technologies, one of Australia’s early providers of internet services and e-commerce software. This experience positioned him to identify the shift toward online consumer engagement, leading him to create Jumbo Interactive at a time when the internet was still in its infancy. Under his leadership, Jumbo Interactive has evolved from a small startup into a company employing more than 250 people across Australasia, the United Kingdom, and Canada. He has overseen the company’s strategic pivot from software development to digital lottery retailing and, more recently, its transformation into a diversified lottery technology provider with global reach. His vision has been central to the company’s innovation, market presence, and steady expansion beyond its core Australian operations. Mike Veverka is a founder-led chief executive, which often signals a long-term commitment to business growth over short-term financial targets. His alignment with shareholders and successful track record in building Jumbo Interactive from a one-computer startup into a leading digital lottery specialist reinforce confidence in his ability to continue guiding the company effectively through its next stages of growth.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Jumbo Interactive has consistently achieved a high ROIC because its business model requires very little investment to generate strong profits. Unlike companies that need factories, machinery, or large inventories, Jumbo mainly invests in software development, digital platforms, and marketing. Once the technology is built, the cost of adding more customers or running more transactions is relatively small, which means profits can grow much faster than the amount of money tied up in the business. This is why the company has been able to keep ROIC above 20% for more than a decade and above 30% in most of those years. The small drop in ROIC during fiscal year 2025, while still being very high at more than 36%, was mostly because profits were down compared to the record year before. Lottery ticket sales depend heavily on how big and frequent jackpots are, and fiscal year 2024 had a record $200 million Powerball draw that boosted results. Fiscal year 2025 had a softer jackpot cycle, which lowered earnings and naturally pulled ROIC down. The key point is that the company’s efficiency has not weakened, and its underlying business remains very profitable. This is not something to worry about. ROIC will always fluctuate depending on jackpot activity, but Jumbo’s newer businesses, such as Software-as-a-Service and Managed Services, are less affected by jackpots and still require little investment to run. These parts of the business should help keep ROIC high in the future and may even push it higher as they continue to grow.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Jumbo Interactive has managed to grow its equity every year for the past decade because it is a highly profitable business that consistently generates more earnings than it needs to reinvest. Its capital-light model means it does not have to spend heavily on infrastructure or physical assets to grow, so a large share of profits remains within the company. Over time, these retained profits accumulate on the balance sheet, steadily increasing equity. This steady growth in equity is expected to continue. As long as Jumbo maintains its strong profitability and disciplined cost structure, the business should keep generating surplus cash that strengthens the balance sheet year after year. The ongoing expansion of its Software-as-a-Service and Managed Services segments adds further support, as these businesses can grow revenue without requiring significant additional investment. Together, these factors suggest that equity will likely keep rising at a healthy pace in the years ahead.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Jumbo Interactive’s free cash flow is one of its biggest strengths. Because the company runs a digital platform that does not require heavy investment in buildings, equipment, or inventory, most of its profits turn directly into cash. This is why its free cash flow margins are so high compared to many other businesses. It reflects the efficiency of the model, where once the technology is built, the cost of serving more players or running more transactions is relatively low. Free cash flow did decrease in fiscal year 2025, but this was due to a softer jackpot cycle compared to the record-breaking year before. When jackpots are smaller or less frequent, ticket sales fall and so do profits and cash flow. Even with that decline, fiscal year 2025 still produced the company’s third-highest free cash flow ever, showing that the underlying ability to generate cash remains very strong. This is not something to worry about, but rather a normal part of the lottery retailing cycle. Jumbo Interactive uses its free cash flow in ways that directly benefit shareholders. Part of it goes toward paying regular dividends, which provide investors with a steady stream of income. The company also uses free cash flow to buy back its own shares, which reduces the number of shares on the market and makes each remaining share more valuable. At the same time, having strong cash generation gives Jumbo the flexibility to reinvest in new growth opportunities when they appear, without needing to rely on debt. The free cash flow yield is at its highest level since fiscal year 2017, suggesting that the shares are currently trading at one of their most attractive prices in years. We will return to valuation later in the analysis.

Debt

Another important aspect to consider is the company's level of debt. It is essential to evaluate whether a business maintains a manageable debt level that can be repaid within three years, typically assessed by dividing the total long-term debt by earnings. Analyzing Jumbo Interactive's financials reveals that the company has no debt. Therefore, debt is not a concern for potential investors in Jumbo Interactive.

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Risks

Regulatory and legal risk is a risk for Jumbo Interactive. The gambling and lottery industry is one of the most tightly regulated sectors in every jurisdiction where the company operates, and these rules are constantly evolving. While lotteries are often viewed more favorably than other forms of gambling, with exemptions from recent credit card and advertising bans in Australia, there is no guarantee that this preferential treatment will continue. Governments frequently revisit gambling legislation, and the recent review by the Australian Government into online keno and foreign-matched lotteries demonstrates how quickly regulatory environments can shift. If new restrictions, taxes, or licensing requirements are introduced, Jumbo Interactive could face higher compliance costs, limitations on certain products, or reduced flexibility to expand. The complexity grows because Jumbo Interactive operates across multiple international markets, including Australia, the UK, and Canada, each with their own distinct regulatory systems. This requires constant oversight, strong governance, and the ability to adapt to local compliance frameworks. The uncertainty around regulatory priorities adds another layer of risk. Public opinion on gambling can shift, and governments may choose to impose stricter controls in response to concerns about problem gambling or consumer protection. Any sudden legal changes could disrupt Jumbo’s ability to operate certain products, affect the timing of new launches, or limit marketing activities. This is particularly important given Jumbo’s reliance on long-term contracts with government operators and charities, where trust, compliance, and reputation are crucial to sustaining partnerships.

Concentration risk is a risk for Jumbo Interactive because a very large share of its revenue is tied to a single partner. The company’s Australian retailing business depends heavily on its reseller agreements with The Lottery Corporation, which currently account for close to three quarters of total revenue. These contracts provide stability in the short to medium term since the current agreements, signed in 2020, run until 2030. However, they also create significant long-term uncertainty. If the agreements were not renewed, or if their terms were renegotiated on less favorable conditions, Jumbo Interactive’s largest and most profitable segment would be directly affected. There are also risks within the existing contracts. The Lottery Corporation has the right to terminate the agreements in the case of a material breach or unremedied default by Jumbo Interactive. While Jumbo has successfully operated under reseller agreements with The Lottery Corporation since 2005 and has built strong governance processes to prevent compliance issues, the possibility of early termination cannot be fully ruled out. A further risk exists in Victoria, where the reseller agreement could end in 2028 if The Lottery Corporation’s public lottery license is not renewed. This concentration means that Jumbo Interactive’s financial performance is disproportionately exposed to the decisions and operational circumstances of one partner. Even though the company has a strong history of maintaining this relationship, its dependence on The Lottery Corporation represents a structural vulnerability.

Cybersecurity is a risk for Jumbo Interactive because the company operates entirely online, processing millions of transactions and storing sensitive customer information such as payment details and personal data. This makes it an attractive target for cybercriminals. A successful cyberattack could cause financial losses, trigger regulatory penalties, and, most importantly, damage customer trust, which is critical to the company’s long-term success. The broader risk comes from the way cybercrime has evolved. Attacks have become more frequent, more sophisticated, and more damaging, ranging from ransomware and phishing to large-scale breaches carried out by organized crime groups. No system can ever be completely immune, and the speed at which new attack methods are developed makes cybersecurity an ongoing race between companies and criminals. Even companies with strong protections are vulnerable, as seen in recent high-profile breaches across industries. For Jumbo Interactive, the consequences of a major incident could include the loss or theft of customer data, disruption of its online platforms, or denial of access to its systems. Any prolonged downtime would directly affect revenue since its business depends on uninterrupted digital operations. Beyond the immediate financial impact, a breach could also harm relationships with regulators, government lottery partners, and charities, all of which expect strict compliance and trustworthiness from a company handling lottery transactions.

Reasons to invest

The growing adoption of digital lotteries is a reason to invest in Jumbo Interactive. Around the world, more and more consumers are shifting their purchasing habits online, and lotteries are following this broader trend. In Australia, digital lottery sales accounted for only 41,8 percent of the market in fiscal year 2025, which is still significantly lower than in some European countries where digital penetration has reached levels of up to 70 percent. This gap highlights the long growth runway that remains in the Australian market. Importantly, digital penetration in Australia continued to increase in fiscal year 2025 despite the absence of exceptionally large jackpots, which typically encourage greater digital participation. This demonstrates that the structural shift toward online lottery purchases is intact and progressing steadily. Jumbo Interactive is ideally placed to benefit from this transition. Its Oz Lotteries platform is a market leader, supported by long-standing partnerships such as its reseller agreement with The Lottery Corporation. The company has developed a strong reputation for delivering an easy, secure, and engaging online lottery experience. By investing in innovation, refining its marketing strategies, and focusing on player engagement, Jumbo Interactive has consistently increased the value of its customer base, with the average spend per player rising over time. These advantages position the company to capture a growing share of consumers who are moving from paper-based tickets to digital platforms. The economics of digital lotteries further strengthen the case. Online ticket sales offer greater scalability and higher margins compared to physical retailing, since once the platform is built, the cost of serving more players or processing more transactions is minimal. This makes the ongoing growth in digital penetration particularly valuable for Jumbo, as it translates into both higher revenues and stronger profitability.

Diversifying revenue streams is a reason to invest in Jumbo Interactive. Historically, the company has been heavily reliant on its Australian Lottery Retailing segment and, in particular, on its reseller agreements with The Lottery Corporation. These agreements have provided stability but also represent a clear concentration risk, since they account for the majority of group revenue. Management has identified diversification as a top strategic priority, and the progress made in fiscal year 2025 demonstrates that this strategy is working. In that year, Jumbo generated approximately 30% of its revenue outside of the TLC agreements, a record milestone that reflects successful execution and an important step toward reducing dependence on a single partner. The Software-as-a-Service segment is central to this diversification. Through its Powered by Jumbo platform, the company licenses its proprietary lottery technology to government and charity operators.  SaaS revenue is high-margin, scalable, and recurring in nature, providing a more predictable stream of income that is not tied to jackpot cycles. Jumbo’s ability to expand its partner base from seven to ten during the year, including high-profile organizations like RSPCA Queensland and MS Queensland, highlights the growing demand for its platform. Renewals from long-standing partners such as Endeavour Foundation and Deaf Connect further reinforce the trust and stickiness of these relationships. The Managed Services segment is another important part of the diversification story. By offering full-service lottery management solutions, Jumbo has carved out a strong presence in the UK and Canada, with brands like StarVale, Gatherwell, and Stride. Even within the Lottery Retailing division, Jumbo is broadening its revenue base beyond traditional national lottery games. The company has added charity lotteries such as RSL and Yourtown to its Oz Lotteries platform, increasing customer choice and creating new revenue opportunities.

Acquisitions are a reason to invest in Jumbo Interactive because they represent a key lever in the company’s strategy to accelerate growth and expand internationally. Management has made it clear that mergers and acquisitions are now a central pillar of capital allocation, reflecting a shift from returning capital to shareholders through buybacks toward pursuing external opportunities that can create long-term value. The decision to pause the on-market share buyback program, despite having a strong balance sheet, signals that management sees greater potential to compound shareholder value through carefully chosen acquisitions than through reducing share count. Jumbo Interactive has already gained valuable experience through earlier acquisitions in the UK and Canada, where it expanded its Managed Services business. These deals provided exposure to charity lotteries and built out operational capabilities beyond the Australian market. The company has indicated that future acquisitions will focus more heavily on profitable business-to-consumer opportunities in lotteries and adjacent markets, especially those with large customer databases, strong digital potential, and high growth prospects. Owning these businesses outright would give Jumbo greater control over the customer experience, product innovation, and cross-selling opportunities, while also aligning closely with its expertise in digital lottery platforms. There is also room for opportunistic business-to-business acquisitions to strengthen the existing SaaS footprint, but the emphasis on consumer-facing businesses highlights management’s ambition to capture more of the value chain and deepen customer relationships. In particular, the focus on markets like the UK and North America provides an attractive runway for growth, given the size of these regions.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 0,64, which is from fiscal year 2025. I have selected a projected future EPS growth rate of 10%, as the average growth year over the past five years has been 10,1%. Additionally, I have selected a projected future P/E ratio of 20, which is twice the growth rate. This decision is based on Jumbo Interactive's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be AUD 8,21. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Inditex at a price of AUD 4,10 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 49, and capital expenditures were 0,5. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 0,4 in our calculations. The tax provision was 17. We have 62,3 outstanding shares. Hence, the calculation will be as follows: (49 – 0,4 + 17) / 62,3 x 10 = AUD 10,53 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Jumbo Interactive's Free Cash Flow Per Share at AUD 0,78 and a growth rate of 10%, if you want to recoup your investment in 8 years, the Payback Time price is AUD 9,81.

Conclusion

I find Jumbo Interactive to be an intriguing company with strong management that has built a moat through proprietary technology, scale, and strategic positioning. The company has consistently achieved a high ROIC, which is expected to continue, and although free cash flow decreased slightly in fiscal year 2025 due to a softer jackpot cycle, it was the third highest in the company’s history with margins remaining strong, showing that the decline was cyclical rather than structural. Regulatory and legal risk is present because the lottery industry is tightly controlled, with rules that vary across jurisdictions and can change quickly, meaning new restrictions, taxes, or licensing requirements could raise costs, limit products, or slow expansion. Concentration risk is also significant, as nearly three quarters of revenue depends on reseller agreements with The Lottery Corporation, making any termination, non-renewal, or unfavorable change a potential threat to the company’s largest business segment. Cybersecurity is another risk since Jumbo’s fully digital model makes it a prime target for increasingly sophisticated attacks, and any major breach could disrupt operations, compromise sensitive customer data, and damage trust with regulators, partners, and players. On the positive side, the growing adoption of digital lotteries is a strong reason to invest, as online penetration in Australia is only 41,8% compared to up to 70% in parts of Europe, giving Jumbo ample room for growth, and its scalable, high-margin platform positions it well to capture this opportunity. Diversifying revenue streams is another strength, with 30% of revenue in fiscal year 2025 generated outside of The Lottery Corporation agreements, showing meaningful progress in expanding high-margin SaaS contracts, Managed Services in the UK and Canada, and charity lotteries. Acquisitions have also become a central part of the company’s growth strategy, with management targeting profitable consumer-facing lottery businesses in international markets that offer large customer databases and strong digital potential, which could accelerate expansion and deepen customer relationships. I believe that Jumbo Interactive is a high-quality business, and buying shares at the Ten Cap price of AUD 10 could be a compelling long-term investment.

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