Caesars Earnings Preview: Will Digital Continue To Outshine Rest Of Business?

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Wall Street is expecting another marginally disappointing quarter for Caesars Entertainment when it reports Q1 earnings Tuesday.

Analysts expect Caesars to post quarterly earnings of $0.02 per share, a nearly 78% year-over-year decline. Revenues are expected to be $2.83 billion, which would be down less than 1% year-over-year. It would be the second straight quarter of declines.

The company is coming off of its best sports betting and iGaming quarter yet, however, which could again be a highlight.

Will digital be saving grace again?

Caesars missed consensus earnings per share estimates by 31 cents in Q4, posting $ -0.34 per share and a $72 million net loss. However, it did make good on its promise to have its strongest digital quarter yet.

The sector that houses online sports betting and iGaming posted a record $29 million adjusted EBITDA for the quarter versus a $5 million loss for the same period the year prior. Much of that came from 50% growth to iGaming, a renewed focus for the company, which shifted its digital strategy to focus less on sports betting last fall.

Caesars promos fall off in Q1

Preliminary Q1 data from six states suggests Caesars tied with BetMGM for 7% of US sports betting market share early in the quarter. This would be unchanged from Q4 and from how it has historically performed: third behind DraftKings and FanDuel.

Caesars ranked lowest among six leading sportsbooks in percentage of handle derived from promotional play in Q1, per Citizens JMP Securities. Management reprioritized iGaming as its core mission in the fall, but has Caesars attracted sports betting handle at less cost, or has diverting resources negatively impacted the business?

Management has touted the potential to leverage the iconic World Series of Poker brand in a similar manner to how DraftKings and FanDuel capitalized on daily fantasy sports, but with iGaming expansion in purgatory, questions persist about the strategy,

Vegas could be quarterly strong point for Caesars

On the last earnings call, CEO Tom Reeg said the Formula 1 race at the Las Vegas Street Circuit in November boosted Caesars’ Q4 EBITDA by roughly 4%. How did the Vegas hospitality business play out without an international racing spectacle through the middle of town?

Macquarie analyst Chad Beynon projects that Las Vegas Strip revenue was up 2% year-over-year in Q1, and expects Vegas Strip segments to meet or exceed consensus expectations for Q1. This could benefit Caesars, which owns nine Las Vegas properties.

Hurdles remain in casino growth, debt

Amid positive strides in digital, analysts have expressed reservations about the rest of Caesars’ trajectory. Caesars current stock price of $36.66 represents a 21% drop year-to-date and a 34% decline since last December.

Despite a diverse revenue mix, Caesars faces DraftKings and FanDuel as the largest hurdles within its digital segment. Its casino revenue growth has trailed behind MGM, Las Vegas Sands, and Wynn Resorts. Those casino operators each have seen stock declines over the last year, though not nearly at the rate Caesars has.

Caesars has been somewhat constrained by $12.2 billion in outstanding debt, and so far, the market has not seemed to buy into management’s strategy of deleveraging via different avenues of cash flows. That could limit Caesars ability to invest in technology, expand into new markets, pursue strategic acquisitions and partnerships, and execute effective marketing and branding initiatives, putting it at a strategic disadvantage to competitors.