Online Gaming A Bright Spot For Caesars Through Difficult Q1

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Caesars Digital had another strong quarter despite historically bad sports outcomes and a disastrous performance for the rest of the company.

Sports betting and iGaming business was Caesars Entertainment’s only sector to showcase year-over-year growth in its Q1 earnings, Caesars announced Tuesday evening.

Caesars stock opened a bit down on Wednesday compared to Tuesday’s close and ended the week at $35.72, 10 cents off its pre-earnings price.

Caesars hit with ‘one-time negatives’

For Q1, Caesars posted $2.74 billion in overall revenue, down 3.1% year-over-year and short 3% of Wall Street estimates. Adjusted EBITDA for the quarter was $853 million, down 10% year-over-year and short 6.9% of estimates.

Unusually low table holds in Las Vegas, especially bad weather this winter, and launching North Carolina sports betting compounded into more than $75 million of “what’s clearly one-time negatives for us in the quarter,” CEO Tom Reeg said on the company’s earnings call.

“If you look at the biggest buckets, this was kind of a kitchen sink-type quarter for us. Everything that could go wrong did for us,” Reeg said,

Digital posts fourth straight positive quarter

The segment that encompasses online sports betting and iGaming for Caesars posted $5 million adjusted EBITDA for Q1, its fourth straight quarter of positive EBITDA.

That’s compared to a year earlier, when the segment lost $4 million.

Caesars Digital also generated $282 million in revenue, up 18.5% year-over-year.

Analysts lower target stock price

Analysts from Barclays, Deutsche Bank, Macquarie, Stifel and Truist all lowered their target prices for the stock, with some context that digital’s momentum could soften the impact from the disastrous start by the end of the year.

FirmCurrent TargetPrevious Target
Deutsche Bank$58.00$59.00

“We expect the story will remain driven by the company’s ability to improve Digital share and profits,” Chad Beynon, head of US research at Macquarie said in a note on the target price.

[Caesars] has an attractive risk/reward digital profile given its large database, low marketing/promo intensity and improving tech,” and stock price (down 24% since January).

Caesars Digital outshine table games

While Caesars held just 15% on Vegas tables, a massive decline from its typical range of 20% to 23%, sports betting managed a much more inspiring quarter.

Caesars managed a 6.7% hold in sports betting, up from 6.5% in Q1 2023, despite a slight decline in handle and heavy favorites winning the Super Bowl and March Madness. Sports betting handle decreased less than 1% year-over-year to $3.8 billion, while net revenue was $282 million for the quarter, an 18.5% improvement year-over-year.

That came on the back of a higher overall parlay mix, with the percentage of bets Caesars took as parlays increasing 4 percentage points year over year, driven by an improved user interface and pricing uptime, said Eric Hession, president of Caesars Sports and Online Gaming.

Caesars ups sports betting hold target

Caesars upped its structural sports betting hold target to 8.5%, up from its prior 7.5% to 8% range, with the context that digital still performed at the lower end of expectations thanks to those negative sporting outcomes.

“Higher parlay mix gives us confidence in our ability to continue to improve holds throughout 2024 and beyond,” Hession said.

Core iGaming focus continues momentum

Meanwhile, iGaming handle improved 45% to $3.5 billion for the quarter, with hold improving to 3.3% versus 3.1% a year earlier.

Those types of offerings became a renewed, more core focus of the digital segment when the company launched its standalone Caesars Palace app last September.

“iGaming set new quarterly records for active customers, volume, GGR and net gaming revenue driven by the success of our new Caesars Palace Online app, which despite only launching roughly seven months ago, now makes up more than 50% of the net gaming revenues in this segment,” Hession said. “Customers continue to respond favorably to the product interface, game content and improved loyalty marketing. iCasino remains a critical component of our digital growth strategy for 2024 and beyond.”

Successful North Carolina launch

The North Carolina launch outperformed how the company has historically done in other states.

Caesars accounted for roughly 9% of the market in the first month of NC online sports betting, which is about three times better than past performances in other states, Reeg said.

“North Carolina for us was a much more successful launch in terms of customer acquisition than we were anticipating. And then what we have seen in recent states, we didn’t make any change to how we promoted into it,” Reeg said. “It’s really a comment on the strength of our database in North Carolina.”

That came despite it ranking last among six sportsbooks in percentage of handle derived from promotional play during the quarter, per Citizens JMP Securities.

More partnerships to roll off

Without spending on the North Carolina launch, digital would have produced an extra $20 million in adjusted EBITDA, the company said.

It is targeting $500 million adjusted EBITDA for digital by the end of 2025, a goal management said it will reach through continued iGaming growth, higher parlay mix and expensive obligations winding down.

As of March 31, Caesars was obligated for $566 million from official sports betting sponsorship deals, down from its $605 million obligated at the end of 2023. Many of those contracts extend through 2040. However, a sizable amount will come off the books by the time Caesars expects to hit its target for digital.

They [partnerships] are chunky and kind of roll off in that, the bulk of them, in that 2025 time frame, ” Reeg said. “But also note, again, whether that’s a full year of 2025 or its beginning of 2026, it’s a point in time, and we’re going to continue growing beyond that.”