Caesars investors hoped the company could sustain the momentum from its renewed focus on iGaming, and Caesars delivered, with another quarter of digital growth that outshined the rest of its business.
Caesars Digital, which includes online sports betting and iGaming, posted a 40% increase in net revenue for the third quarter, with iGaming alone soaring by 83%, according to Caesars’ third quarter earnings report last week. Digital revenue is up 28% year-to-date on the back of significant iGaming handle growth and improved sports betting margins.
However, despite the digital segment’s strong performance, Caesars’ stock dipped on the news. CZR closed at $40.47 Wednesday, down 10.6% from its pre-earnings close on Oct. 29.
Caesars iGaming continues to shine
Digital growth was fueled by a 55% jump in iGaming handle, alongside higher sports betting hold rates, which improved from 6.5% to 8.6%. That followed a strong Q2 where Caesars benefited from launching its standalone Caesars Palace app, which drove a 33.2% increase in iGaming handle.
Year-to-date, iGaming handle has risen 44% to $10.8 billion, while sports betting handle is down slightly by 0.1% to $8.2 billion. Sports betting hold, however, is up 1.1 percentage points to 7.4% for the year.
“On the iCasino side, the main shift that we’ve seen is on the — with the introduction of the Caesars Palace Online standalone app, we’ve seen a lot more slot players move over,” said Eric Hession, president of Caesars sports and online gaming. “And we are seeing more crossover between the brick-and-mortar and that app as you’d expect.”
Sports betting on track, but is Florida?
Caesars attributed its improved sports betting hold to increased parlay and cash-out mix, driven by recent enhancements to its app.
Hession also emphasized that these advancements should help Caesars reach a 10% hold rate in the next few years.
“Given our roadmap and our customers’ receptivity to the enhanced parlay options, we now believe that achieving structural hold above 10% threshold is achievable over the next few years. As a result, you should expect to see consistently increasing structural hold as we are working off a relatively low baseline.”
CEO Tom Reeg addressed recent speculation about potential sports betting entry in Florida, following comments from Hard Rock Chairman Jim Allen.
“I’m not as optimistic that we or any of the other non-Seminole entities will enter Florida soon. I saw the same remarks or heard the same remarks from Jim Allen that you did at G2E that kind of cracked open the door, but I don’t think that happens in the near term,” Reeg said.
Still room to improve cross-selling
Analysts and investors have shown strong interest in Caesars’ ability to improve cross-selling between its online and physical properties — a growth area where BetMGM has seen recent success.
Hession sees more opportunities for Caesars as it continues to integrate more and more with the company’s brick-and-mortar business, which has produced well, especially when it comes to ramping up marketing.
“We’re optimistic that the percentage of crossover will continue to grow,” Hession said. “And then we know, of course, that the customers that play with us on brick-and-mortar and also play with us online, we get a much higher percentage of their wallet, and it gets consolidated to us. And so as a result, we see a higher value from those customers.”
Caesars Digital could top $500M EBITDA
Caesars CEO Tom Reeg reiterated his commitment to reaching a $500 million EBITDA run rate for the digital division by 2025 and suggested that the company could exceed that target.
“I think the future is very bright for our digital business, and that business is going to end up generating a hell of a lot more than the $500 million target that everyone has been wringing their hands about for the last three years,” Reeg said.
Digital is on track for a strong fourth quarter despite a challenging start to the NFL season for sportsbooks, he added. Reeg also noted that Caesars is outpacing its competitors’ growth rates, approaching three times the industry average in Q3, even without a full rollout of the Horseshoe brand.
Rest of the business lagging behind
While digital outperformed, Caesars’ overall net revenue declined by 2.6% year-over-year, with adjusted EBITDA down 4% in Q3.
The Las Vegas segment saw a 1.3% drop in net revenue and a 4% decrease in adjusted EBITDA, impacted by new competition and construction along the Strip.
Reeg noted that while the upcoming F1 race could boost revenue, it may fall slightly below last year’s figures. The company also expects gains from the newly renovated Versailles Tower and the opening of its $435 million Harrah’s redevelopment project.
