Now that Caesars Digital is headed toward its $500 million annual EBITDA target, the company wants to see that reflected in its share price.
Caesars is still considering spinning off that interactive segment if that disconnect continues, representatives told Stifel during an eight-company field trip in Las Vegas last week. The company has “strong conviction” that it will hit that $500 million run-rate in 12 to 18 months, but some sell-side forecasts do not reflect that, partially leading to that share price disconnect.
“Management noted they would not expect a spin-off of this nature to warrant a valuation directly in line with digital-native operators (high-teens multiple) but they would have to weigh the discount associated with remaining within CZR after the company either hits or misses its $500M long-range target,” Stifel said.
Caesars CEO Tom Reeg said all possibilities to monetize the segment were an option on the company’s year-end earnings call.
Caesars online casino seeing strong growth
The online casino business is growing at two to three times the market, management told Stifel. Much of that growth is from its two standalone online casino apps, Caesars Palace and Horseshoe.
Digital EBITDA should continue to grow sequentially based on that growth and a resilient market share in online sports betting, management said. Structural online sportsbook hold should be 10% by the end of 2026.
Caesars has also been “surprised” by the amount of online casino play coming from customers that were not previously in their land-based database.
Management sees pressure on state budgets eventually driving more states to legalize online casinos. Caesars believes it could capture about a 14% share in a new market.
BetMGM on track to break even
Product improvements have allowed BetMGM to lower its marketing and promotion costs while maintaining its active users, MGM Resorts management said. That will help the brand break even this year and should mean the end of investments from MGM and its joint venture partner, Entain.
In sports betting, MGM has seen a “meaningful competitive advantage” from being able to offer VIPs incentives at its land-based resorts.
BetMGM and its international interactive business, MGM Digital, are not reflected in the MGM share price, management said. While a spin-off remains an option, management is trying to bridge the value disconnect with more transparency and longer disclosures.
Boyd: FanDuel deal one of its best
The market access deal Boyd signed with FanDuel, which gave Boyd 5% of the US sports betting giant, is “one of the greatest investments” the company has made, management told Stifel.
That 10-year deal matures in 2028, but all signs point to the two renewing as there is “meaningful friction” in changing market partners, Stifel said.
The FanDuel equity is not reflected in Boyd’s share price, management said. The revenue share agreements accounted for nearly 90% of the $76 million in Boyd’s digital EBITDA last year.
Penn actively avoiding cannibalization
The majority of online casino customers in Penn’s ecosystem are additive and not cannibalistic, but the company has been mindful of which customers it is pushing online.
Penn has focused on marketing online to land-based customers with a low visitation frequency. It has avoided cannibalizing its “high-worth regulars,” management said. Penn is adding more daily free to play games to drive engagement as well as more first party content from Penn Studios.
On the ESPN Bet side, management is improving the betting product, especially live betting, Stifel said. Management continues to believe deeper integration with ESPN and more automated promos are a “key differentiated driver of retention.”
This year, Penn hopes to hit market shares of 4.7% for online sports betting and 3.5% for online casino.
