With the last few European companies reporting in recent days, we are finally ending the fourth-quarter earnings report season and are just days away from first-quarter results being released.
As such, the signals sent about the health and direction of the gaming industry and companies revealed by fourth quarter performances will soon be dated. However, given subsequent events and data there are some fairly clear messages about what to expect in the near future. Here are some:
The era of brick-and-mortar growth is largely over.
It’s no secret that the great amount of land-based gaming expansion is over. There will be pockets of opportunity, including some potential big ones like the New York City area and Texas, but the pickings are getting lean and expansions will come with increasing cannibalization of incumbent operations. Further, with some exceptions, new markets will not be needle-movers for most companies.
The maturation of gaming brings the same dynamics of every industry reaching maturity—focus on margins, total returns including dividends and share repurchases, consolidation.
Some of these dynamics were masked by Covid, but with pandemic impacts now past, it becomes more obvious that the focus on returns rather than growth is primarily motivated by maturation.
The mania over U.S. sports betting and iGaming is largely over. That means the focus has shifted to profitable growth and that the weeding out of weak entrants has begun.
Online gaming operators are still losing money, but less, and most promise to be at least cash flow positive, if not GAAP profitable, by late this year or next.
But the real trend is that, in a market share sense, there is no trend. The Big Three operators—DraftKings, Flutter’s FanDuel and the MGM-Entain joint venture Bet MGM—are firmly ensconced and there is no reason to think they will not maintain their dominant positions. Profitability for them is almost inevitable.
Two other broad areas of opportunity exist for investors—big brick-and-mortar casino operators and the digital age equivalent of the sellers of picks and shovels, the online media affiliates.
In short, Caesars, PENN Entertainment and Boyd Gaming have built-in advantages of tens of millions of proven customers that they only need to capitalize on in prudent ways to make their digital operations profitable.
Meanwhile, media companies like Gambling.com Group and Better Collective already are profitable and project rapid growth.
Las Vegas is back.
This loudly proclaimed phenomenon appears about as real and solid as can be. The just-concluded Con Expo-ConAgg drawing a record 139,000 attendees can serve as the exclamation point to months of strong data in every category—gaming revenue, other spending, visitation and room rates. The reopening of international travel and an exceptional special events calendar for the coming year assure strong performance barring a severe economic recession.
The beneficiaries: The big Strip operators, MGM, Caesars and Wynn, and locals-focused Boyd Gaming, Red Rock Resorts and Golden Entertainment.
The caveat: controlling costs and maintaining margins in an era of inflation and labor shortages.
Macau is back…well…
Macau is back in terms of visitation and gambling revenues are several times greater than in Covid-hit times with the expectation that growth will continue as China continues its reopening.
However, how big a bet investors should make on Macau should be tempered by a realistic expectation of how much the market can grow from here, and we do not think it will ever return to the halcyon days of a decade ago.
And not to be ignored is the emergence of regional competition from Korea to Southeast Asia. Macau is a monopoly no more.
