The third quarter earnings season has begun and this time the accompanying investor conference calls have the potential to be especially important about the near to mid-term future for the gaming industry and gaming investors.
The reason—as seems to be the reason for almost everything in 2020—is Covid-19.
Here are some things to look for:
- Business trends. We’ll start with the obvious. Is business returning at a pace that suggests real recovery in some predictable time frame?
There’s been much made of the age of returning gamblers being younger. Is that a good sign because a new generation is coming on board? Or is it a bad sign that the core casino customer, older and thus more susceptible to serious Covid symptoms including death, will not return in adequate numbers for a full recovery?
- Cost trends. Though recovering revenues continue to lag year-over-year comparisons, companies are expected to increase margins and maybe even grow EBITDA thanks to cost cutting. How much of these cost reductions do casino operators think they can maintain as business recovers and as they have to reopen amenities to attract back more players?
- Spending trends. Among the permanent costs that could be reduced by casino operators is their capital expenditures for slot machines and other gaming equipment. Will those spending budgets return and, if not, by how much will they shrink? Conversely, are there new areas of spending, such installing cashless gaming products?
- Online gaming and sports betting. Long-term forecasts run up to $30 billion-plus for both online gaming and sports betting. As optimistic as those might seem, more realistically what are current trends and projections into the next year, if company executives are willing to make them?
- Las Vegas, regional gaming and Macau. The consensus is that regional gaming is recovering faster than Las Vegas and that Macau will recover, though maybe not fully until 2022. Are expectations playing out as conventions continue to postpone or cancel Las Vegas events and as travel restrictions and related impediments remain in Asia? Of particular interest, will China’s developing ban on marketing gambling to its citizens extend to Macau and, if so, how much impact will that have?
- Mergers and acquisitions. There are cross-currents. On one hand, REITs are still out there needing to grow their real estate portfolios. And big companies like Caesars and maybe even Penn National might want to spin off small or non-core properties. And there are companies that plan to grow by acquisitions like Twin River Worldwide Holdings and Century Casinos. On the other hand, Covid depressing revenues and the prices that sellers want or the ability of prospective buyers to act until normality returns.
- Recession after the recovery. Despite the economic recovery clearly underway, millions of Americans likely will remain unemployed and many businesses will reduce spending, which will further slow the economy. That raises the question of whether the Covid -19 recovery will be followed by a post- Covid recession. And if so, how hard will it hit the air travel, convention and discretionary spending-dependent gaming industry, its suppliers and their stocks?
