Gaming companies will begin to report fourth-quarter earnings in a couple of weeks in an environment that is much less ebullient, and may be approaching bearish, compared to just a few weeks ago.
However, there may be reasons for optimism in the upcoming reports.
Since the New Year began, gaming stocks have generally sold off and underperformed an overall market that is itself in correction mode, if not in early bear season.
The exceptions are Macau casino operators. U.S.-listed Las Vegas Sands, Wynn Resorts and Melco Resorts are all up slightly for the year as of this writing, as it appears they will not face the most draconian revisions of their gaming concessions, like higher taxes or dividend restrictions.
Macau operators aren’t completely out of the woods, as the government can still change its proposed concession terms. But it appears the status quo will be largely maintained. Of course, even if that happens the operators must overcome Covid restrictions and the probable loss of junket business.
For the rest of the U.S. gaming industry, stocks are suffering from investors fearful of inflation and the prospect of higher interest rates slowing consumer spending.
Worst-hit have been the pure-play online sports betting operators. Golden Nugget Online, DraftKings and Rush Street Interactive stocks have repeatedly fallen as investors turned from giddily bidding up stocks on the promise of someday achieving profits to dumping them for fear they may never be profitable, or at least not produce profits commensurate with the valuations that they brought into the new year.
However, amid the worries, there may be some positive developments to look for, especially for regional casino operators and the online sports betting companies.
The first thing to remember is that, unlike Las Vegas Strip casinos, regional operators are not as affected by travel disruptions and diminished convention attendance.
If consumers remain as strong as often reported, they will still enjoy evenings at the local casinos or weekends at destination markets like Las Vegas, Atlantic City and the Mississippi Gulf Coast.
And the continuing population growth of Las Vegas, Reno and Colorado will help underpin the long-term outlook for locals operators in those markets such as Red Rock Resorts, Golden Entertainment, Boyd Gaming and Monarch Casino.
The big question for regional operators will be their ability to continue to hold down expenses as they reopen amenities, ramp up marketing and fight wage inflation.
For online sports betting operators, the question will be whether they’ve gotten the message that they can’t just throw money away trying to grab market share if they expect to have credibility with investors.
Perhaps a heartening sign was issued by Bet MGM, as the MGM-Entain joint venture says it will be EBITDA-positive next year.
Investors should also pay close attention to the outlook expected by Rush Street Interactive, whose business model is focused on profitability. A similar forecast by Rush Street could bode well for the sector.
Meanwhile, investors may soon be asking whether the stocks of the highest quality online sports betting operators are at or near their bottoms.
Perhaps the most interesting comments will come from the brick-and-mortar operators that have online ambitions.
Churchill Downs is something of a stealth growth company with its low-profile historical horse racing developments in Kentucky. CEO Bill Carstanjen also has been clear that he is focused on making online profitable.
Finally, there are Caesars and Penn National. They combine the strength and resilience we expect in regional markets with the potential to successfully exploit their enormous player databases to achieve online profitability.
