So far, so good.
Enough companies have reported third quarter earnings to say that the American casino industry remains healthy and that companies continue to practice lessons learned during Covid, making the industry stronger than pre-pandemic.
That should hearten investors in conventional casino, games and gaming technology companies that, barring a catastrophic economic collapse, they will work through any coming recession as they have in the past, and perhaps significantly better than before.
Even the new and more volatile world of U.S. iGaming and online sports betting is settling in as markets mature, the clear leaders have established themselves beyond much debate and companies are finally transitioning from customer building to profit building.
Of 22 states that have reported September results to date, gaming revenues are up 13.97 percent, according to figures compiled by Fantini Research. Much of that comes from expanded sports betting and iGaming, but legacy gaming also is up, and sports betting and iGaming, after all, are part of industry investors must take into consideration.
Nevada is the most recent state to announce results, and the figures are encouraging. Gaming revenues rose in every major market in the state. Las Vegas Strip revenues rose a healthy 8.25 percent over last year but underlying business was much stronger when factoring out low table game hold. Baccarat drop soared 33.62 percent, blackjack 30.27 percent and slot volume 17.59 percent.
Strong trends extended into October and more good news should come as the convention business rebounds and older players continue to return.
Most importantly, casino operators continue to practice operating efficiencies learned during Covid, meaning that last year’s almost ridiculously high EBITDA margins are being largely maintained and appear to be the new normal.
None of that means gaming companies will be immune to recession when it comes, but it does suggest strongly that they will manage through and emerge on the other side healthy and with significant growth prospects as iGaming and sports betting grow, and as gaming continues to fill out the white spaces throughout the country with new and expanded casinos and operations like historical horse racing centers.
Of course, one of the risks of recession is investors taking down valuations. Clearly, even with this year’s bear market, valuations as expressed by price-earnings and enterprise value-EBITDA ratios remain high in many industries and in the stock market overall.
Too many investors are complacent about stocks selling at 17 or 20 times earnings, or in believing that a company can sell at 30 or 40 times simply by tagging itself a technology company.
But that is not the case with casinos. Many still sell at single digit multiples of EBITDA.
There is no reason that casino companies should be valued at a third or 50 percent lower than hotel or other entertainment companies except for the historic burden of investor fears of legislative risk.
But as gaming has matured and become an entrenched industry that legislators see worth defending for the thousands of constituent jobs and tax revenues they provide, that risk has lessened if not entirely disappeared.
In short, US gaming companies are a good place for long-term investors. And if a recession drags down stock prices, they will be even better.
