BetMGM outperformance reignites buyout speculation

July 26, 2023 4:06 PM
Photo: Composite by CDC Gaming Reports
  • David McKee, CDC Gaming Reports
July 26, 2023 4:06 PM
  • David McKee, CDC Gaming Reports

Back on February 8, MGM Resorts International said it was “moving on” from takeover talk about joint-venture partner Entain, adding “for now.” According to Jefferies analyst James Wheatcroft, the co-parent of BetMGM could be back in play early next month. Noting that a previous offer would be worth £23.09 per share today, Wheatcroft said that MGM-buyout speculation was buoying Entain’s share price. He maintained a “Buy” rating on Entain stock.

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Surpassing Jefferies’ forecast of a breakeven performance in the second quarter, Entain delivered positive return on investment (ROI) on BetMGM. Second-quarter net revenues grew only by a percentage point, but that was good enough for revenue of $468 million. The company now expects that it will become self-sustaining in the latter half of the year, with neither Entain nor MGM Resorts anticipated to make further equity contributions.

“I am pleased with the significant progress we have made during the first half of 2023 as we continue our strong growth and remain on our path to profitability,” said CEO Adam Greenblatt. He added later, “Our focus remains on building a sustainable, scalable, and returns-focused business with leading products that our players enjoy responsibly.”

Wheatcroft reported that BetMGM is “now on track” to bring in revenues for the 2023 fiscal year just above the high end of Wall Street’s guidance. He projects at least $1.8 billion, possibly $2 billion. Wall Street’s consensus was $1.86 billion.

BetMGM also projected that it will be ROI-positive throughout the second half of the calendar year, fueled by sports-betting launches in Kentucky and North Carolina, not previously factored into revenue and cash-flow calculations. This could lead to fiscal-2023 revenue of as much as $2.2 billion.

Fueling BetMGM’s performance was its dominant position in igaming (27 percent market share) and strong one in sports betting (11 percent). The company has market exposure to 26 jurisdictions comprising 48 percent of the adult American populace.

“We believe the static revenue expectation for 2023 to likely serve as a non-event for investors, given the shift in the mindset to a focus on profitability,” opined Deutsche Bank analyst Carlo Santarelli. He prefaced that by saying he expected the positive ROI to also be a feature of the Caesars Entertainment and DraftKings earnings announcements. “It is likely to be well received,” he added, even if revenue guidance would likely be unchanged.

By Santarelli’s lights, BetMGM underperformed in the second quarter. However, he chalked that up to traditional seasonal softness in sports betting, along with heavy promotional outlays relating to launches in Massachusetts and Ohio.

“The recent acquisition of Angstrom by Entain is expected to drive a better mix of parlay and in-game wagering, two mix increases that would likely improve hold percentages,” Santarelli observed. He concluded by remarking that BetMGM maintains that it will introduce its digital-wallet technology and single-account setup in the second half of this year.