With casino companies reporting fourth-quarter earnings starting this week, Bank of America Global Research said trends remain strong for Las Vegas continuing into 2023, while regional properties will have a flattish or mixed performance.
In a note this week, B of A Research analyst Shaun Kelley wrote that despite a record October in Las Vegas, he expects fourth-quarter growth to moderate to a 5% increase over the final three months of 2021 compared to a 13% increase year over year in the third quarter.
Kelley said he expects commentary from casino executives during the earnings calls to “likely be upbeat” given the strong group and event calendar. In addition, B of A’s room rate survey for the first quarter shows March rates 74% higher than 2019 and 51% higher year over year.
B of A says the 2023 revenues in Las Vegas will be bolstered by comparisons to the slowdown in early 2022, when the omicron variant hit. It will become harder to top in mid-2023, given the strength in 2022.
Gaming revenue from Las Vegas casinos that serve locals improved to 5% year over year during the fourth quarter compared to a 1% decline in the third quarter. Kelley said their 1% year-over-year estimated increase for Boyd
Gaming and Red Rock Resorts could be conservative, depending on December’s results.
The Nevada Gaming Control Board is scheduled to release December gaming revenue numbers on Jan. 31.
On Monday, Caesars Entertainment, in conjunction with a debt offering, released preliminary results for the fourth quarter that showed adjusted earnings of $947 million to $967 million, $21 million better than the forecast by Deutsche Bank, according to analyst Carlo Santarelli.
Santarelli said their estimates for the fourth quarter, which they revised recently, were above consensus in Las Vegas and in digital, but below in the regional segment.
“Relative to our forecast and at the midpoint of each of the ranges, Las Vegas drove the bulk of the beat with about $19 million of EBITDAR upside, while the domestic regional asset beats by $1 million and offset by the managed segment missing by $1 million,” Santarelli said. “Digital was $5 million better than our forecast.”
Joseph Greff with J.P. Morgan said the preliminary results for the fourth quarter reflect upside on the Las Vegas Strip, given continued strength in that market. The regionals were softer due to harsh December weather that negatively impacted EBITDA by $10 million to $15 million. Digital losses for the fourth quarter also were less than forecast, despite “a $30 million negative impact from the (bets by Mattress Mack on the Astros to win the World Series) and absent this larger high-profile bet, the segment would have generated positive EBITDA.”
Barry Jonas with Truist Securities said the pre-announced results are 2% ahead of estimates and “give a read for the wider group, with the Strip ahead, the regionals below, and better-than-expected digital losses.”
B of A cited no alarm bells yet from monthly reports from regional casinos, but pointed out that visitation data has been lackluster for more than six months.
Same-state gaming-revenue growth is tracking down 4% quarter over quarter and flat year over year, Kelley said. It’s 13% higher than the fourth quarter of 2019. State data was mixed; Maryland was a big leader, but several Midwest and Southeastern states were down year over year, he said.
As for online gaming, Kelley questioned whether the start of profitability was enough. He noted that 2023 calls for “still-solid 25%-plus growth and a meaningful industry inflection point,” as most of the sector hits breakeven.
“However, legalization pace is slowing, stocks remain expensive on any traditional measure, and the industry can only rationalize costs as quickly as the most dominant players, mostly Flutter/FanDuel, will allow,” Kelley said. “The bottom line: While profitability catalysts may be fleeting, long-term structural margins matter more.”
In its strongest seasonal quarter, total digital gross-gaming revenue is pacing 59% higher year over year versus the 70% increase in the third quarter and 33% higher quarter over quarter with promos moderating, according to B of A.
Kelley said igaming growth remains strong at 28% year over year and online sports betting hold remains elevated, tracking about 9.1% in the fourth quarter and offsetting slowing same-state online sports betting handle growth of 5% to 10% during the fourth quarter. There will be a BetMGM business update on Thursday, he said.
Las Vegas Sands issues its fourth-quarter earnings report on Wednesday, in which it will discuss its holdings in Macau and Singapore.
As for Asia, Kelley said he expects negative adjusted earnings for gaming companies in the fourth quarter, but the focus will be on any details for the pace of reopening, especially around Chinese New Year. Macau visitation has recently rebounded to the best levels post-COVID. B of A projects January gaming revenue of 8 billion to 8.5 billion MOP, a decline of 65% from 2019.
“All focus will be on details surrounding Chinese New Year performance, signs of pent-up demand, spending per visit, and easier granting of visas from local authorities,” Kelley said.
Macau stocks have continued to rally in 2023, up double digits.
In Singapore, B of A estimates Marina Bay Sands will report fourth-quarter adjusted earnings of $355 million, a 3% increase quarter over quarter, but down 22% from 2019.
“Commentary on further China/Asia Pacific reopening will be key and easier granting of visas from local authorities,” Kelley said.
