Las Vegas Sands Corp. will be the first major casino operator to report second-quarter earnings on Wednesday and one analyst said digital gaming is the topic to watch as the industry reports over the next three weeks.
Shaun Kelley with Bank of America Global Research said that when it comes to online gaming, he expects sequential and year-over-year improvements, as operators near or reach positive adjusted EBITDA. “The second quarter marks a significant step toward online gaming’s path to positive adjusted EBITDA.”
Driving those results are structural online sports betting hold improvements tracking at 10.5%, up 125 basis points over the first quarter and 280 basis points over the second quarter of 2022, according to Bank of America.
Kelley said the segment has been helped by a decline in promotions after recent state launches.
In addition, igaming growth remains 20% year over year.
“Consensus estimates have continued to rise for DraftKings, putting BofA relatively in-line, but we believe investor expectations are likely very high (possibly because of $800M-plus in revenue),” Kelly wrote in a note to investors on Monday. “Online has driven multiple expansion for U.S. land-based operators too, which we estimate accounts for about 10% to 20% of current valuations.”
Since Las Vegas Sands is first to report, there will be a lot of discussion early on about Macau.
Jefferies Equities Research analyst David Katz released a note Monday saying second-quarter Macau earnings should continue to improve. There’s stronger revenue, evidenced by the 31% quarter-over-quarter revenue increase and higher margins reflecting the shift from junket-VIP to higher-margin segments, he said.
The key Macau-related questions include the earnings impact from recent Jacky Cheung concerts in June, summer forward bookings, junket rooms, and upcoming non-gaming events, Katz said.
“Also related to Las Vegas Sands will be recovery progress in Singapore, in view of the capital spending underway,” Katz said. “We believe it is well understood that Marina Bay Sands should generate more than $400 million of EBITDA per quarter until the room renovation and other additions to the gaming floor and amenities are completed in 2024.”
In his note, Kelley expects Macau and Singapore to beat Wall Street expectations. For Macau, their second-quarter EBITDA estimates are 7% ahead of expectations, driven by margins expected to improve about 200 to 300 basis points quarter over quarter marketwide.
With gross gaming revenue known, Kelley said the keys for the quarter will be market share versus the first quarter, margins and quarter-over-quarter costs as operations normalize, and the outlook for July and visitation improvement.
“Our sense is that investor expectations are elevated with positioning leaning long, especially around margin expansion potential versus 2019,” Kelley said.
As for Singapore, Kelley’s second-quarter Marina Bay Sands estimate is $434 million, a 5% increase quarter over quarter (adjusted for hold), driven by margins, but still held back by China-outbound tourism.
In his second-quarter outlook, Katz said their top picks for gaming operators remain unchanged: U.S.-listed names remain MGM Resorts International for its domestic, digital, and Macau growth avenues and Galaxy and Sands China among Hong Kong-listed top picks.
“On a valuation basis, MGM Resorts looks most attractive, as the stock is trading close to trough multiples on a range of complexities that we expect to end positively,” Katz said. “SJM Holdings is trading close to peak multiples as their GLP property in Cotai is yet to fully open.”
In a look at the U.S. market, Kelley said that the Las Vegas Strip’s core trends are solid, but added second-quarter growth is hindered by “very difficult comps,” both on a sequential and year-over-year basis.
“Our EBITDA estimates are about 1% ahead of consensus after several quarters of being well ahead of the Street,” Kelley said. “We estimate second-quarter revenues flattish year over year (versus +26% Y/Y in Q1) and down about 2% quarter over quarter with EBITDA down 5% quarter over quarter on lower margins.”
Most of the second-quarter commentary from analysts will be upbeat, in Kelly’s view. BofA’s room-rate survey shows double-digit increases on average through September, though they see signs of discounts returning, he added.
In the Las Vegas locals’ market, the underlying trends are also solid, but growth is impacted by comparisons. The second-quarter gross gaming revenue is pacing minus 4% quarter over quarter and flat year over year. Kelly’s second-quarter EBITDA estimates are slightly below consensus.
In the regional markets, same-state gross gaming revenue was down 2% year over year in April and down 1% year over year in May. Limited June state reports show some improvement at plus 1% year over year, as visitation improves. Kelley said their EBITDA estimates are broadly in line with consensus.
