Beats, misses, reviews, debt – the Halloween earnings mix
Beats, misses, reviews, debt – the Halloween earnings mix
The week ahead, IGT shares wobble, Churchill Downs, gaming REITs calls reaction, startup focus – Golden Whale +More
DraftKings, Penn, Caesars and Entain report this week.
IGT shares wobble on Italian lottery competition rumor.
Churchill Downs is looking forward to May’s 150th Kentucky Derby.
Gaming REITs want investors to rest easy.
Our startup focus is AI-infused Golden Whale.
The street heats the urgency of now.
A big week ahead
It’s a big earnings week for US and UK operators.
DraftKings
What to expect: JMP noted in September that implied guidance was for revenues of $655m but with a customary beat likely to take it closer to $700m. Consensus has adj. EBITDA losses coming in at $215m.
On the call: Expect to hear something about how DraftKings managed to overhaul rival FanDuel to become overall market leader across OSB and iCasino in August. But it is the prospect of how the new competition might fare that is likely to be the focus of attention (see Penn below).
Analysts are confident DraftKings will have benefited from higher hold rates in Q3.
With customer acquisition rates falling, it translates to “better flow-through and rapid EBITDA margin expansion”, said the team at JP Morgan recently.
Product evolution is also likely to be spoken about, with the team at JMP suggesting DraftKings has made headway with its player props offering.
Caesars Entertainment
What to expect? Analysts at CBRE suggested Q3 revenue is likely to inch to just about $3bn or up ~4.5% YoY. However, adj. EBITDA is likely to be down ~1%.
On the call: Analysts are speculating over the apparent success of the standalone iCasino app, with the Deutsche Bank team suggesting the feedback from the company has been “strong”. There may be word on the rollout of other Caesars iCasino brands.
In Vegas, the CBRE team said they will be on the lookout for signs of “over-earning”. “The question remains: at what point does the consumer balk?”
But with the group, convention and entertainment schedule” bursting at the seams”, visibility on continued strength “remains clear” for 2024.
Commentary on plans to reduce the debt burden is also likely. Deutsche Bank said they expect Caesars to “continue to prioritize debt reduction”, with the focus for next year being on getting “traditional leverage” below 4x.
Penn Entertainment
What to expect? After Boyd Gaming’s report last week showing “softness” in its regional gaming segments, all eyes will be on what Penn has to say. Consensus has revenues coming in at $1.62bn with adj. EBITDA at $469m.
On the call: What Penn says about its B&M business is likely to be eclipsed by questions around the upcoming launch of ESPN Bet, the company’s do-over at cracking online. Much of what will be spoken about was touched upon during an investor meeting at G2E.
Sitting in the meeting, the team at CBRE suggested the “overwhelming direction” of the Q&A was “aimed at understanding how much ESPN is committed to the partnership”.
This was evident from the “numerous” questions over ESPN incentives and compensation, with ESPN equity interest limited as it stands to warrants.
Expect more reassurance from Penn management on how ESPN has a “leadership position in just about each segment in which it competes”.
🎃 Halloween horror: Penn’s investors need convincing
Entain
What to expect? Following its warning on revenues in late September, the expectations are for pro forma Q323 revenues to be some 10% below previous forecasts. Analysts will be seeking reassurance that FY23 adj. EBITDA is – as was stated in September – on track to come in at between £1bn and £1.05bn.
On the call: Entain will also give a fuller account of itself with a “comprehensive market review”, covering how it was simplifying its structure to optimize operational leverage, its attempts to migrate acquisitions to its main platform and a plan to optimize its capital allocations.
“Entain has a lot to prove,” said the team at Peel Hunt.
They suggested in their preview that the share price reaction since September – bumping along some 14% lower than before the warning – “implies investor skepticism”.
Any commentary on BetMGM is likely to be limited given MGM itself doesn’t report until next week and BetMGM has its own call with analysts inked in for December 4.
Reporting this week
Oct 31: Lottomatica, Caesars Entertainment, IGT
Nov 1: Kambi, Sportradar, Bally’s, Rush Street
Nov 2: Entain, Penn, DraftKings (e), Golden Entertainment
Nov 3: DraftKings (call)
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Event announcement
+More Media and SBC Events have announced the Earnings+More Capital Markets Forum, which will take place in New York on Tuesday May 7 as part of the SBC Summit North America. For more info on the event, click here.
Newslines
Endeavor, which owns IMG Arena and OpenBet as part of its betting services division, has announced a strategic review, which could see the company taken private once more by majority shareholder Silver Lake.
The move comes less than two years after the Ari Emanuel-led sports agency business floated.
Emanuel blamed the “continued dislocation between Endeavor’s public market value and the intrinsic value of Endeavor’s underlying assets”.
Recall, Endeavor bought OpenBet for $1.2bn back in September 2021.
Tabcorp shareholders have revolted against the pay of the top executives at the company, with 35% voting against CEO Adam Rytenskild’s A$2m ($1.3m) package.
An apparently friendless California sports-betting initiative is doomed, say tribal sources. See tomorrow’s Compliance+More.
Shares watch
Numbers up: Looking at IGT’s share price action in the past week, the team at Jefferies noted the 8.5% fall and suggested the end of the week tumble may have been promoted by comments at Flutter’s Italian away day with analysts last week that its Italian subsidiary Sisal might bid for the contact to run the country’s lotto.
Recall, IGT is currently undergoing a strategic review with a sale of the gaming side of the business on the cards.
Separately, it announced on Friday it was redeeming $500m of senior secured notes, conditional upon it receiving enough proceeds from a revolving credit agreement.
IGT reports its Q3 earnings on Tuesday this week.
🇮🇹 A lotto not to like – IGT hits the skids
Call notes
Churchill Downs: CEO Bill Carstanjen said the company’s focus was on delivering a “unique and spectacular” 150th version of the Kentucky Derby next May, and indeed the TwinSpires segment saw a 5% rise in revenue in Q3 while its adj. EBITDA contribution was up 9% YoY.
Total revenues were up 49% to $573m, helped by the completion of its acquisition in August of Exacta Systems. Adj. EBITDA was up 34% to $218m.
Carstanjen noted the recent upholding of a ban on so-called skill-gaming machines in Virginia was a victory for those that “play by the rules”.
Soft machines: Asked about the potential consumer weakness, particularly within the gaming segment, Carstanjen said it was “all very manageable now”. “I think some of these pressures that others are hinting at… are things we’ve been dealing with for more than a quarter at this point,” he added.
As with Boyd, he suggested if there was any weakness it was in its unrated player base.
REIT review
Smoke gets in your eyes: Talking of recent deals both within and without the gaming sector, VICI CEO Ed Pitoniak suggested REITS that “continued to invest in relationships” would be best positioned to thrive “when the all-clear signal sounds” on the current economic uncertainties.
VICI Q3 deals include an agreement with Century Casinos for four properties in Alberta as well as a partnership with wellness resort firm Canyon Ranch and most recently a sale and leaseback with bowling center operator Bowlero.
One potential future gaming investment could be with MGM in New York should it get the nod on expansion at Empire City. “We'll absolutely talk to our partner about that,” said COO John Payne.
Sleep the clock around: Also reporting late last week was Gaming & Leisure Properties, which saw revenues up 1% to $360m. Talking of the funding environment, CIO Matthew Demchyk said that the company’s funding philosophy “remains the same – do it right and sleep at night”.
“Our leverage and liquidity are at levels that strengthen and support our business model,” he added.
Asked specifically whether delivering was part of the current plan, Demchyk said “there's no need to proactively de-lever for its own sake”.
CEO Peter Carlino added: “We're in the finance business”. “We're looking at banks, we’re looking at bonds, we’re looking at equity,” he suggested of the company’s funding options.
Earnings in brief
Crown Resorts: The largely Australian casino operator saw revenues rise 44% to A$2.7bn ($1.7bn) in the year to July. However, financial penalties for compliance transgressions and the cost of remediation plunged the company to a A$199m loss, the third year in succession it has failed to register a profit.
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Startup focus – Golden Whale
Who, what, where and when: Founded in Vienna, Austria in 2022, by a team of gaming veterans, including CEO Eberhard Dürrschmid, ex Greentube founder; COO Claudia Heiling; CTO Thomas Kolbabek; and lead architect Martin Huber, Golden Whale uses machine learning to help solve complex and expensive problems in the gaming industry.
Funding backgrounder: The company is self-funded by the founders, but a new round involving external backers is under discussion.
The pitch: “We combine know-how about the construction of gaming infrastructure with experience about building data-driven systems and machine-learning applications,” says Dürrschmid.
“There are fundamental parts of the value chain in the gaming business that are not – or poorly – serviced,” Dürrschmid claims, because the problems are “complex, often multidimensional and not – or not easily – identifiable by humans”.
The company sees “big leverage” in solving these complex tasks and as a result “create data-driven/machine-learning building blocks and services as part of next-gen gaming infrastructure.”
Whale of a time: Golden Whale is active in both gaming and iGaming, with its geographical focus in the US and Europe “for the time being”. But it expects to widen its reach in the near future. “We are preparing for a whole series of new customers and PoC projects,” says Dürrschmid.
“To expand our ecosystem, we are also in discussions with additional data services to broaden the scope of data available and CRM providers to be able to make use of our results more directly.”
What will success look like? “To make use of the full potential and even grow the talents” of the team, champions Dürrschmid. “Nine-digit revenues would be fine, exit will be strictly opportunistic,” he adds.
Growth company news
Miami-based AI sports predictive platform provider Gemini Sports Analytics has completed an oversubscribed $3.25m seed round led by Roger Ehrenberg’s Eberg Capital and with the participation of Social Leverage, Raptor Group and Florida Funders.
Career paths
Novibet has announced the appointment of Al Alevizakos as its new group chief financial officer.
Catena Media has appointed Pierre Cadena as VP of corporate strategy, starting November 1. Cadena joins from Fox Entertainment, where he was SVP of revenue and strategy for its TMZ brand.
Acroud has named Andrzej Mieszkowicz as group CFO, effective November 1. Mieszkowicz has spent the last six years working in the IGaming industry at the likes of Cherry AB Group, The Mill Adventure and Lady Luck Games.
PointsBet has appointed Brooke Hilton as head of casino for its Canada business.
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