May 3: MGM: LeoVegas ‘puts us on the map’

MGM Resorts international Q1, MGM/LeoVegas analyst reaction, Q1 gaming supplier analyst preview +More

Earnings+More

May 03, 2022

Good morning. Another busy agenda:

MGM Resorts has never had it so good in Las Vegas.
The analysts react to MGM’s $607m offer for LeoVegas.
Macquarie runs the rule over the gaming suppliers.

‘Lion’. Click below.

MGM Resorts International Q1

Revenues rose 73% to $2.9bn, adj. EBITDA up 23.5% to $670m.
Las Vegas Strip up 205% to $1.66bn; regionals up 23% YoY to $891m.
Macau down 14.9% to $268m.
BetMGM revenues $271m; MGM Resorts share of losses $92m.

Mane event: Talking about the LeoVegas acquisition, Bill Hornbuckle, CEO, said that MGM’s success with BetMGM “gives us more conviction than ever” in digital gaming. He said the $607m offer was a “compelling opportunity”.

BetMGM is now live in 23 states and provinces having opened in Ontario in April. Deutsche Bank noted the total Q1 losses of $184m were ahead of their forecast $162m.

Map reference: Hornbuckle said MGM would inject brands such as MGM, the Bellagio and others into the online mix.

When we put our brand on things, it works. Some of the best-performing games on BetMGM are MGM-branded games.
Asked about gray market exposure at LeoVegas, he said there were a single-digit number of markets that would be closed down.

That includes New Jersey where LeoVegas has a market access agreement with Caesars.

Something to chew on: Hornbuckle said LeoVegas’ tech proposition was a key element of why they have made their offer. He noted the company had “about 850 technologists”.

He noted that previously LeoVegas had been capital constrained, a situation that would now change. “The goal in buying it wasn’t in keeping it (bite-sized),” he added.

Live dealer also got a mention. “It’s a space we want to push into,” said Hornbuckle. Recall, live dealer was worth 14% of LeoVegas revenues in 2021.

Friends with benefits: On Entain, Hornbuckle said he wanted to stress that the relationship has “never been better”.

Bill Hornbuckle: “On Entain, we tried a year ago to buy them. I don’t think a whole lot has changed. We said then - and I will repeat now - we wanted to diversify our revenues as a company.”

On moves in omnichannel and the potential for cashless gaming via a BetMGM account, Hornbuckle said a single wallet is “literally in the making”. “Our ability to do that is coming soon,” he added.

Back on the Strip: CFO Jonathan Halkyard said “it’s almost impossible to overstate how strong our business was in March” in Las Vegas. Jefferies said the “fundamental rebound” in Las Vegas continues to accelerate.

Data point: Hornbuckle said he “couldn’t help” give some color on Las Vegas, pointing out the Bellagio made $85.4m in EBITDA in March alone. “Don’t times that by 12,” he cautioned.
MGM confirmed it will be closing the Cosmopolitan transaction during the current quarter.
Hornbuckle noted that international travel was still below 2019 levels. “Between Canada, Europe and ultimately the balance of Asia, it will all be accretive and additive to where we are today,” he said.

Macro watch: Corey Sanders, COO, said the company was not seeing any effect from the macro pressures affecting the consumer right now. “We're not seeing any change in customer behavior.”

The view from here: Truist noted the comment on booking windows at between 90-120 days providing “plenty of visibility”.

Shopping spree: Talking of its prudent attitude to its excess liquidity of ~$6.3bn, Halkyard noted recent share repurchases.

Since January 1, the firm has bought $3bn of shares or ~19% of market cap.

** Sponsor’s message: Venture capital firm Yolo Investments is home to €551m of equity in more than 70 of the most exciting companies across fintech, gaming and blockchain. It continues to build one of gaming’s most dynamic portfolios as it eyes up seed and A-stage opportunities across the sector. Its dedicated 29-company, €183m AUM gaming fund already houses holdings in fast-growing suppliers and operators, including Kalamba Games, SimWin and ThriveFantasy. Yolo Investments is also on the lookout for LPs as it looks to scale new concepts, including its high roller live casino brand, Bombay Club.

MGM/LeoVegas analyst reaction

Roar deal: MGM’s $607m offer for LeoVegas was welcomed by analysts who suggested the deal for the Stockholm-listed operator will kickstart MGM’s digital ambitions.

Macquarie said they had “long admired LeoVegas, given their vertical integration, transition out of grey markets and their B2C growth in regulated markets during the last few years”.
The analysts added that LeoVegas derives its success from its efficient customer acquisition, strong competitive edge and tech platform.
“This igaming platform, Rhino, in our view, may have been a meaningful reason for the acquisition.”

Sweet sixteen: Macquarie noted LeoVegas has a portfolio of 16 brands including the sports-betting brand Expekt.

Welcome to the jungle: Truist noted LeoVegas’ exposure to eight jurisdictions in the Nordics and the rest of Europe and said while it adds geographic and regional complexity for MGM, it also helps them “address some of the shortcomings” from the relationship with Entain.

“Namely BetMGM’s 50/50 ownership structure composing the digital piece of MGM’s omni-channel strategy dependent on Entain technology.”

Datalines

US: According to Fantini, FanDuel led the OSB market in March with 37.9% share, followed by DraftKings at 19.7% and BetMGM on 19.3%. Fantini said combined sports-betting and icasino revenue rose 51.9% YoY to $885.8m. Sports-betting jumped 66.8% to $465.6m and icasino rose 38.2% to $420.1m.

Ontario app data: According to SensorTower data, theScore continued to lead with a 31% share in April but on a daily basis its share fell to 17% with BetMGM in the lead as of April 30 with 29%.

Q1 gaming supplier analyst preview

Hello gorgeous: Liking the current dynamics in the gaming and tech supply space across both land-based and online, the team at Macquarie suggest high recurring revenues in the case of the first and high-growth exposure in the latter example will make suppliers attractive.

Land-based suppliers with product roadmaps, healthy R&D and “fresh product” will gain share this year and “drive margin expansion, in our view.” Capex budgets are “incrementally improving” and should be a positive catalyst.
In lottery, the team points out that following record growth of 18% in North America in 2021, they expect 2022 to grow in the low single digits. Macquarie see “great opportunities” for NeoGames and IGT in this sector.
For digital, they believe there will be “healthy fragmentation” which will drive GGR and note that per capita spend for OSB and igaming across NJ, PA and MI in Q1 was $250. Macquarie have GAN as a top pick.

NJ casinos analyst update

Smoking gun: Looking at the bill in New Jersey that would outlaw smoking in casinos, the team at CBRE suggest this will have more impact than the arrival of competition in downstate New York.

CBRE points out that although smoking is only permitted on 25% of the casino floor, discussions with Atlantic City property managers indicate that the smoking sections generate up to 50% or more of total gaming revenue.
“This is consistent with our research over the years that often reveal smoking sections in casinos generate substantially higher win per days (WPDs) than non-smoking sections.”
In neighboring Philadelphia, the number-three-performing casino in the state Rivers Casino Philadelphia banned smoking on its gaming floor at the end of April.

Datapoint: CBRE suggest an outright ban will make a 20%-25% negative impact.

PointsBet analyst update

Shipping share: Analysts at Bernstein cut their target on the Australian-listed firm saying it faces a worse outlook in terms of the competitive promotional and marketing backdrop. The analysts noted PointsBet could get outgunned in such circumstances, pointing to a slight fall in FY22 Q3 market share.

Bernstein forecast EBITDA losses of A$256.3m in 2022 rising to $259.3m in 2023 before falling back to $175.4m in 2024.

Newslines

MI fantasy: Fantasy sports licensing applications are now available from the Michigan Gaming Control Board. The initial fee is $10,000 with an annual renewal fee of $5,000.

Vote: 888’s shareholders will vote on the acquisition of the William Hill international business on May 16.

Closed off: FanDuel, DraftKings and BetMGM have included a $100m licensing fee, that applicants be licensed in 10 states or have operations in five states and manage 12 casinos in the sports betting initiative that they are working to get on California ballot in November. If successful, the measures would make it too expensive for many smaller operators to apply for licensure in the state.