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For investors, Bally’s continues to be an enigma wrapped in a riddle. Despite the company having a lot of good to share in its first quarter 2023 earnings report, the stock price may not reflect all of the report’s positives.
Most of the first-quarter strength came from the company’s brick-and-mortar casino operations. Details about the company’s overall strategy, though, could stymie enthusiasm about that strong quarter.
Bally’s beats revenue estimate with record physical casino performance
For Bally’s shareholders, a Tuesday press release bears out some encouraging news. Most notable is total revenue just shy of $599 million. That outperformed the consensus estimate according to AP News for Bally’s on the quarter, which sat at $594.5 million.
Fueling that expectations defiance was the company’s brick-and-mortar casinos. Bally’s says that segment of the business brought in a record $328.8 million in revenues during Q1. Overall, the company was in a solid, however unexciting, financial position for the quarter. For example:
- Net income of $178.3 million
- Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of $126.4 million
Those numbers were despite Bally’s executing a stock buy-back during the quarter amounting to nearly $20 million. Bally’s also executed a repurchase of over $10 million in senior notes during the quarter. As a result, Bally’s raised the low end of its guidance for its adjusted EBITDA revenue for the entire year by about 5%.
All those glad tidings did not translate into results for investors, however. Zacks Research pegged an earnings per share (EPS) loss of $0.31 per quarter. The actual EPS loss came to $0.74, though. The Bally’s release shared more numbers about the company’s US online casino/gambling business.
Bally’s shows gains in cutting online gambling losses
Tuesday’s release shows a net loss during the quarter of $17.5 million for the North America Interactive division. Even after adjusting for GAAP (Generally Accepted Accounting Principles) expenses, the segment still represents adjusted EBITDA of -$10.5 million.
To be fair, those are both improvements on those metrics from the first quarter of 2022. In that quarter, Bally’s reported a net loss of $25.3 million and adjusted EBITDA of -$19.3 million for its North America Interactive division.
Bally’s CEO Robeson Reeves further discussed that improvement in the release. His comments point to why the stock price might not reflect that development.
“North America Interactive significantly outperformed as cost-savings initiatives took hold faster than anticipated. We…are executing extremely well in New Jersey where our market share surpassed 4%, well on our way to achieving our 6-8% longer-term goal. …we look forward to our Pennsylvania launch in May as well. We are also closely monitoring the iGaming bill that was recently introduced into the Rhode Island legislature.”
Bally’s 2023 guidance includes an adjusted EBITDA loss between $40 and $50 million for the North America Interactive division. That remains unchanged despite the year-over-year improvement and overall revenue performance.
It also might be why investors aren’t racing to snap up Bally’s stock.
Why Bally’s stock performance isn’t reflecting its numbers
Tuesday’s release also quotes Reeves as saying the company is “iGaming first” but the numbers say otherwise. That isn’t to say that Bally’s isn’t investing some of that record brick-and-mortar casino revenue into its online gambling products.
As a matter of fact, Bally’s just executed new agreements with Kambi and White Hat Studios to revamp its online gambling product, Bally Bet. At this point, though, it’s too early to tell whether that renovation will affect a significant positive impact.
After seeing the numbers and reading Reeves’ comments, current and prospective investors could be asking themselves several questions:
- How much of the year-over-year improvement was due to one-time cost savings like a layoff of 15% of its North America Interactive staff in 2022?
- Will an 8% market share in New Jersey enable the division to become profitable?
- Is Bally’s too late to the game to effectively compete in Pennsylvania?
- What about Michigan? Is there a plan to gain market access there?
- Even if Rhode Island does legalize online casino games, will that move the needle at all?
These questions, combined with the stock’s recent volatility (Seeking Alpha says the stock has beaten ESP estimates half of the time over the past two years) could be keeping investors in a holding pattern. The present numbers are satisfactory. Doubts about the future are justifiable, though.
