Caesars Entertainment had some good news to share with its shareholders on its first-quarter earnings call this year. However, it wasn’t good enough for investors in the short term, leading to a drop in the company’s stock price on Tuesday.
Despite the decline in NASDAQ, Caesars’ online gambling division made some significant progress on its bottom line over the past year. That segment of the business could push toward actual profitability over the rest of 2023, too.
The basics of Caesars’ Q1 2023 earnings report
On Tuesday’s earnings call, Caesars representatives did their best to spread good vibes only. A transcript of the call provided by Seeking Alpha provides a summary of the quarterly report by Caesars COO Anthony Carano.
“We had a strong start to 2023 in the first quarter. Our Las Vegas segment delivered a Q1 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and EBITDA margin record, and our regional segment reported a strong quarter, excluding weather disruptions in northern Nevada. In addition, our digital segment was nearly breakeven, despite launching sports betting in two states during the quarter.”
Businesswire‘s summary of the report bears out the numbers that Carano referenced.
- GAAP (Generally Accepted Accounting Principles) net revenues of $2.8 billion, up 17.9% from Q1 2022’s 2.3 billion
- GAAP net loss of $136 million, down 80% from Q1 2022’s $680 million
- Adjusted EBITDA of $958 million from all operations that existed in Q1 2022, representing an increase of 69.1% from $296 million in the former period
While those numbers represent encouraging performances, investors also noted one other statistic; earnings per share (EPS). In late April, Zacks Research analysts lowered their estimate for Caesars stock to $0.12 per share according to Defense World.
However, Tip Ranks pointed out that the actual EPS for the quarter “came in at -$0.63.” For that reason, investors soured. CZR on NASDAQ closed at $44.58 per share, down from $46.50 at the market’s opening on Tuesday.
For as mixed as the report was for Caesars stockholders, it represented similar news for the online gambling industry.
Caesars’ online gambling products improve but questions remain
The raw numbers from the performance of Caesars’ digital department look encouraging. The products in that division include Caesars Casino, Caesars Sportsbook, and WSOP.com.
Among the highlights are:
- Adjusted EBITDA of -$4 million, representing an improvement of 99.3% from a loss of $554 million in Q1 2022
- $238 million in net revenues, up from -$53 million in Q1 2022
- A net loss of $32 million, besting Q1 2022’s net loss of $576 million by 94.5%
That’s all well and good. However, there are a few explanations for those massive disparities. For starters, Caesars has cut back on a national scale in terms of marketing its online gambling products. Additionally, the first quarter of 2022 saw Caesars spend heavily on its digital segment to take its online sportsbook live in New York.
Comparatively, the launch of online sports betting in both Massachusetts and Ohio that took place in the first quarter of 2023 saw far less of an advertising push from Caesars. So while the numbers point to Caesars Digital trending toward profitability, it’s fair to ask how much of that progress is simply due to a change in market conditions from last year to the current time frame and a decision to cut marketing expenses.
It’s still unclear whether Caesars’ share of the existing US online gambling market is sufficient to turn a profit. At the same time, there are reasons for reserved optimism looking forward.
Caesars is banking on Tropicana and regional expansion
To grow its share of the USA online casino market, Caesars is trying to squeeze some juice out of its Tropicana brand. Caesars rebranded its online app in New Jersey under that name in late March. Then, it used its Pennsylvania online casino license to take Tropicana live in that state in late April.
So far, the company has not announced any intent to take Tropicana online in Michigan. That might depend on how the brand performs among New Jersey online casinos and their Pennsylvania counterparts. Tropicana isn’t the total of Caesars’ plan to continue improving upon its 2022 numbers, though.
Caesars is expanding its brick-and-mortar operations as well. For example, its temporary casino in Danville, Virginia should open on May 15. If the plans pan out, Caesars’ stock price could get closer to the $68+ price it had in early May 2022.
For now, though, investors are still hesitant.