Las Vegas concerns hit gambling stocks

2 August 2018

Shares in major US gaming companies are down today after concerns were raised about casino performance in Las Vegas and Macau.

Caesars Entertainment, MGM Resorts and Scientific Games have each released their Q2 results over the last 24 hours following what has been a dramatic few months for the US gambling industry. All three have seen their share price fall, as have a number of other US operators that have not released any news.

Analysts were concerned by comments made by Caesars’ chief financial officer Eric Hession during an investors call about demand in Las Vegas. Meanwhile, in a double whammy, Macau’s casinos missed analyst targets of 11.5% growth in July, registering only 10.3%.

Caesars actually outperformed expectations in Q2, with revenue of $2.12bn (€1.83bn) versus the consensus estimate of $2.1bn. Net income improved markedly, with chief executive Mark Frissora describing “solid second quarter results, led by strong gaming and hospitality performance in Las Vegas”.

However, Hession later told investors that demand in July and August "saw some softening" causing Caesars "to be cautious about how we provide guidance." Hession added it was "correct" to say Caesars was looking at Q3 results less optimistically than it did the three months to the end of June.

Investors pulled their money out of Caesars, with the company’s share price falling by almost a quarter before rallying.

MGM, which became the official betting partner of the NBA basketball league earlier this week, cited “future growth opportunities” in US sports betting and Japanese integrated resorts, however it missed analysts’ performance predictions in Q2.

Revenue was $2.86bn compared to $2.65bn, but some were expecting as much as $2.96bn. Net income attributable to MGM Resorts of $124m compared to $210m in the prior year quarter.

Scientific Games was also down over the course of Wednesday despite reporting a 10% increase in Q2 revenue to $845m, up 3.8% excluding its $625m NYX acquisition

Gaming, more than half its business, saw a 3% rise in revenue to $471m. Digital (8% of the business) quadrupled to $67m thanks to the addition of NYX, with some $21m of that total coming from ‘sports and platform’ and a $47m from games. The start of Q3 has seen Scientific leading the way among North American tech companies – who have seen their European rivals sign a series of big deals in New Jersey - after being named Caesars’ lead sportsbook provider.

Analysts at Regulus Partners praised Scientific Games for its mixed operational progress, in particular its improvements in digital. However, they do have concerns that “a clear understanding of omnichannel has not been an historical strength of 'more traditional' gambling suppliers.”

Another risk, according to Regulus, is that “international clients needs could become increasingly divergent to the point of conflicting given the rapidly evolving regulatory and consumer access landscape.”