Shares in Caesars Entertainment (NASDAQ:CZR) crashed as the company gave a downbeat view of hotel bookings in Las Vegas, driving the CZR stock down 15% in one day.
Management tried hard to hold the line, with the CEO insisting on TV that he wasn’t seeing a downturn, and highlighting a sports betting deal with the NBA. But it didn’t seem to stop the selling.
The weakness quickly spread to other gambling stocks, as Wynn Resorts (NASDAQ:WYNN) missed on earnings, and other gambling stocks fell in sympathy.
CZR Stock: Viva Las Vegas?
Caesar’s was the star of the bear show; CZR stock halted three times during the day as investors rushed for the exits, the stock trading as low as $8.65-per-share. This came despite a profit of $29 million, 4-cents-per-share, on revenue of $2.12 billion. The numbers were considered a beat on both revenue and earnings.
So why the fall? Fewer big events, and what look like bargain room rates in the current quarter, combined with a belief that Caesar’s is uniquely tied to Las Vegas following its 2015 bankruptcy and re-emergence in 2017.
Today’s Caesar’s leases the properties it operates from a real estate investment trust owned by creditors of the former operating company.
Is Las Vegas the Problem?
The “new” Caesar’s operates 47 casinos in 13 states and five countries under the Caesar’s, Harrah’s, Bally’s and Horseshoe brands. Its earnings release showed only half its U.S. revenue coming from Las Vegas, and “same store” revenue in Las Vegas was up by 7.5%.
The second quarter’s problems were in its international business, representing less than 10% of the total, which was down almost 9%. But it was the weak outlook for the Las Vegas rooms alone that seems to have caused the stock to fall out of bed. Blame boxing, which draws the high rollers, and isn’t showing any big fights on its calendar right now.
This leads me to question the thesis for the collapse, and indeed more than half the trading loss had been recouped by the time trading ended Aug. 1. But it also makes me wonder about another thesis, whether younger consumers want to gamble as much as their parents did.
Gambling is no longer a Las Vegas business alone. Even in Atlanta there are multiple casinos just a few hours’ drive away. The economy of Mississippi may be more dependent on gambling than Nevada, and people have been gambling online, regardless of U.S. law, for decades. Some 24 states now have their own casinos and 28 have casinos run by Indian tribes.
Adding sports wagering to the mix would seem to boost gaming stocks, but in the near-term, sport is going to be a fierce state-by-state lobbying fight, which costs money before it makes money. Here Caesar’s is ahead of the curve, with its NBA deal and ability to take bets today in New Jersey and Mississippi.
The Bottom Line on CZR Stock
The fall in Caesar’s was probably overdone, given its geographic diversification and its entry into sports wagering.
But there are other ways to play. One way is with Eldorado Resorts (NASDAQ:ERI), which has been undergoing rapid expansion, buying Carl Icahn’s Tropicana this year after taking over St. Louis-based Isle of Capri last year.
The value of ERI has doubled over the last year while Caesar’s was flat before the Aug. 1 fall. Eldorado, which is based in Reno, now operates in 10 states, including Colorado, West Virginia and Iowa, and with a variety of formats, including horse racing tracks and riverboats.
If I were playing gambling stocks, that’s how I’d play.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this article.
