Good morning. Welcome to our round-up of the recent earnings quarter. In this issue:

• FanDuel and DraftKings are both eyeing profit waves.

• Las Vegas on the cusp of a thrilling six months.

• Macau hopes run into China macro fears.

• Italy is the bright spot in Europe.

• Signs the UK is getting back to normal.

• The supply side jigsaw is being rejigged.

I took my potatoes down to be mashed.

Taking stock

Q2 allows a glimpse of the supra-profits the market leaders might soon deliver.

Profitability, delivered: As was expected, the leading lights of the North American OSB and iCasino space duly delivered their collective flock of adj. EBITDA profits. FanDuel led the way with $100m, followed by DraftKings ($73m), BetMGM (unspecified), Caesars ($11m) and Rush Street ($1.2m).

• Analysts at Regulus noted there is “much hope that this is the turning point the industry and the market has been looking for”.

• As the team pointed out, however, a good deal of the rosy Q2 picture was provided by a “largely luck-based” margin swing.

• They suggested the Q3 margin comps are much tougher while US sports seasonality “demands that marketing taps are turned back on”.

A fine mess: The second half of the year will also see further OSB disruption. Fanatics Sportsbook has just gone live in four states and Penn will soon be relaunching its Barstool Sportsbook under the ESPN Bet brand.

• “Near-term, digital gaming’s outlook suddenly appears clouded,” suggested the analysts at Wells Fargo.

• The team added they “recognise the temporary overhang”.

• But despite the potential for ESPN Bet in particular to take market share, they suggested “product and tech will dictate share retention”.

Not all infections are the same: Hopes about withstanding whatever the new entrants throw at them will be market leaders FanDuel and DraftKIngs. Looking at the prospects for the pair, the Wells Fargo team made the point that both are on track to achieve $1bn in adj. EBITDA in 2025.

• In the case of the first, the team projects revenues of $6.3bn for 2025 and adj. EBITDA of $1.07bn. 

• For reference, Flutter said FanDuel’s 2024 revenues would come in at $4.5bn-$4.9bn with adj. EBITDA of $120m-$240m.

• For DraftKings, Wells Fargo estimates 2025 revenues of $5.44bn and adj. EBITDA of just over $1bn. 

• The team suggested 2023 revenue will come in at $3.56bn with adj. EBITDA losses of $203m.

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Eye of the storm

The prospects in Las Vegas are as compelling as they have ever been.

Blink and you’ll miss it: The US appears to have evaded a recession, meaning it remains high times on the Strip, although analysts noted the “step down” in margins in Q2 for MGM Resorts. Looking at Wynn Resorts, though, the team at Deutsche Bank said they saw “stability at the high end” and that the “fundamental growth story remains intact”.

• Coming up in November is F1. The team at Macquarie titled their post-earnings Caesars Entertainment report ‘Chariot ready for F1 profits’, and the expectation across the major operators is that they will enjoy a very good Q4.

• CBRE’s analysts noted the “encouraging anecdotes” from MGM.

• Lorenzo Fertitta, vice-chair at Red Rock Resorts, made the point, though, that F1 and the Super Bowl next year were “just two data points that are going to be great” among others.

• “Las Vegas is unbelievable in the sense that it seems like there’s something major going on almost every weekend,” he told the analysts.

Booster shot

Hopes for a return in Macau run slap bang into China macro fears.

The return of the Mac(au): Sometimes it’s hard to catch a break. All the major operators provided upbeat numbers from Macau as the long-delayed rebound from the pandemic continued into Q2. But fears over the economic backdrop in China have meant the reaction from investors has been muted.

• Wynn Resorts Macau operation GGR rose 28% sequentially to $770m, while MGM China saw revenues climb 5% above Q219 levels to $741m.

• “The recovery in Macau continues to progress, with GGR and visitation trends moving higher,” pointed out the team at Jefferies. 

• But the “deteriorating China macro is pressuring the stocks”.

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Safe European homes

US aside, the focus for leading operators is pockets of success in key markets.

La dolce vita: Notable in Flutter’s H1 earnings was the performance of its Italian-facing Sisal business, acquired in August 2022, which helped drive substantial 74% revenue growth in the international division and a 100%+ rise in divisional adj. EBITDA.

• The company noted Sisal saw 17% revenue growth in H1.

• Also reporting buoyant numbers was Entain, which said Italian NGR, up 12% in the half, was “growing well in a strong market”.

Lottomatica saw Q2 pro forma revenues rise 15% to €398m. The company was recently the subject of an invitation note from Jefferies that suggested the Italian market leader was seeing profits “start to skew” to online.

• The team also noted the balance sheet strength with the leverage ratio down to 2.2x and with €32m of available cash.

• Yet to report is Snai owner Playtech, which is set to publish its H1 earnings on September 7.

RU UK?

A vague sense of the gloom lifting pervades the UK commentary.

Mojo working: With the UK government’s Gambling Act Review White Paper finally published, the sense that the UK can get back to enjoying a period of relative calm was the message from the leading operators.

• Entain CFO Rob Wood noted that as the company exited the half-year, it began to lap the “more significant affordability measures” introduced within the past couple of years.

• He said, while UK NGR was down 2%, the company estimated that ex- the new measures the UK segment would have grown 7%.

• Underlying actives were up 22%, “driving a more recreational customer base”. Jette Nygaard-Andersen noted on the call that 95% of all UK customers were classed as recreational.

• Also talking up the UK prospects was Peter Jackson, CEO at Flutter, who said specifically about the market that the company had “got its mojo back”.

Follow the leaders: Yet to see any UK uplift is 888, but acting executive chair Lord Mendelsohn was keen to stress it was in the process of reengineering its UK-facing brands. UK and Ireland online revenues were down 9.4% to £336m, while including retail the picture was slightly brighter, down 3% overall to £615m.

• 888’s chief strategy officer Vaughan Lewis described the pain of the UK situation once it came to enhanced affordability checks.

• “When you ask customers for relatively intrusive levels of information and documentation, some of them decide to stop playing or go and play with someone else who doesn't ask for that same level of documentation,” he told the analysts.

• It too is chasing the recreational player; Lewis said the mix of revenue from higher spending cohorts has dropped 50% YoY to ~20% today. 

• Meanwhile, recreational revenue was up 7% YoY in H1.

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Supply and demand 

The supply side jigsaw puzzle is being rejigged.

Moving parts: There were lots of positives from the quarter for the suppliers with revenues and profits broadly positive. Yet, with the future of IGT’s gaming businesses still up in the air, Aristocrat’s acquisition of NeoGames still pending and with Light & Wonder snapping up the slug of SciPlay it didn’t already own, the sector remains in flux.

• At IGT, CEO Vince Sadusky said selling the digital and gaming businesses would “unlock the full value of IGT's market-leading assets”. 

• Meanwhile, LNW’s Matt Wilson said his company had already laid out the strategy of being the “leading cross-platform global games company”.

• “There’s not a lot of players in the industry that have the unique collection of assets that we have, the land-based business, the leading iGaming position and then the fastest-growing social casino company,” he added.

• LNW also recently completed its dual listing in Australia and welcomed some debut Australian-based analysts on the call.

• Wilson said the move had “gone beyond our wildest expectations”.

Turning circle: The question posed to Sadusky was whether the peak for US gaming had been reached. Noting that Las Vegas is the “great barometer”, he said the market knew “at some point, the high-growth levels would plateau, would moderate”.

• “But we're coming off of records. And I think the fact that the play levels and yields are holding up is pretty impressive,” he added.

• “I think the cash flow of our customers, of our casino operators, remains at record high levels.”

Two companies previously tipped to be taking part in further rounds of M&A remained tight-lipped. Inspired Entertainment’s chair Lorne Weil said that “sticking to the knitting was the best strategy” after being involved last summer in a failed bid to buy AGS.

• AGS saw a 17% jump in revenue to $90m and CFO Kimo Akiona noted the company was now expecting to exit the year with net leverage of less than 3.5x. 

• CEO David Lopez also noted that the group was reaping the benefits of its focus on “infrastructure around product, distribution, service, and game and cabinet creation”.

Calendar

• Aug 29: Rivalry, Ainsworth

• Aug 31: PointsBet

• Sep 7: Playtech

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