Analysts Predict a Dynamic Few Months for the US Gambling Sector

Bank of America Global Research released an investor note on Monday, providing insights into the upcoming first-quarter earnings reports of major players in the gaming industry. Analyst Shaun Kelley highlighted key points, focusing on sports betting giants like DraftKings and ESPN Bet, as well as regional casinos. These insights provide a concise outlook into the US gambling sector and can help identify forming trends.

Sports Betting Competition Remains Fierce

Kelleyโ€™s analysis suggests that DraftKings is poised to exceed expectations for the first quarter. He predicts that the sports betting giant could beat its net revenue guidance by approximately $70 million and adjusted earnings by $35-40 million. Despite unfavorable outcomes during the March NCAA tournament, Kelley expects a limited impact on DraftKingsโ€™ earnings.

In contrast, the outlook for ESPN Bet, the newest high-profile player in the sports wagering scene, is less optimistic. Kelley expects ESPN Betโ€™s Q1 results to fall below expectations and guidance, attributing this shortfall to lower hold and higher promotional expenses driving down net revenue. The investor note suggests that ESPN Bet could incur losses of about $200 million in the first quarter.

Kelley emphasizes the importance of monetizing ESPN Betโ€™s strong user engagement to improve its financial performance in subsequent quarters. Despite the projected losses, Bank of America reiterates a buy rating on ESPN owner Penn National Gaming, citing an asymmetric risk-reward profile. The operator commands considerable market presence and should be able to convert it into revenue.

Land-Based Venues Experienced Seasonal Fluctuations

Regarding regional casinos, Kelley notes that January was challenging due to poor weather conditions, leading to a slight year-over-year decrease in revenue for leading players like Caesars Entertainment, Penn National Gaming, MGM Resorts, and Boyd Gaming. While trends improved in February and March, the early Easter timing could impact the final week of the first quarter.

Kelley also addressed the impact of new casino openings on existing properties, focusing on Red Rock Resortsโ€™ Durango Casino & Resort. Visitation to Red Rock and Boydโ€™s Orleans Casino has remained resilient, suggesting the two nearby venues can coexist without significantly impacting their bottom line. The investor note highlights that the two operators may enjoy potential increases for FY 2024 estimates.

Bank of Americaโ€™s recent investor note reflects the constantly shifting dynamics in the US gambling sector. While individual operators may experience fluctuations, the broader industry is on the rise, benefiting from the inclusion of new jurisdictions and robust player interest. Early estimations show that 2024 revenues should exceed the previous yearโ€™s, leading to sustained growth.