Bally’s Stock Falters as Q4 Results Miss Estimates, International Digital Biz Disappoints

Posted on: February 24, 2022, 10:49h. 

Last updated on: February 24, 2022, 01:32h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Bally’s Corp. (NYSE:BALY) stock is slumping today after the gaming company’s fourth-quarter results fell short of Wall Street estimates due, in large part, to a miss by the operator’s international interactive unit.

Bally's stock
Bally’s on the Atlantic City Boardwalk, seen above. The operator’s stock is falling after Q4 results missed estimates. (Image: Press of Atlantic City)

In the October through December period, the Rhode Island-based casino operator lost $1.87 a share on revenue of $547.7 million. Analysts expected earnings per share of 67 cents on sales of $587.33 million. Bally’s international digital gaming business was one of the prime culprits behind the fourth-quarter weakness.

That’s meaningful because that unit is largely comprised of Gamesys, which Bally’s acquired last year for $2.7 billion in its biggest acquisition to date. On a conference call with analysts this morning, CEO Lee Fenton said part of the issue with the company’s international arm is a slow-moving regulatory review currently underway in the UK.

Indeed, we actually saw someone exit the market earlier this week, and hand back their license in the UK,” he said. “So we feel disappointed that the timeline keeps shifting out, but we’re expecting to see a white paper in May and typically, then, that would be 90 days consultation around that white paper.”

Bally’s international digital operations posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $69.9 million in the final three months of 2021, a 17% quarter-over-quarter decline. The company’s North American interactive unit lost $8.6 million on net revenue of $18.6 million.

Outlook Doesn’t Boost Bally’s Stock

For this year, the gaming company forecast revenue of $2.4 billion to $2.5 billion on adjusted EBITDA of $560 million to $580 million. Coming into today, the consensus estimate for Bally’s 2022 revenue was $2.59 billion, indicating the company could miss Wall Street forecasts.

There is some wiggle room for Bally’s to surprise to the upside this year because its fourth-quarter brick-and-mortar casino results were hindered by bad weather in some regions. Coronavirus mask mandates have since been lifted in many areas. Should the operator continue bolstering margins, it could allay investors’ concerns on that front, while providing some upside for the stock.

“Management highlighted headwinds from COVID-19 and the ensuing mask mandates, as well as heavy weather impact during the quarter,” said Stifel analyst Jeffrey Stantial in a note to clients. “We expect these were fairly well understood into the print, and expect investors to focus more on margin performance during the quarter and the outlook for sustainability into 2022.”

Stantial rates Bally’s a “buy” with a $58 price target, implying an upside of approximately 71%  from the Feb. 23 close.

Update on Standard General Takeover Bid

The big issue Bally’s is considering is a recent takeover offer from hedge fund Standard General, which is run by Bally’s Chairman Soo Kim. Last month, the investment firm filed an acquisition bid valuing the gaming company at $38 a share, or just over $2 billion.

Earlier this month, the casino operator formed a special committee to evaluate the proposal. Earlier this week, it retained Macquarie Capital (USA) Inc. as its financial advisor and Potter Anderson & Corroon LLP as its legal counsel. Bally’s didn’t offer up much commentary regarding the acquisition bid on the call with analysts.

“Those advisors need to do that work and consult back with the special committee, and there’s no set timing that I know of or can give you now,” said President George Papanier in response to an analyst question.