Caesars Not Getting Enough iGaming Love, Says Barclays Analyst

Posted on: March 30, 2023, 11:27h. 

Last updated on: March 31, 2023, 10:53h.

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

By number of venues, Caesars Entertainment (NASDAQ: CZR) is the largest casino operator in the US. But its online business isn’t receiving adequate credit from investors.

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An advertisement for Caesars Sportsbook. An analyst says Caesars Digital isn’t getting enough credit among investors. (Image: PR Newswire)

That’s the sentiment of Barclays analyst Brandt Montour, who in a new report to clients said the gaming company has substantial value to unlock by way of its internet casino and online sportsbook unit, Caesars Digital.

The bottom line, we don’t think CZR shares have any equity value ascribed for its digital business today, and we like the company’s odds for more iGaming market share and an iGaming earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability ramp later in 2023, but especially in 2024,” wrote the analyst.

Montour assigned a $70 price target to Caesars stock, implying upside of about 55.5% from the March 29 close. That forecast includes $10 ascribed to Caesars Digital on a standalone basis.

Caesars Digital Making Progress

While Caesars is one of the most venerable brands in the land-based casino business, that’s yet to materialize into significant iGaming and online sports betting market share.

In the former space, Caesars currently lags BetMGM and DraftKings, and in the internet sportsbook arena, the operator has significant ground to make up against rivals such as FanDuel, DraftKings, and BetMGM. Still, there are positives. For example, Caesars Digital lost just $5 million in the fourth quarter of 2022, and that was mostly attributable to a single bettor hitting it big on the World Series. That could pave the way for profitability at some point this year.

That’s crucial at a time when rivals are forecasting profitability, or getting close to being there. Caesars Sportsbook was among the first operators in the space to slash marketing spending, and that move appears to be paying off.

Caesars has other avenues for boosting its digital profile. Those include leveraging its vast portfolio of brick-and-mortar casinos and its Caesars Rewards loyalty program to entice online bettors to visit land-based venues. In other words, while the internet business has, to this point, been a money loser, it offers the parent company benefits in other ways.

Caesars Digital Well-Positioned

Following miserable 2022 showings by pure-play iGaming and sports wagering equities, investors expressed apprehension about placing much in the way of positive emphasis on online units of traditional gaming firms, such as Caesars.

The reason for that was simple. As macroeconomic conditions changed and the Federal Reserve commenced a scorched earth campaign of interest rate increases, money-losing firms, regardless of industry, fell out of favor with investors. However, the good news is more iGaming operators, including Caesars Digital, are inching closer toward profitability, and some have already gotten there.

“Over the past 12+ months, investors avoided giving US omni-channel gaming companies any equity value for digital businesses (as all players were loss-making). But later in 2023 and into 2024, when most of these digital businesses should turn cash flow positive, we don’t believe investors will continue to ignore these businesses within broader valuations,” concluded Montour.