Caesars Entertainment (NASDAQ:CZR) Misses Q4 Sales Targets
Hotel and casino entertainment company Caesars Entertainment (NASDAQ:CZR) missed analysts' expectations in Q4 FY2023, with revenue flat year on year at $2.83 billion. It made a GAAP loss of $0.34 per share, improving from its loss of $0.66 per share in the same quarter last year.
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Caesars Entertainment (CZR) Q4 FY2023 Highlights:
Revenue: $2.83 billion vs analyst estimates of $2.86 billion (1.3% miss)
EPS: -$0.34 vs analyst estimates of -$0.11 (-$0.23 miss)
Gross Margin (GAAP): 51.1%, down from 53.9% in the same quarter last year
Market Capitalization: $9.17 billion
Tom Reeg, Chief Executive Officer of Caesars Entertainment, Inc., commented, “Our fourth quarter operating results demonstrated consolidated net revenue growth, reduced net loss and stable consolidated Adjusted EBITDA year over year. Results were driven by a 28% year-over-year increase in Caesars Digital net revenue that generated a 10% Adjusted EBITDA margin in the quarter. Full year results benefited from a 78% increase in Caesars Digital net revenues to approximately $1.0 billion, and an over $700 million improvement in this segment’s Adjusted EBITDA”.
Formerly Eldorado Resorts, Caesars Entertainment (NASDAQ:CZR) is a global gaming and hospitality company operating numerous casinos, hotels, and resort properties.
Casinos and Gaming
Casino and gaming companies that offer slot machines, Texas Hold ‘Em, Blackjack and the like can enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits-have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casino and gaming companies may face stroke-of-the-pen risk that suddenly limits what they do or where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing casino and gaming companies to adapt to keep up with changing consumer preferences such as being able to wager anywhere on demand.
Sales Growth
A company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. Caesars Entertainment's annualized revenue growth rate of 41.2% over the last five years was incredible for a consumer discretionary business.
Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Caesars Entertainment's recent history shows its momentum has slowed as its annualized revenue growth of 9.5% over the last two years is below its five-year trend.
We can dig even further into the company's revenue dynamics by analyzing its most important segments, Las Vegas and Regional US, which are 38.6% and 48.2% of revenue. Over the last two years, Caesars Entertainment's Las Vegas revenue (casinos and hotels in Las Vegas) averaged 19.4% year-on-year growth while its Regional US revenue (excludes Las Vegas) averaged 1.9% growth.
This quarter, Caesars Entertainment's $2.83 billion of revenue was flat year on year, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 1.9% over the next 12 months, an acceleration from this quarter.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Caesars Entertainment has been a well-managed company over the last eight quarters. It's demonstrated it can be one of the more profitable businesses in the consumer discretionary sector, boasting an average operating margin of 18.8%.
In Q4, Caesars Entertainment generated an operating profit margin of 19%, up 1.7 percentage points year on year.
Over the next 12 months, Wall Street expects Caesars Entertainment to maintain its LTM operating margin of 21.4%.
Key Takeaways from Caesars Entertainment's Q4 Results
We struggled to find many strong positives in these results. Its revenue, EPS, and operating margin fell short of Wall Street's estimates. A lone bright spot was its $304 million of Digital segment revenue, which beat analysts' expectations. Overall, this was a mixed quarter for Caesars Entertainment. The company is down 3.2% on the results and currently trades at $40.35 per share.
Caesars Entertainment may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
