The Gambling Company Taking On Big TechAug 31, 2021
Last we wrote about Caesar's Entertainment, the world was in a very different place. We were in full lockdown and all forms of entertainment were completely closed off. Therefore we correctly projected Caesar's stock to stay relatively flat from the end of 2021 to the beginning of 2022 (~4 months). However, since that time period ended and the world started to re-open, Caesar's has been able to benefit from a return to "normalcy".
Therefore we've decided to re-visit our analysis on the company and update our projections. A lot has definitely changed since then and we're excited to give you the most important and relevant information. Let's break it down below:
Caesar's Success Story:
One of the biggest changes that Caesar made was launching a gambling mobile app. Since seeing the popularity of betting apps like Draftkings and Barstool go viral, Caesar's finally decided it was time for them to get in on the action (via their acquisition of William Hill).
The results of this new app, have well surpassed most people's expectations. This is because since the app was released (in the beginning of this month), they've been able to capture 21% of all net new betting app downloads! Think about that for a second.
That means that for every single new mobile gambling app download today, there is a large chance that it is their app being downloaded.
When you think about the entrenched players in the industry, it is pretty crazy that they're able to garnish that much attention that quickly. While it may be hard to sustain that level of market share, at first glance, we're extremely impressed by the metrics.
So how did they do it? In a few ways:
- First they re-branded the app from William Hill to Caesar's. Using a more recognizable name brand, certainly helped spark interest.
- Next they enticed users by offering a $5,000 "risk-free bet" for new customers. This is something that is not going away and is a number the other betting apps don't even come close to touching. This should help them sustain market share going forward.
- Lastly they integrated their hotel rewards program into the app. This is something that no other provider is able to offer and is a way to entice users to use their app instead of others.
But what is more important is the sustainability of their growth and how this will impact their stock price.
While grabbing market share quickly is impressive, the real key is in sustaining it! And while we don't have the data yet to definitively know if it is sustainable, our projections lead us to believe it will be.
Please note that this investment is in the very early stages. Should our projections be correct, we project for some serious upside for Caesar's. Should we be wrong, we still project stock growth, but it will take a lot more time to play out.
With that context, let's dive into our reasoning:
- Companies who have been able to maintain higher market share and download rates, have been able to boost their stock prices. Looking across the industry we see this very clearly with stocks like PENN, DKNG & MGM. When downloads go up so do their stock prices and vice versa.
- We are in the quietest time for gambling app downloads. With only the MLB season in play, this is considered a low time for companies operating in their space. The fact that we see them grabbing serious market share in a down-cycle is extremely encouraging and leads us to believe that this is not a fluke.
- Once the NFL & NBA resume, we expect this download rate to only pickup speed. With a unique ability to combine rewards and promotions, Caesar's is in a very good position to differentiate themselves.
The takeaway here is that we think the downloads and market penetration are no fluke. And once other major sports come back into play, we can quickly test this thesis and pivot if need be. But assuming our projections are correct, here's where we think the stock will go:
So while the stock's sports betting business is important, the sports betting is not the only attractive piece of their business going forward. Based on our recent analysis, it is becoming apparent that Vegas is recovering a lot faster than people expected - thus driving more revenue for Caesar's (a large portion of their revenue comes from this channel). Additionally their regional channels are also recovering faster than expected. This is key, as Caesar's has a large regional presence and this channel is widely ignored by most investors.
The key takeaways here is that Caesar's has multiple revenue growth opportunities at play and they should be able to leverage these going forward. We therefore love the stock opportunity given the current risk/reward levels. At their current levels (off 10% from their recent high's) we think Caesar's is in a good position to deliver stock growth over the coming quarters. With a valuation that is in check, we're updating our price target and initiating an overweight rating!
Price Target: $130 (30% increase)
Target Date: Q1 2022