CEO Tom Reeg Signals Potential Digital Spin-Off Next Year
In a recent update, CEO Tom Reeg of Caesars Entertainment hinted at the possibility of a digital business spinoff next year, contingent on meeting set forecasts.
The company’s second-quarter report indicated a continuation of trends seen in Q1, albeit more pronounced. While the Las Vegas and regional sectors showed average performance, the digital segment excelled, marking another record quarter.
Caesars reported overall net revenue of approximately $2.9 billion for Q2, reflecting a 3% increase from the previous year. Notably, Las Vegas revenue dipped by 3.7% to just over $1 billion, while regional revenue climbed 3.6% to $1.4 billion. In stark contrast, digital revenue surged by 24%, reaching $343 million, signaling robust double-digit growth across both quarters this year.
When discussing adjusted EBITDA, Las Vegas saw an 8% decline year-on-year at $469 million, with regional revenues dropping similarly to $439 million (-6%). Impressively, digital AEBITDA doubled from $40 million last year to $80 million this quarter.
For the first half of the year, net revenue totaled $5.7 billion, showing a 2.5% year-on-year increase. The segment breakdown reveals Las Vegas is down 2.7%, regional is up 2.7%, and digital is up 21.5%. Adjusted EBITDA trends reflect this disparity: Las Vegas at $902 million (-4.7%), regional at $879 million (-2.5%), and digital at $123 million (+173%).
Future Outlook
Caesars has faced ongoing inquiries regarding its digital sector and the potential for a spinoff. Historically, the company aimed for $500 million in annual digital EBITDA by 2026, and it remains on track to achieve this milestone.
In a recent earnings call, Reeg spoke to analysts about their impressive digital momentum. He stated, “We’re on target to deliver over $500 million in EBITDA in 2026,” emphasizing significant growth in both digital volume and EBITDA.
Interestingly, analysts are now curious about what lies beyond the $500 million goal. Reeg refrained from committing to a new target but mentioned the stimulating environment of the upcoming football season and prospects of new online gaming jurisdictions. “Given the scrutiny around our $500 million target, I hesitate to set another one right now,” he remarked, yet hinted at significantly higher future EBITDA numbers.
The Spin-Off Debate
These discussions around digital performance have reignited speculation about a potential spinoff. A separation could unlock additional value given the contrasting growth trajectories between Caesars’ digital and traditional segments. As other brick-and-mortar operators grapple with digital profitability, Caesars’ success stands out.
Activist investor Carl Icahn has recently increased his stake and secured board positions, though his current approach appears more conservative compared to his previous influence during the merger with Eldorado Resorts. Reeg noted that both he and Icahn recognize the untapped value of Caesars’ assets.
The focus for now appears to be meeting existing forecasts before considering alternative strategies. Reeg explained, “We have internal preparations to complete before evaluating a potential separation aligned with achieving our targets.”
Regional Performance and Company Sentiment
The sentiment surrounding Las Vegas and regional operations remains cautious, with Reeg describing the current environment as “soft.” While acknowledging concerns over potential travel slowdowns linked to macroeconomic factors and tariffs, he expressed optimism about stabilizing performance in the coming months.
Meanwhile, a recent tragedy associated with a former Caesars employee in New York has overshadowed the company. Caesars issued a statement expressing condolences while cooperating with law enforcement.
Additional Insights
Touching briefly on other subjects, Reeg commented on potential tax provisions benefiting Caesars from new legislation. The casino licensing race in New York also surfaced, with Caesars vying for a Times Square license in partnership with SL Green and Roc Nation. Reeg expressed confidence in their proposal, highlighting robust local support, although he acknowledged Manhattan’s challenging landscape for licensing.
In summary, Caesars is navigating both challenges and opportunities, positioning itself for future growth while keeping a watchful eye on its expanding digital segment.