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Regional casino stocks navigate challenging times

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It’s been quite a ride for the gambling industry this year, especially when it comes to regional casino stocks. While Las Vegas Strip and Macau operators are seeing some positive momentum, their regional counterparts have been facing a more lukewarm reception from investors. 

According to Deutsche Bank analyst Carlo Santarelli’s latest report, the regional gaming space is currently out of favor with investors. Well, it seems there’s a higher perceived likelihood of negative revisions compared to positive ones within this group. Investors are being cautious, which could signal a very risky field. 

As we bid farewell to the second quarter, all eyes are now on the upcoming earnings reports from regional casino operators. It hasn’t been smooth sailing for them, with a challenging April and some setbacks in gross gaming revenue during May. This could make the June quarter a tough nut to crack for these operators. 

The micro stats for regional casinos

Interestingly, spending per visitor is still around 30-35% higher than in 2019. This has contributed to continued growth in gross gaming revenue, despite admissions still being approximately 20% below 2019 levels. 

Santarelli suggests that the increase in spend per visitor can be attributed to a change in customer mix, with the lower spending customers making up the majority of the decline in admissions, while the remaining customers are spending slightly more. It’s a delicate balancing act for many analysts at this point.

Regional casino stocks navigate challenging time

As we enter the summer travel season, the third quarter could make or break the performance of regional casino stocks in 2023. But let’s not ignore the macroeconomic headwinds they’re facing. 

It’s worth noting that inflation has acted as a tax, reducing US workers’ earnings for over two years. Santarelli points out the strong correlation between average weekly earnings and regional gross gaming revenue from 2007 to 2019. 

So, it’s only natural for investors to consider the relationship between real wages and gaming revenue performance moving forward. With real wages down over the past year, the healthy growth in gross gaming revenue has been somewhat surprising. 

Household finances have been a saving grace for the gaming industry, thanks in part to the massive government stimulus in response to the pandemic. However, the consequences of that spending spree, coupled with other government expenditures, are coming to light in the form of higher inflation. The US currently has a staggering $988 billion in credit card debt, which becomes even more worrisome as the central bank raises interest rates to combat inflation. So far, regional casinos haven’t felt the full impact of these circumstances. 

Despite a significant decline in savings compared to the previous year, gaming spend continues to rise among households, accounting for approximately 2.6% of the overall savings flow in 2022. 

This level surpasses that of the 2010-2013 period and is significantly higher than the norm observed between 2014 and 2019. Santarelli concludes that household finances have been a source of comfort for the gaming industry during these challenging times. 

As the chips fall, regional casino stocks face an uphill battle. While challenges persist, there are glimmers of hope amidst the uncertainty. It’s a rollercoaster ride, my friends, and only time will reveal how these stocks will perform in the ever-changing landscape of the gambling world. 
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