Bally shares slip as operator cuts 2022 revenue outlook

Published on: August 4, 2022, 03:01h.

Last update on: August 4, 2022, 03:01h.

Bally (NYSE:BALY) stock fell on Thursday after the regional casino operator cut its 2022 revenue and earnings before interest, tax, depreciation and amortization (EBITDA), citing weakness at its eponymous site. ‘Atlantic City and Foreign Currency Headwinds.

Bally's shares
Bally’s Atlantic City. The venue is one of the culprits behind the trader’s stock plunge today. (Image: PA News)

The company now expects 2022 EBITDA of $535-550 million on sales of $2.2-2.3 billion. That’s down from a previous EBITDA forecast of $560 million to $580 million on revenue of $2.4 billion to $2.5 billion. Analysts expected sales of $2.38 billion.

Given the comments on the forecast cut, we expect the loss of margins to reflect difficulties in improving profitability at Bally’s Atlantic City,” Stifel analyst Jeffrey Stantial said in a note to clients.

He rates Bally’s stock as a “buy” with a price target of $29. Then known as Twin River Worldwide Holdings, Bally’s acquired the Atlantic City casino in 2020 for the much-discounted price of $25 million as Eldorado Resorts and the older version of Caesars Entertainment dumped their properties in a bid to finalize their merger.

The Atlantic City deal was part of a larger three-casino deal valued at $180 million. The other sites in this package are the Eldorado Shreveport Resort and Casino in Louisiana and the MontBleu Resort Casino in Lake Tahoe, Nevada.

International results hampered by a strong dollar

While Bally’s is best known for its US casinos and North American online gaming and sports betting businesses, the company benefits from international exposure through UK online gaming company Gamesys, which was acquired last year for $2.7 billion in the buyer’s biggest acquisition yet.

The purchase of Gamesys is widely seen as positive long-term potential for Bally’s due to the maturity of the UK internet games market. However, this is a short term challenge as the profits and revenues of this unit are denominated in British Pounds and need to be converted into US Dollars as Bally’s is a US company.

With the dollar ranking as the best performing major currency this year due to multiple interest rate hikes from the Federal Reserve, Gamesys’ earnings are being slashed.

“Having said that, most of the revenue reduction and some of the adj. The reduction in EBITDA, to the full year guidance, appears to reflect the currency headwind,” adds Stantial.

Bally shares are also reduced by North American online losses

Bally’s North American digital operations, which include the BallyBet app, could also be behind the stock’s plunge on Thursday.

“North America Interactive was online as BALY reported $17 million in losses on $18.1 million in net revenue. This compares to our modeling of $16.2 million in losses and $17.5 million in revenue. This implies that BALY will need to significantly cut losses in the second half of the year to meet its full-year target (-$60 million), although management said in the first quarter that the integration Technology has proven to be the highest cost – not marketing around peak sports seasonality (a trend demonstrated by peers),” notes Stantial.

This is remarkable because rivals such as BetMGM and Caesars are cutting losses dramatically and flirting with profitability.