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Caesar’s Entertainment Stabbed In The Back By Poor Earnings Expectations

Summary

Caesar’s Entertainment has taken such a huge hit to its valuation that it’s almost back to square one.

One of the biggest reasons for the decline is lackluster growth from Macau.

The company expects to see things return to normal by the end of the year.

Loyal travelers and thrill-seeking gamblers who are fans of Caesar’s Entertainment are witnessing the fall of Rome in real time after the company experienced brutal losses on the market following dismal news about future earnings. Thanks to lackluster expectations put forth by the CEO of Caesar’s Entertainment during a midday call with analysts, stocks of the company plunged by more than 24 percent at one point, hugely diminishing the staple of the Las Vegas Strip.

Here are the inside details on Caesar’s Entertainment and its recent plunge in the market, and how investors and friendly analysts alike are scrambling to salvage what the can.

A massive plunge in value

For Caesar’s Entertainment, the trouble began when its CEO Eric Hession mentioned on a midday call with analysts and investors that the Las Vegas behemoth was heading towards troubled waters. When it became that Caesar’s Entertainment was about to endure a chilly season with weak bookings and waning revenue per-room, investors began to learn more and abandon the entertainment giant in droves. As a matter of fact, panic grew so intense that Caesar’s eventually saw its stock plunge by as much as 24 percent on Wednesday.

Many investors are beginning to muse if the company’s CEO is merely playing the fiddle while his company burns in the background. That’s because Caesar’s Entertainment stands at a crossroads where it and other gambling and entertainment giants can reap huge dividends from a rapidly changing public opinion that’s warming to sports gambling. The rapid rise of sports betting previously enamored many investors who thought that companies like Caesar’s Entertainment would be able to cash in on the trend, though that’s yet to become a reality.

Despite the fact that Caesar’s Entertainment is pushing ahead with a sports betting initiative in its Atlantic City, Gulf Coast, and Tunica properties this year, the company’s overall stock value is taking a serious hammering because of the fundamental inability of its Las Vegas holdings to generate enough revenue. Investors who think that Caesar’s Entertainment will be saved by the mainstreaming of sports betting are thus likely fooling themselves.

As things are right now, Caesar’s Entertainment has taken such a huge hit to its valuation that it’s almost back to square one, nearly having sunk to the price that it originally debuted on the market at. As of press time, Caesar’s Entertainment was still struggling to keep its head above $9 per share, currently floating at a cool $9.75 apiece. When the Las Vegas giant originally held its IPO, it priced its shares at $9 apiece, illustrating how gravely endangered the company’s recent plunge has made it.

Can Caesar’s stay on the throne?

Whether or not Caesar’s is toppled from its position as one of Las Vegas’ largest companies remains to be seen, but the company’s lackluster performance recently is seriously jeopardizing its long-term viability. Things actually got so bad during the recent valuation plunge that the trading of shares had to be temporarily halted three times thanks to the volatile way in which its price was fluctuating. One of the biggest reasons for the decline is lackluster growth from Macau, one of the gambling markets shining stars.

Macau only saw growth in revenue from gambling rise by 10.3 percent year over year in July, for instance, but many international analysts expected that figure to hit at least 11 percent. The bad news from Macau served as more fuel for the fire, and helped cement the worst plunge in the valuation of Caesar’s Entertainment in the company’s history. Still, the staple of the Las Vegas Strip isn’t necessarily dead yet, and can maneuver itself out of at least some of the troubled waters it currently finds itself in.

The company expects to see things return to normal by the end of the year, for instance, at least according to its CEO. While executives behind the company may call its lackluster earnings an unexpected blip, however, many would-be investors are likely to get cold feet, especially if they don’t see sizable developments in Macau and Las Vegas alike that can help buoy Caesar’s Entertainment in future quarters. Given the company’s bankruptcy problems, too, it likely won’t be financially healthy for at least a few years.

The company is only 8 months from an $18 billion bankruptcy that greatly disrupted the gambling industry, for instance. That huge skeleton in the closet of Caesar’s Entertainment will likely weigh down the recovery of its stock for the foreseeable future. Similarly, until investors are sated with the rate at which gambling revenues are growing in Macau, Caesar’s Entertainment is likely to flounder when it comes to re-instilling confidence in investors that it can churn out heavy profits. The fall of Rome didn’t happen in a day, and we’re seeing a similarly slow but sure decline in Caesar’s Entertainment.