With strong demand across all verticals, Caesars Entertainment (CZR -1.64%) delivered impressive Q4 and full-year 2022 earnings.
Though the casino industry is rebounding from its COVID-19-induced lull, Caesars Entertainment stock still trades roughly 58% down from its September 2021 highs. Let's take a closer look at the company's recent performance and why I think this casino stock is one to watch.
Impressive digital revenue growth and rising occupancy
For the fourth quarter, GAAP net revenue landed at $2.8 billion, a nearly 8% increase year over year. And although Caesars ended Q4 with a net loss of $148 million, it marks significant improvement over the year-ago loss of $434 million.
The most outstanding result came in the same-store sales category, where same-store adjusted EBITDA jumped 65% to $957 million. Other Q4 highlights include all-time high EBITDA records in both Caesars' Las Vegas and regional segments. And for the first time since the start of the pandemic, occupancy reached 95.5% last quarter.
As for Caesars' online gaming business, President Anthony Carano reported, "Digital results continue to show impressive quarterly sequential improvement all year, leading to our best performance during Q4." Fourth-quarter digital volume rose 7%, hold increased 100 basis points, and promotional expenses decreased by 43% year over year.
The result was 100% year-over-year digital revenue growth -- and Caesars' highest quarterly digital net revenue to date. Q4 also marked Caesars' smallest adjusted EBITDA loss in digital since rebranding to Caesars Sportsbook in 2021.
For the year, consolidated net revenue for Caesars Entertainment hit $10.8 billion, a 12.5% increase over 2021. While Caesars took a net loss of $899 million in 2022, it made notable year-over-year improvement over 2021's $1.0 billion net loss.
Bad weather impacted visitation
Calling it "the worst winter in about 70 years," Caesars CEO Tom Reeg lamented how frigid conditions in the Midwest caused an estimated $20 million in lost December earnings potential. Despite the weather, Caesars' regional business actually grew in Q4. Reeg went on to say that northern Nevada has also been "inundated with snow" in the current quarter.
And annual digital losses exceeded expectations for Caesars Entertainment last year. While cumulative EBITDA losses came in roughly 10% over estimates and topped $1.1 billion, Reeg affirmed that Caesars' digital business would eventually generate more than half that amount ($500 million-plus) in annual EBITDA.
Caesars retains The Flamingo
Reeg expects both digital verticals, sports betting and online gambling, to end the year "EBITDA positive," with continued advancements planned all year. By 2025, he anticipates digital earnings potential to reach the aforementioned $500 million range. Online gambling specifically represents "a critical component" of Caesars' growth strategy this year and beyond.
After a "strong year in Las Vegas," Carano and team are optimistic for the remainder of 2023. Forward-looking occupancy currently outpaces 2019 levels amid higher room and amenities prices. The company also continues to line its 2023 calendar with entertainment events to attract visitors.
Finally, while Caesars Entertainment discussed selling its iconic Las Vegas Strip property, The Flamingo, last year, the company ultimately decided against the idea. Instead, Caesars will give up its operation at the Rio, an all-suites hotel about a mile off the Strip, sometime this year.
Amid soaring demand on the Las Vegas Strip in particular, this was likely the best outcome for Caesars. The company's initial goal was to reduce its room count in the overall Las Vegas market. Long-term, selling Flamingo would have probably resulted in a significant amount of missed business for Caesars Entertainment.
Why I'm bullish on Caesars Entertainment stock
Since its shares seem to stagnate while the business clearly strides toward profitability, Caesars Entertainment is one to keep an eye on. If the company continues on its path of recovery and development, sooner or later the stock's price should reflect that.
