How long can Caesars Entertainment (CZR +0.00%) really expect to survive reporting numbers like this? Second-quarter net revenue was down 0.3% to $2.16 billion, adjusted EBITDA fell 8.2% to $470.5 million, and net loss was $212.2 million, or $1.69 per share. To make matters worse, net debt stood at $19.3 billion, and interest expense was more than EBITDA at $540.1 million.
Caesars is moving forward with a plan to offer $1.18 billion in stock for a spinoff, which will help the balance sheet, but the company will give up Planet Hollywood and basically all potential for growth, including online gaming. When the spinoff is done, investors will still be left with a company with falling revenue and $18.1 billion in net debt.
A host of challenges for Caesars
The sheer debt load is bad, but when every major operating segment is deteriorating, you have serious problems. Atlantic City is in shambles now that Pennsylvania has taken over as the second largest gaming state next to Nevada. Worse yet, Las Vegas is on a path to recovery, but Caesars saw revenue fall 4.5% in the second quarter. Strong results from Wynn Resorts (WYNN +2.99%) and Las Vegas Sands (LVS +1.32%) on The Strip show that the high end is working in Las Vegas while the lower end of the market is still very weak.
But it's regional gaming that posts the biggest long-term challenge for Caesars. Non-Las Vegas or Atlantic City casinos account for the largest segment for the company, and the long-term trends don't look good. Caesars' revenue was down 1.1% but across the industry companies have struggled. Pinnacle Entertainment, Penn National, and Ameristar all saw revenue fall at casinos year over year, and the only way to grow is by adding more supply, which is killing profitability at existing casinos.
The only way to play gaming
Wynn Resorts and Las Vegas Sands now both generate most of their revenue in Macau, and that's really the best way to play gaming right now. Even the resorts they have in Las Vegas are doing better than Caesars right now. Caesars just comes with too much risk, and if investors want the company's online gaming exposure, they can buy the spinoff when it comes public.
