$ AAPL

$ ABBV

$ ABNB

$ ACGL

$ ADI

$ ADM

$ ADP

$ ADSK

$ AEE

$ AEP

$ AES

$ AFL

$ AIG

$ AIZ

$ AJG

$ AKAM

$ ALB

$ ALGN

$ ALL

$ AMAT

$ AMCR

$ AMD

$ AME

$ AMGN

$ AMP

$ AMT

$ AMZN

$ ANET

$ AOS

$ APA

$ APD

$ APO

$ APTV

$ ARE

$ ATO

$ AVB

$ AWK

$ AXON

$ BA

$ BALL

$ BAX

$ BBY

$ BDX

$ BEN

$ BG

$ BIIB

$ BKNG

$ BLDR

$ BMY

$ BR

$ BRO

$ BXP

$ CAG

$ CAH

$ CARR

$ CAT

$ CBOE

$ CBRE

$ CCL

$ CDNS

$ CDW

$ CEG

$ CF

$ CHD

$ CHRW

$ CI

$ CINF

$ CL

$ CLX

$ CMCSA

$ CMG

$ CMI

$ CMS

$ COIN

$ COO

$ COP

$ COR

$ CPAY

$ CPT

$ CRL

$ CRWD

$ CSCO

$ CTRA

$ CTSH

$ CTVA

$ CVS

$ CVX

$ CZR

$ DAL

$ DASH

$ DAY

$ DD

$ DDOG

$ DE

$ DELL

$ DG

$ DGX

$ DIS

$ DOC

Caesars Entertainment's strong digital growth and debt reduction efforts are offsetting ongoing margin pressures in core land-based operations, positioning the company for potential upside if digital momentum continues.

# Caesars Entertainment Q2 FY2025: Digital Outperformance Offsets Core Margin Pressures

---

## Executive Summary

- **Caesars Entertainment reported Q2 FY2025 net revenue of $2.907B, up 2.9% year-over-year, with EPS at $0.08, in line with consensus.** The quarter delivered mixed results, as digital segment strength was counterbalanced by ongoing weakness in core land-based operations.
- **Profitability remains challenged,** with a net margin of -4.12% and Adjusted EBITDA down 4.1% YoY to $955M. Margin compression persists, particularly in the Las Vegas and Regional segments, despite improvements in net loss and disciplined cost management.
- **Management struck a cautiously optimistic tone,** emphasizing robust digital expansion, cost controls, and proactive debt reduction—including the early redemption of $546M in high-yield notes. The company reiterated its digital EBITDA target of $500M+ by 2026, while acknowledging near-term headwinds in traditional segments.
- **Key risks include high leverage (debt-to-equity ratio of 6.19), persistent margin pressures, and labor cost volatility,** especially in Las Vegas. However, the digital segment’s outperformance, ongoing deleveraging, and potential regulatory tailwinds offer meaningful upside.
- **Catalyst watch:** Investors should monitor the pace of digital EBITDA growth, further debt reduction actions, and any regulatory developments impacting the effective tax rate. These factors could drive a re-rating if digital momentum accelerates and margin pressures abate.

---

## Performance Snapshot

| Metric                | Reported   | Consensus | Surprise | YoY Change |
|-----------------------|------------|-----------|----------|------------|
| Revenue               | $2.907B    | $2.89B    | +$17M    | +2.9%      |
| EPS                   | $0.08      | $0.08     | In line  | N/A        |
| Adjusted EBITDA       | $955M      | N/A       | N/A      | -4.1%      |
| Net Margin            | -4.12%     | N/A       | N/A      | N/A        |
| Digital Revenue       | +24% YoY   | N/A       | N/A      | +24%       |
| Digital EBITDA        | $80M       | N/A       | N/A      | +100%      |

---

## Earnings Quality

- **Revenue mix is increasingly digital,** with the Digital segment delivering a 24% YoY revenue increase and EBITDA doubling to $80M. This contrasts with declines in the Las Vegas segment and one-off headwinds in the Regional segment (construction, flooding, lawsuit).
- **Margins remain under pressure,** with a net margin of -4.12% and Adjusted EBITDA down 4.1% YoY. While net loss improved from $(122)M to $(82)M, margin compression is notable versus industry peers.
- **Cost structure is mixed:** Labor costs, especially in Las Vegas due to union wage hikes, are rising, but overall operating expenses are tightly managed. One-off charges in the Regional segment further weighed on profitability.

---

## Management Commentary & Guidance

- **Management’s tone was cautiously bullish,** highlighting digital expansion (new live dealer studios, product rollouts) and ongoing cost discipline. The company is focused on deleveraging, as evidenced by the early redemption of $546M in high-yield notes.
- **Guidance is moderately conservative:** While explicit forward guidance was not provided, management’s narrative aligns with street expectations—balancing near-term margin and leverage challenges with long-term digital growth ambitions. The digital EBITDA target of $500M+ by 2026 remains intact.

---

## Key Risks

- **High leverage:** Debt-to-equity ratio of 6.19 remains a concern, with interest expense a drag on net income.
- **Margin pressures:** Persistent in core land-based operations, exacerbated by labor cost inflation and one-off regional disruptions.
- **Regulatory and demand-side risks:** Potential for further cost inflation, adverse regulatory changes, or demand softness in key markets.

---

## Expected Market Reaction

- **Analyst and investor sentiment is likely to be cautious in the near term,** given the mixed earnings and ongoing margin pressures. However, the strong digital performance and proactive debt reduction could support a more constructive outlook if digital momentum continues.
- **Market may be underestimating the digital transformation and deleveraging story,** while potentially over-penalizing the stock for legacy segment weakness and high leverage.

---

## Final Takeaway

- **Q2 FY2025 was a transitional quarter for Caesars Entertainment,** with digital outperformance offsetting core margin pressures. The quarter is best characterized as mixed but improving, with clear signs of progress in digital and cost management.
- **The market may be underpricing the upside from digital growth and deleveraging,** while overemphasizing near-term margin and leverage risks.
- **Upcoming catalysts:** Watch for further digital EBITDA acceleration, additional debt reduction actions, and regulatory developments impacting tax rates. These could drive a positive re-rating if execution remains strong.

Caesars (CZR): Digital Growth Offsets Margin Headwinds

Caesars Entertainment’s digital segment is driving robust revenue and margin growth, while disciplined capex and share repurchases position CZR for near-term earnings upside despite Las Vegas softness.

# Caesars Entertainment: Digital Acceleration and Margin Discipline Set the Stage for a Pivotal Quarter

## Executive Summary

We maintain a **Bullish** outlook for Caesars Entertainment (NASDAQ: CZR) heading into the upcoming quarter, driven by **exceptional digital segment growth** and a disciplined approach to capital allocation. **Caesars Digital posted 18.8% YoY revenue growth in Q1 2024**, with iGaming revenue up **53% YoY** and April tracking even higher. While Las Vegas softness (down 1.9% YoY) remains a risk, **record group bookings and a focus on free cash flow harvesting** are likely to support margin expansion. The market may be underestimating the **impact of lower capex and opportunistic share repurchases** on near-term earnings leverage.

## Recent Trends Signal What’s Next

Recent quarters reveal a clear divergence: **digital outperformance is offsetting traditional segment headwinds**. In Q1 2024, total revenue reached **$2.79B**, with digital and regional segments showing resilience. Adjusted EBITDA margin improved to **31.6%**, and digital operating margin reached **12.8%**. The following table summarizes the last four quarters’ key financials, highlighting the digital-driven margin expansion:

### Quarterly Financial Trends

| Quarter   | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|-----------|--------------|------------------|---------------------|---------------|---------|
| Q2 2023   | 2.88         | 54.2             | 16.8                | 2.1           | 0.04    |
| Q3 2023   | 2.99         | 55.0             | 17.2                | 2.5           | 0.07    |
| Q4 2023   | 2.83         | 53.8             | 16.1                | 1.8           | 0.01    |
| Q1 2024   | 2.79         | 54.5             | 17.5                | 2.3           | 0.03    |

**Trend:** Revenue is stable, but margin improvement is evident, especially as digital mix increases.

## Management’s Forward Tone and Positioning

Management’s commentary has shifted to a **more confident and proactive stance**. In the Q1 2024 call, CEO Tom Reeg stated, **“We’re seeing early signs of normalization in demand, particularly in our digital business, and are prepared to capitalize on group bookings momentum.”** This contrasts with the prior quarter’s more cautious language around macro headwinds. The focus on **“free cash flow harvesting”** and **“opportunistic share repurchases”** signals a willingness to deploy capital if performance exceeds expectations. The absence of explicit numeric guidance, however, suggests a measured optimism.

## KPI Trends & Upcoming Quarter Drivers

The next quarter’s results will hinge on three critical KPIs:

- **Digital Revenue Growth:** Q1 2024 saw **+18.8% YoY** for Caesars Digital and **+53% YoY** for iGaming, with April tracking near **+70% YoY**.  
- **Las Vegas Hotel Occupancy:** Q1 occupancy was **96.2%**, down slightly YoY, but record group bookings are expected to offset this.
- **Capex Discipline:** Q1 capex was **$223M**, with management guiding for lower levels through 2025.

### KPI Movement Table

| KPI                    | Q1 2023 | Q4 2023 | Q1 2024 | YoY Change | QoQ Change |
|------------------------|---------|---------|---------|------------|------------|
| Digital Revenue ($M)   | 238     | 282     | 283     | +18.8%     | +0.4%      |
| iGaming Revenue ($M)   | 38      | 54      | 58      | +53%       | +7.4%      |
| LV Occupancy (%)       | 97.1    | 96.8    | 96.2    | -0.9 ppt   | -0.6 ppt   |
| Capex ($M)             | 265     | 241     | 223     | -15.8%     | -7.5%      |

**Implication:** Digital growth and capex discipline are likely to drive margin and EPS upside, while Las Vegas occupancy remains a watch point.

## Missed by the Street

A key overlooked signal is the **explicit focus on free cash flow harvesting and capex reduction**. Management’s Q1 commentary—**“We expect capex to trend lower through 2025, supporting additional margin expansion”**—suggests a structural shift in capital allocation. Additionally, the mention of **“opportunistic share repurchases”** indicates potential for enhanced shareholder returns if digital outperformance continues. These levers are not fully reflected in consensus estimates.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Revenue ($B) | EPS ($) | Operating Margin (%) | Key Assumptions                                      |
|----------|--------------|---------|----------------------|------------------------------------------------------|
| Bull     | 2.87–2.93    | 0.08–0.12| 19–20                | Digital growth >20% YoY, group bookings drive LV rebound, capex < $200M |
| Base     | 2.80–2.85    | 0.03–0.07| 17–18                | Digital +15% YoY, stable regional, LV flat, capex $200–220M |
| Bear     | 2.75–2.79    | (0.01)–0.02| 16                  | Digital <10% YoY, LV softness persists, cost inflation |

**Most Likely:** The **Base scenario** is most probable, given current digital momentum and management’s operational discipline, but with some caution on Las Vegas recovery.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter   | Revenue ($B) | EPS ($) | Operating Margin (%) |
|-----------|--------------|---------|----------------------|
| Q2 2023   | 2.88         | 0.04    | 16.8                 |
| Q3 2023   | 2.99         | 0.07    | 17.2                 |
| Q4 2023   | 2.83         | 0.01    | 16.1                 |
| Q1 2024   | 2.79         | 0.03    | 17.5                 |

### KPI Movement Table

| KPI                    | Q1 2023 | Q4 2023 | Q1 2024 | YoY Change | QoQ Change |
|------------------------|---------|---------|---------|------------|------------|
| Digital Revenue ($M)   | 238     | 282     | 283     | +18.8%     | +0.4%      |
| iGaming Revenue ($M)   | 38      | 54      | 58      | +53%       | +7.4%      |
| LV Occupancy (%)       | 97.1    | 96.8    | 96.2    | -0.9 ppt   | -0.6 ppt   |
| Capex ($M)             | 265     | 241     | 223     | -15.8%     | -7.5%      |

### Key Management Quotes

1. **“We’re seeing early signs of normalization in demand, particularly in our digital business, and are prepared to capitalize on group bookings momentum.”**  
   – Q1 2024 Earnings Call  
   *Signals confidence in digital and group bookings offsetting traditional softness.*

2. **“We expect capex to trend lower through 2025, supporting additional margin expansion.”**  
   – Q1 2024 Earnings Call  
   *Indicates structural margin improvement not fully in consensus.*

3. **“Our focus remains on free cash flow harvesting and opportunistic share repurchases.”**  
   – Q1 2024 Earnings Call  
   *Highlights potential for enhanced shareholder returns.*

4. **“Las Vegas softness post-Super Bowl was anticipated, but group bookings are at record levels for the upcoming quarter.”**  
   – Q1 2024 Earnings Call  
   *Suggests near-term LV headwinds may be transitory.*

5. **“Digital flow-through rates continue to exceed our 50% target, driving profitability.”**  
   – Q1 2024 Earnings Call  
   *Points to sustainable digital margin expansion.*

6. **“We remain disciplined on cost structure and are prepared to adjust as needed.”**  
   – Q1 2024 Earnings Call  
   *Reinforces operational flexibility in uncertain macro.*

7. **“We’re not providing explicit numeric guidance, but fundamentals remain strong.”**  
   – Q1 2024 Earnings Call  
   *Implies cautious optimism without overcommitting.*

---

**Bottom Line:** Caesars’ digital acceleration and margin discipline are likely to drive a positive earnings surprise, with capex reduction and capital return optionality as underappreciated levers for the upcoming quarter.

Caesars (CZR): Digital Growth and Margin Upside