Caesars Entertainment Corp. (CZR, Financial) has embarked on its long journey to recovery after emerging from bankruptcy late last year. The company has put measures in place that will ensure the dark times that overwhelmed it for the better part of the last five years never return. While analysts will still look cautiously at the company, Caesars Entertainment appears to have forged a sound plan that will help it diversify its portfolio of casinos and resorts.
The company has massive real estate assets that it seeks to develop to capture a sizable chunk of the hospitality industry, while at the same time mixing up with lauded gaming businesses. In short, Caesars seems to be in the mood to seize its lost glory.
In the early 2010s, Caesars was one of the most promising companies in the gaming industry. It even attracted the attention of renowned private equity and hedge fund firms. Some of them have been blamed for triggering the process that culminated with the company filing for $18.4 billion bankruptcy under chapter 11 in 2015.
Two years later, however, the company finally managed to exit bankruptcy and launched a plan that could propel it back to the top. Shares of the company have since responded positively with an upward trending movement starting when the news of a potential exit from bankruptcy first emerged in late 2016.
While the company’s revenue and net income are yet to bounce back, the bottom line has started to show some signs of recovery with a significant reduction in net loss as demonstrated in the chart above.
So what challenges does the company face as it seeks to recapture its seat at the table of top casino companies in Las Vegas and the rest of the world? For the local business, things might be a lot simpler than implementing its global expansion plan.
According to a report published by Bloomberg, Caesars has indicated in its plans that it will be spreading its wings to Japan, South Korea, Canada, Dubai, Australia and Brazil. This will certainly help it in diversifying its portfolio of revenue streams, especially by targeting markets that have a more conducive environment for gambling.
In some of these markets, real money online gambling is a popular activity that is well regulated. This potentially provides an exciting market for Caesars to target but it also comes with a challenge of its own.
Unlike in real, physical casinos, barriers to entry in the online gambling business are low. In fact, this is one of the most targeted markets by startups looking to capitalize on the growing use of internet-enabled devices like smartphones and tablets. These startups, especially those based in the E.U., are finding it so easy that they are even willing to give their players free spins just to get them to sign up to their platforms.
Their ability to engage their members through socialized interactions also adds to the appeal of the growing population of young gamblers who cannot get off their mobile devices. As such, while the global expansion plan sounds interesting and certainly feasible, the rivalry is a lot more intense and somewhat complicated.
Opportunities locally look more interesting, however, especially given the amount of business it lost while under chapter 11 bankruptcy. The company’s Las Vegas assets that include a massive chunk of land it intends to develop could play a key role in putting it back in the picture of top Casino players.
The new Caesars Entertainment is projected to have a debt of less than $10 billion compared to a debt of more than $25 billion when it filed for bankruptcy. It will also have a cash balance of $2 billion on its balance sheet, and this analysts believe will help it in dusting up and putting mechanisms in place for a continuous revenue growth.
Conclusion
In summary, Caesars Entertainment Operating Unit’s emergence from bankruptcy and the subsequent plan to merge all the businesses under one company could propel it back to glory days in a few years.
Its plans to introduce new products and launch operations in new markets will certainly pose some challenges but in the long run, it could prove crucial as the company seeks to diversify its business. But whether it will manage to recapture the market share it lost while under bankruptcy remains to be seen. Interesting times ahead for Caesars Entertainment.
Disclosure: I have no position in any stock mentioned in this article.
