Michael Jagla
Boyd Gaming Corporation (NYSE:BYD) is coming off a solid fourth quarter of 2022, reporting some record numbers even with the Midwest and South showing signs of weakness.
The top segments in the reporting period were Nevada, online gaming and management, and fees from Sky River Casino. My opinion is online gaming and management and fees from Sky River Casino are certain to continue to grow in positive impact upon the performance of the company, while Nevada, because of it performing so well lately, is susceptible to a significant pullback if the economy starts to show signs of weakening, which would result in consumers reprioritizing their spending.
While its gaming segment once again led the way in revenue for the fourth quarter, there were some signs of weakness, as gaming revenue in the reporting period dropped in comparison to gaming revenue from the fourth quarter of 2021, as well as in comparison to full year 2021.
In this article, we’ll look at the numbers from its recent earnings report, the segments that led its performance, and some of the things to consider when considering how it may perform in 2023.
Some of the recent numbers
BYD generated some impressive numbers in the fourth quarter of 2022, especially when compared against some strong comps from the previous year.
Revenue in the fourth quarter of 2022 was $922.9 million, compared to revenue of $879.8 million in the fourth quarter of 2021. For full year 2022, total revenue came in at $3.56 billion, compared to $3.37 billion for full year 2021.
Gaming once again led revenue for the company for the quarter and the full year, with its gaming segment accounting for $653.9 million of fourth quarter revenue, and $2.67 billion of full year 2022 revenue. Even so, both were down from $685.9 million in revenue generated in the fourth quarter of 2021, and $2.71 billion in revenue generated in full year 2021.
Net income in the reporting period was $172.7 million, or $1.63 per share, compared to net income of $109.8 million, or $0.96 per share in the same quarter of 2021. Net income for all of 2022 was $639.4 million, or $5.87 per share, compared to net income of $463.8 million, or $4.07 per share for full year 2021.
Total adjusted EBITDAR in the fourth quarter was $360.1 million, up from $347.3 million in the fourth quarter of 2021. Adjusted earnings in the fourth quarter of 2022 were $181.8 million, or $1.72 per share, compared to $154.3 million, or $1.35 per share, for the fourth quarter of 2021.
At the end of calendar 2022 the company had cash and cash equivalents of $283.5 million, with total debt of $3.09 billion.
Strongest segments
While the South and Midwest regions underperformed in the fourth quarter, there were several segments that more than offset that, including Nevada, online gaming and management, and fees from Sky River Casino.
Las Vegas Locals
Even though it was competing against strong comps, its Las Vegas Locals segment once again came through, this time generating revenue and EBITDAR that were both up 2 percent against the fourth quarter of 2021, both setting new records. Margins in the segment were up over 52 percent.
Leading the gains were the entertainment, food and beverage, hotel, and its non-gaming business categories. The driver of the performance came from an increase in out-of-town tourism across the region during the reporting period.
Management said approximately 39 million people visited Southern Nevada in 2022, up over 20 percent year-over-year, adding that airport passenger counts were at record levels.
The company also stated that convention business also significantly rebounded, more than doubling from levels in 2021, noting that with over 5,000 hotel rooms in its portfolio, it is positioned to take advantage of the trend. So far in 2023, the company has seen no changes in how its Locals business has been performing.
Downtown Las Vegas
In regard to its Downtown Las Vegas segment, BYD had EBITDAR beat by almost 38 percent, easily surpassing its fourth-quarter record performance of 2021.
The two major catalysts: there was an increase in guest counts in the area, as well as a pedestrian traffic growing in the reporting period.
Online gaming and management
Its partnership with FanDuel, the largest sports betting company in the US, continues to pay off, as it generated about $17 million in EBITDAR from fourth-quarter online gaming, an increase of over 100 percent year-over-year.
It also entered two new markets via the partnership in the fourth quarter, now having a footprint in Kansas and Ohio, with retail and mobile sports betting now operating in the two new markets.
Taking into account its online casino, social operations, and sports betting, Boyd Gaming generated approximately $40 million of EBITDAR in the fourth quarter. This should continue to improve as FanDuel expands operations in Kansas and Ohio.
With BYD holding a five percent stake in FanDuel, it should continue to boost its contribution to the performance of the company as it increases its geographic footprint.
The company also acquired Pala Interactive on November 1, 2022. I think it’ll take two to three quarters before seeing the potential impact it’ll have on the performance of BYD.
Fees from Sky River Casino
In the reporting period BYD generated $21.00 million in management fees from its Sky River Casino contract with the Wilton Rancheria Tribe. That included a one-time development fee of $5.00 million. Since the casino opened in August 2022, it was the first full quarter of operations. Based upon initial results, the company has been able to produce significant visitation levels at the casino since it opened.
Management believes there is a lot of unmet demand in this market, and projects fee revenue from Sky River to jump to around $50 million in 2023.
The movement of its share price
Even though the company has been doing fairly well over the last couple of years, it hasn’t been able to break out to the upside on a sustainable basis. Its 52-week low of $46.10 and 52-week high of $72.72 remain the high and low goal posts it faces, and now that it’s approaching the $70.00 mark once again, it remains to be seen whether or not the market deems its latest quarterly performance as justifying a share price that finally breaks through the $73.00 mark or higher.
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If it is going to ride up, I think it’s probably going to have to surpass and hold above the $82.00 mark in order to give it a chance to take off. Even with some decent numbers, I don’t see there being enough catalysts at this time that would support that upward move.
At the same time, I also think it has support on the floor at approximately $51.00 per share, and don’t see it falling below that in the quarters ahead unless there’s a downward move associated with the type of recession that keeps people closer to home . That’s especially true with the Las Vegas market since it has been so hot lately.
I think the market is going to wait until later in the first half of 2023, or early in the second half, before it drives the share price up, assuming there’s a weak or no recession, and it continues to deliver on the top and bottom lines.
Conclusion
BYD has been doing well lately, but when measured by its share price, the market isn’t convinced that it has the ability to rocket past the $80.00 mark and higher, on a sustainable basis, in order to produce a growth trend that would drive it towards the $100.00 price level.
I think if it’s able to blow past $82.00 per share and hold above that, it could be the momentum the stock needs to challenge the $100.00 mark, or at the very least, the $90.00 price level.
What’s holding it back in my opinion is still the overhang of uncertainty that weighs on the general economy, with the uncertainty as to whether or not there will be a recession, and if so, how deep and long it’ll be. That will have to be cleared up before the share price will have the impetus behind it to drive sustainably higher. If there is a meaningful upward move in its share price in the near term, I don’t think it has the support it needs to remain at higher levels.
While I like what I’m seeing in its online segment and management fees, its biggest segment by far is gaming, and with it showing some cracks in the armor in the fourth quarter, I want to see how it does going forward, because if it is more than a temporary anomaly, it’s going to easily offset any growth in the other segments if the bottom falls out.
For these reasons, I don’t see the company breaking out beyond its price range over the last couple of years until there’s more clarity on the macro-economic front and we see how gaming revenue does in the quarters ahead.
