Bally’s Corporation Growth, Future Prospects (NYSE:BALY)

alfexe Thesis Bally’s Corp. (NYSE:BALY) demonstrates potential for future growth driven by strategic expansions and improving operational efficiency. The company has a higher gross margin than industry peers. Its advances in online sports betting and iGaming provide a solid foundation for enhanced profitability. Bally could achieve revenue and growth in earnings. This would bring its market valuation closer to the industry standard if management can navigate their financial and operational challenges. This would reflect increased investor confidence and a more competitive market position, which is why I see strong potential in Bally’s ability to grow and thrive. Introduction Bally’s Corporation operates casinos, resorts, and online gaming platforms. It operates and oversees 16 casinos in 10 different states. It offers online sports betting and iGaming services and has access to sports betting licenses in 18 states. Bally’s also owns a horse racetrack situated in Colorado and a golf course in New York. They are now focusing on expanding their gaming options and improving facilities. This way, they hope to attract more customers and increase profits. Financial Performance Quarter Ended 2023-03-31 2023-06-30 2023-09-30 2023-12-31 2024-03-31 Revenue 598.72 606.21 632.48 611.67 618.48 Revenue Growth (YoY) 9.20% 9.72% 9.38% 6.07% 3.30% Cost of Revenue 270.01 271.22 287.17 276.78 284.26 Gross Profit 328.72 334.99 345.31 334.89 334.23 Selling, General & Admin 251.61 249.96 230.58 381.83 248.44 Operating Expenses -48.02 329.01 308.07 650.83 408.18 Operating Income 376.73 5.98 37.24 -315.94 -73.96 Other Expense / Income -2.61 -6.81 -15.53 37.14 -4.55 Net Income 178.34 -25.65 -61.8 -278.38 -173.91 Gross Margin 54.90% 55.26% 54.60% 54.75% 54.04% Operating Margin 62.92% 0.99% 5.89% -51.65% -11.96% Profit Margin 29.79% -4.23% -9.77% -45.51% -28.12% Click to enlarge Source: Seeking Alpha (Retrieved on 06-19-2024). Financials in millions USD. You can see that Bally’s has significant growth and changes in its revenue structure. I believe that this highlights two important trends: First, there has been substantial growth in the North America Interactive segment. In the first quarter of 2024, revenue from this segment increased by 70.2% year-over-year, reaching $41.5 million. This growth is mostly because of the expansion of iGaming operations in New Jersey and Pennsylvania. The successful launch of iGaming in Rhode Island in March 2024 generated $1.2 million in gross gaming revenue in its first month. The transition to the Kambi and White Hat platforms has also played a crucial role in enhancing customer experience and capturing a larger market share in the iGaming sector. I expect this increase in interactive gaming revenue to continue driving Bally’s growth, especially as more states in North America potentially legalize iGaming and online sports betting (CasinoBeats, Bally’s Earnings Transcript). Second, Bally’s has faced challenges with its International Interactive segment, where revenue declined by 4.4% year-over-year. Despite this overall decline, the UK operations within this segment grew by 12% (7% on a constant currency basis). The decline is mostly because of operations outside the UK and a strategic shift to focus on maximizing profit yield instead of pursuing uneconomic growth. This strategic pivot is aimed at enhancing profitability by optimizing marketing investments and reducing costs. As part of this strategy, Bally’s is also poised to benefit from the recent removal of advertising restrictions in Spain. I expect this to boost their investment and growth in that market. I believe these efforts reflect Bally’s approach to stabilizing and improving its international operations while leveraging specific market opportunities for growth (CasinoBeats, Bally’s Earnings Release). I think these trends highlight Bally’s strategic efforts to grow its interactive gaming segments in key markets while addressing challenges in international operations through targeted investments and cost management. Opportunities First, Bally’s is expanding its online sports betting and iGaming services in both the UK and North America. The launch of online sports betting is set to complement their existing iGaming offerings in the UK. This allows Bally’s to capture a larger share of the gaming wallet from current customers who are already spending on sports offerings with competitors. I see that this strategy is leveraging the cost-effective nature of acquiring new customers through sports betting. This can subsequently drive higher revenue and profitability. The company is also poised to benefit from the recent removal of advertising restrictions in Spain. I expect this to enable increased investment and growth in that market (CasinoBeats, Bally’s Earnings Release). In North America, Bally’s is focusing on its iGaming operations. They are doing this particularly in New Jersey, Pennsylvania, and Rhode Island. The successful launch of iGaming in Rhode Island generated $1.2 million in gross gaming revenue in just one month. This is a significant contributor to this growth. The transition to the Kambi and White Hat platforms has also enhanced customer experience. This is helping Bally’s capture a larger market share in the iGaming sector. I expect this expansion into online sports betting and iGaming to boost Bally’s overall market presence. I believe it will attract a broader audience and increase engagement with their platforms. This should generate substantial new revenue streams and improve their competitive positioning in these lucrative markets (CasinoBeats, Bally’s Earnings Transcript). Second, Bally’s is enhancing its VIP and loyalty programs by integrating local dining establishments and outlets with Bally’s comp currency at their Chicago temporary facility. This would be enhancing customer loyalty and increasing repeat visitation. As far as I can see, the Bally’s can attract and retain high-value customers by offering more value through partnerships with local businesses and improving the overall VIP experience. Enhanced loyalty programs are proven to increase customer lifetime value and encourage more frequent visits. This will lead to a higher overall revenue and profitability. Providing a superior customer experience can also set Bally’s apart from competitors. I think this fosters brand loyalty and encourages positive word-of-mouth, which is critical for long-term growth. I see these improvements in loyalty programs as part of Bally’s broader strategy to leverage customer insights and expand their market presence in key regions (Bally’s Earnings Release, Bally’s Earnings Transcript). So we have the introduction of online sports betting and iGaming in the UK and North America, together with enhanced VIP and loyalty programs. This shows Bally’s commitment to leveraging new opportunities and optimizing existing operations. I believe these initiatives will drive revenue growth and profitability. With these efforts, I expect it to attract more customers, enhance engagement, and improve Bally’s competitive position in the gaming industry. Challenges Of course, there are some challenges that the Bally’s Corporation is facing as it looks to expand and enhance. Firstly, the company is dealing with high leverage and substantial debt. Bally’s financial stability is being risked by elevated debt levels. This could also limit the ability to secure favorable financing terms in the nearby and far future. Analysts have concerns about the company’s upcoming capital needs, especially with its involvement in capital-intensive projects like the construction of the permanent casino in Chicago. I see these financial challenges as critical factors. Maybe this could impact Bally’s growth and stability. This project, while critical to Bally’s long-term growth, requires substantial investment and has been slower than expected, adding to the financial strain. The uncertainties linked to these large-scale developments could pressure Bally’s stock and impact its near-term performance (Markets Insider, Business Insider). Second, Bally’s is navigating operational challenges with its diverse portfolio of casinos and resorts. Unfavorable weather conditions significantly impacted the performance of its Casino & Resorts portfolio in the first quarter of 2024. While there was some improvement in February and March, it was not enough to offset the negative impact experienced in January. The company is also dealing with operational disruptions at key locations. Construction on the Providence Bridge in Rhode Island has affected operations at Twin River Casino. Because of these operational challenges, I can see a higher chance to hinder Bally’s ability to achieve consistent revenue growth and maintain profitability (Markets Insider, Bally’s Earnings Release). Valuation Gross Margin PS ratio TTM PE Ratio TTM Growth revenue Growth EPS Revenue growth NY (analyst estimate) Earnings growth NY (analyst estimate) Bally’s 41% 0.3 -3.97 9% 52% 4% 37% Industry 36% 1.98 10.31 10% 36% 2% 3% Click to enlarge Source: Yahoo Finance. The industry medians are calculated with data available from 4 small market cap companies in the Resorts & Casinos industry. Data is retrieved on 06-19-2024. Comparing Bally’s Corporation’s financial metrics to the industry median shows several differences. Bally’s gross margin stands higher than the industry median of 36% with a 41%. I think this indicates Bally’s efficiency in managing its cost of goods sold relative to its revenue is better than its peers. Bally’s P/S ratio TTM (Price to Sales ratio) however, is significantly lower at 0.3 compared to the industry median of 1.98. In my opinion, this suggests that the market values Bally’s sales less than those of its industry counterparts, potentially due to perceived higher risks or lower growth prospects. Bally’s P/E ratio TTM (Price to Earnings ratio) is also negative at -3.97, reflecting net losses, whereas the industry median P/E ratio is 10.31, showing that industry peers are generally profitable and valued based on earnings. I estimate Bally’s future growth rate could be around 6%. This would probably balance the positive impact of new services and expansions against operational and financial hurdles. Analysts estimate Bally’s revenue growth for the next year at 4% and earnings growth at 37%. If Bally’s addresses its challenges and captures growth opportunities, it could achieve a slightly higher revenue growth rate, maybe around 6%. With this adjusted growth rate, Bally’s P/S ratio might increase to 1.0. This aligns closer to the industry, which shows improved market confidence. Its P/E ratio could improve to around 8.0 if Bally’s moves towards profitability and stabilizes earnings. This is still below the industry median but shows progress. When considering both risks and growth potential, the estimates show a valuation that is more fair. Conclusion I am bullish on Bally’s Corporation. Even despite its current financial challenges and operational hurdles. This because the company’s higher-than-industry gross margin and expansion into online sports betting and iGaming present significant growth opportunities. If Bally’s manages its high leverage and completes key projects, it stands to improve its market valuation significantly. With potential improvements in revenue and earnings growth, Bally’s P/S and P/E ratios could align more closely with industry medians. This would reflect enhanced investor confidence and a more favorable market position. I see that the company has the potential to overcome its challenges and take advantage of these opportunities.

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