Alan R. Woinski, Editor
Sars – Déjà vu
With Chinese New Year just a few weeks away and expectations for an end to the months of declining GGR and slowing visitation growth in Macau, the region is up against an obstacle that nobody seems to want to talk about, a mysterious “pneumonia of unknown origin.”
With the exception of President Xi’s crusade against graft and its impact on the VIP business in Macau, the region has only had one serious issue that impacted Macau stock prices for an extended period of time as well as visitation and revenue and that was the Sars scare. Sars was a coronavirus type issue, basically something like the common cold but during the period between November 2002 and July 2003, 774 deaths in 37 countries were attributed to Sars. Despite that being such a low amount, hysteria gripped Asia with air passengers having their temperature taken before being allowed onto flights, many people walking around with masks, and a plunge in Macau gaming stocks as concerns mounted over whether anyone would “risk their life” engaging in a social environment like gambling.
Macau authorities raised the health threat alert to Level III in the face of the pneumonia of unknown origin arising from Wuhan city in central China. That means temperature measuring equipment will be at border posts and police are authorized to carry out quarantine measures, should they become necessary. Does that sound familiar?
While nobody is talking about this, yet, we believe they will be and this could not come at a more delicate time. If January does not show a year over year increase and if Chinese New Year being in January instead of February this year does not jump start visitation, we believe the big gains seen in the group the past couple of months, for once on expectations of a future rebound, could evaporate quickly. We believe this health scare, like Sars, is already getting overblown and hopefully will be contained quickly but when you hear health officials talking about an abnormal health situation and you already have the Hong Kong protests as one strike against Macau, we believe it is prudent to alert you to this situation.
Diamond Eagle Acquisition Corp filed their proxy and registration statement ahead of their planned reverse merger deal with DraftKings. While we aren’t surprised, we are quite sure there are plenty of uninformed members of the media and investment community that will be shocked to learn that DraftKings lost $114 million in the first 9 months of 2019. That is a 50% increase in the losses as their revenue jumped. Losing $114 million on $192 million in revenue may sound like a company that should not be going public, but it actually is an improvement over when they were just a Daily Fantasy Sports company and spent more on advertising and marketing than they generated in revenue.
Either way, this justifies our skepticism over the valuation numbers being thrown around because, like Uber, Lyft, Airbnb, WeWork and Oyo, there is no near term profitability on the horizon for DraftKings and they will continue to need financing on a regular basis. While good for the investment banking community, with an uncertain global economy and fears already being stoked of a stock market correction, would you really invest a lot of money in a company that only exists as long as there are investors willing to continue to fund their losses?
We continue to believe that this should be viewed more as a sign that Flutter Entertainment is getting a profitable The Stars Group cheap and that Scientific Games and IGT are not getting any credit for their online gaming and sports betting businesses.
InstaGamingGram is an institutional-oriented intra day news blast that gives up to the minute information and analysis on events that are impacting the casino gaming world and gaming stocks.
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