Boyd Gaming Corporation

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 3/5

Boyd Gaming Corporation is a geographically diversified gaming entertainment company operating in several US states, focused on local and regional markets, with a mix of gaming, hotel, food and beverage, and other amenities.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

Boyd Gaming Corporation operates a diverse portfolio of gaming and entertainment properties across several states in the U.S., primarily focusing on locals and regional markets. Their revenue streams can be broadly classified into the following:

  • Gaming Revenues: This is the largest portion of Boyd’s revenue and comes from the various gaming operations across its properties. This involves the revenue generated from slot machines, table games, poker, and other gaming activities. The success in this segment is heavily dependent on the regulatory environment and customer volume. The company also generates revenues from online gaming, which has become increasingly important over the last years.
  • Food and Beverage: This segment is focused on the various restaurants, bars, and other food and beverage outlets within their properties.
  • Hotel Revenue: Revenue generated by the rooms at their hotel properties.
  • Other Revenue: Other sources that aren’t included elsewhere, such as management fees for operations the company manages for other owners, revenues from online gaming and other ancillary sales.

Industry and Competitive Landscape:

The gaming industry, particularly the regional segment where Boyd operates, is extremely competitive. The industry is generally subject to fluctuations based on the economic climate as consumers tend to spend less on leisure activities during downturns. In the last few years, we’ve witnessed the rise of online and sports-betting gaming, which have become important segments for traditional gaming companies to capitalize on. Boyd has been making efforts to grow its online segment by using well known brands to acquire market share.

The industry is characterized by several trends:

  • Consolidation: The industry has seen ongoing consolidation, with larger players like Caesars and Penn Entertainment buying up smaller properties and also the increase of online players. This is causing a very competitive landscape where economies of scale and market-share are key determinants of success.
  • Online Gaming: Online gaming has rapidly expanded and become an important source of revenue for companies like Boyd, that are focused on acquiring market share in this growing business.
  • Regulation: The industry is heavily regulated, and companies have to deal with several federal, state, and local regulations that can impede the business’s profitability. For example, casino licences can only be given by strict governmental bodies and the whole process requires significant investment from companies wishing to participate in the market.

Boyd’s competitive landscape consists of local and regional casinos, in which they have to compete based on location, quality of service, and amenities. They also have to compete with the large national casino brands such as Caesar’s, MGM, Penn. While they have good brand recognition and are familiar with the local populace, they have less financial power and ability to build strong national brands. Also, they face competition from companies in the online gambling world.

What Makes Boyd Different?

Boyd’s main strengths are:

  • Local and Regional Focus: Boyd has a very strong presence in several local and regional markets, where it has cultivated a large and loyal customer base. They tailor their offers to the people in those areas.
  • Proven Operating Capabilities: Boyd has a very long track record of running profitable and efficient casinos. They have developed a lot of expertise in managing properties over the years.
  • Diversified Portfolio: Boyd operates several different casinos, giving it a more diverse portfolio with access to different markets.

Despite the positives, some weaknesses include:

  • Heavier reliance on physical locations: A physical location can also be a weakness, due to the growing prevalence of online gaming. Customers will need to go to these locations, which implies that if the locations are out of the way of certain customers, they might choose a more easily accessible competitor.
  • Lower Brand Recognition in the Online World: As mentioned, Boyd has been trying to invest in online and sports betting, but it’s not a big player in that market yet, compared to competitors like DraftKings, Fanduel, and BetMGM.
  • Geographic limitations The moat is limited since new entrants can just build another casino in the states where it operates (if licensed), without a lot of trouble.

Moat Rating: 2/5

Boyd Gaming has a narrow moat, which is primarily based on location and some unique operating strategies, as opposed to strong branding or network effects. The company benefits from its local market presence and strong position in selected regional markets. The moat, however, is relatively weak, because physical location-based advantages can be challenged with a competing company in a close proximity and the lack of nationwide brand recognition. It might be hard for the company to replicate its moats in newer markets. And new forms of gaming, like online betting are a big threat, because it directly challenges Boyd’s traditional revenue streams and has a different set of winners.

Risks to the Moat and Business Resilience:

Several risks could erode Boyd’s moat and affect its resilience:

  • Regulatory Changes: Changes in gaming regulations, taxes, or licensing rules can significantly impact profitability and make it harder for the company to maintain its edge.
  • Increased Competition: Increased competition from new entrants, especially in the online space, as well as more aggressive offerings from other large gambling companies, could diminish the strength of its moats.
  • Economic Downturns: The company is susceptible to a reduction in profitability when customers spend less on leisure activities. If there’s a recession, people will be less likely to go to their locations, as they will want to save money.
  • Technological Disruption: New technologies that change the nature of gaming and betting can undermine Boyd’s traditional operations. For example, the rise of social gaming, video-games, and the Metaverse, can provide an alternative to traditional gambling.

On the other hand, Boyd has shown decent resilience throughout its history:

  • Diversification of the Portfolio: The company has diversified into new geographical locations and into new segments such as online gambling, which provides them with the chance to generate profits even if their traditional business is facing challenges.
  • Management Expertise: A long track record of profitability has been shown by the management and if they take action early, they can prevent big losses.
  • Loyal Customer Base: In its local markets, the company’s strong local relationships means that its customer base is more likely to return to their locations, even after changes in the economic situation.

Financial Analysis:

Let’s delve into Boyd’s financial performance based on their latest results:

  • Quarterly Performance (3 Months Ended September 30, 2023): The company reported revenue of $932.8 million, compared to $890.6 million in the same quarter a year ago. Gaming revenue made up $665 million and the rest was made by Food and Beverage, Room, Online and Other revenues. Operating income came at 231 million and net income came at $137 million, a slight drop from last year.
  • Year-to-Date Performance (Nine Months Ended September 30, 2023): Revenue was $2.78 billion, up from 2.66 billion YoY. Gaming Revenue came at $1.99B and operating income was $746.7 million and net income was $327 million. There was a good growth in online gaming, but costs have gone up as well.

  • Capital expenditures: The capital expenditure for the three and nine months ended September 30, 2023, are $126.6 million and $374.2 million respectively. The company continues to invest into its various gaming and entertainment properties to maintain them and make them modern.

  • Balance Sheet: Boyd’s balance sheet is relatively strong. As of September 30, 2023, it had $786.8 million in cash and cash equivalents, while having about $5.18 billion in total liabilities. The company also continues to pay a substantial portion of its profits to shareholders in the form of dividends. There was a decrease in long-term debt, which shows a reduction in their liabilities over time.

Based on the analysis, we can conclude that Boyd’s business is pretty solid. The revenue is growing, but profits are slightly declining due to higher costs. Management has a long track record of growing the company, and the balance sheet is good, though still reliant on debt.

Recent Concerns, Controversies, and Management’s Response:

  • Labor Disputes: The CEO of Boyd has been quoted as being extremely pleased with a new labor agreement made with their employees in Las Vegas. The company has worked hard to provide its employees a good working environment.
  • Economy: The CEO of the company has stated the ongoing economic volatility has been carefully considered by the management and they have prepared several strategies in case that it impacts their business. They mentioned that their properties offer a different experience than competitors and that gives them a safety measure for periods of economic volatility.
  • Inflation: The CEO of the company stated that they have been carefully watching the effects of inflation. But the increase in prices has been more than offset by increased revenue in all of its divisions.

Understandability: 2/5

The business is easy to understand in its simplest form but it has many specific factors that need to be taken into account for proper valuation. On the one hand, it’s easy to see that Boyd makes money from casinos that are geographically diversified, and have a mix of hotel and food and beverage businesses in addition to gaming. On the other hand, the complexity lies in understanding the competitive landscape with its mix of both regional and national players and an increasing focus on the new online segments, as well as the regulatory environment. Furthermore, the financial statements can also be complex to navigate.

Balance Sheet Health: 3/5

The balance sheet isn’t strong but it’s not bad either. The debt levels are reasonably high but are being reduced, the company has plenty of cash to weather the storm and seems unlikely to face default on any of its financial obligations. The liabilities are pretty high, which could become an impediment to future growth, but not enough to mark it as financially unhealthy. The company also keeps paying out dividends, which means the management has confidence in future profits.