Caesars Stock Climbs on Cut to Sports Betting Ad Spend. DraftKings, Take Note.

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Caesars

Entertainment stock rose close to 5% in premarket trading Wednesday after earnings, as CEO Tom Reeg said the company plans to cut sports betting ad spending.

Caesars (ticker: CZR), which acquired British gambling giant William Hill last year, now offers sports betting in 22 states and jurisdictions, launching in New York at the beginning of the year.

But launching in so many new states so quickly hasn’t come cheap in the market’s increasingly competitive field, as

DraftKings

(DKNG) earnings illustrated last week. 

Reeg said Caesars had exceeded its own expectations going from “an afterthought in the market” to grabbing 21% of the U.S. sports betting market through the past month, adding that Caesars was “moving toward profitability” in its sports betting and online gaming segment.

“You are going to see us dramatically curtail our traditional media spend effective immediately. We have accomplished what we set out to do. We set out to become a significant player, and it’s happened significantly quicker than we thought,” he said on an earnings call. Traditional media spend will be reserved primarily for new launch states.

Those comments helped the stock higher after fourth-quarter earnings initially sent the shares lower in after-hours trading Tuesday. Adjusted losses of $2.07 per share missed forecasts for a $0.91 per share loss, according to analysts polled by

FactSet
.

Losses narrowed in the fourth quarter to $434 million from $555 million the previous year. Revenue rose 72% year-over-year to $2.59 billion, narrowly beating the FactSet analyst consensus. Adjusted Ebitda of $581 million comfortably beat estimates of $336 million. 

DraftKings highlighted just how expensive launching in new states and attracting customers can be, when it reported earnings on Friday. During 2021, sales and marketing expenses totaled nearly $1 billion, about double the 2020 total.

In fact, the company said that if it had not planned to expand in any new states after Dec. 31, it would have expected positive adjusted Ebitda in the fourth quarter of 2022.

Instead, it now expects to reach that milestone in the fourth quarter of 2023. Its projected adjusted Ebitda loss of $825 million to $925 million was considerably worse than the $572 million consensus. The stock has fallen more than 30% year-to-date, compared with Caesars’ 18% fall as of Tuesday’s close.

With surging costs and intense competition driving concerns over the future profitability of the U.S. sports betting market’s major players, Caesars’ move to slash ad spending has understandably buoyed investors.

Write to Callum Keown at callum.keown@dowjones.com