Caesars’ Sports-Betting Business Strengthens. What That Means for DraftKings.

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Caesars Entertainment

stock was higher Wednesday after the casino operator posted a strong quarter, especially in its digital sports-betting segment. That could bode well for

DraftKings
,
a competitor.

For the third quarter, Caesars (ticker: CZR) reported earnings of 24 cents a share from revenue of $2.89 billion under generally accepted accounting principles, while it lost $1.10 a share on revenue of $2.69 billion in the same period last year. Analysts surveyed by FactSet expected earnings of 11 cents a share, with revenue of $2.82 billion.

The company’s digital segment did notably well. Caesars reported a loss of $38 million for digital same-store adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization, in the third quarter. That was narrower than both the Ebitda loss of $164 million for the same period last year and the loss of $93.6 million that Wall Street analysts had expected.

The digital business reported Ebitda for October that was positive, which was 12 months ahead of schedule, the company said.

Revenue from the digital segment grew to $212 million from $96 million in the same period last year. Analysts expected digital revenue of $184.1 million.

“Our Digital business reported revenue growth of over 120% and a smaller than expected Ebitda loss in the quarter. On the sports betting side, we recently started to realize the benefits from the efforts that we’ve made over the summer to improve the overall experience for our customers,” Eric Hession, co-president of Caesars, said on the earnings conference call.

In a research note, J.P. Morgan analyst Joseph Greff wrote that the company’s digital strength in the quarter reflected “continued progress on incrementally more efficient marketing and product traction.”

Greff, who rates Caesars at Overweight with a $60 price target, also wrote that management hasn’t seen signs of a slowdown by consumers, saying and “this commentary is consistent with gaming (and lodging) companies that reported [third quarter] thus far.”

This could all be a good sign for

DraftKings

(DKNG), which is a digital sports betting company. If gambling companies really aren’t seeing a consumer slowdown yet, and with Caesars’ digital segment performing as well as it did, there is a good chance DraftKings could report a strong quarter.

DraftKings reports its third quarter financials on Friday. Analysts surveyed by FactSet are expecting the company to post a loss of 97 cents a share on revenue of $466 million.

Caesars stock was 2.7% higher Wednesday to $45.59 while DraftKings shares were up 1.1%.

Cowen analyst Stephen Glagola, who rates DraftKings as Outperform with a $35 price target, also wrote that the most important factor that could lift DraftKings and other online sports-betting stocks is more state-level legalization of sports gambling.

“DraftKings is now live in 18 States with online sports betting, following the launch in Kansas on September 1,” Glagola wrote. “We continue to expect the next two years to be robust for online sports betting legalization.”

Write to Angela Palumbo at [email protected]