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Casino resort and entertainment company Red Rock Resorts (NASDAQ:RRR) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 7.1% year on year to $495.7 million. Its GAAP profit of $0.76 per share was 58.7% above analysts’ consensus estimates.

Is now the time to buy Red Rock Resorts? Find out in our full research report.

Red Rock Resorts (RRR) Q4 CY2024 Highlights:

• Revenue: $495.7 million vs analyst estimates of $488.9 million (7.1% year-on-year growth, 1.4% beat)

• EPS (GAAP): $0.76 vs analyst estimates of $0.48 (58.7% beat)

• Adjusted EBITDA: $202.4 million vs analyst estimates of $198.1 million (40.8% margin, 2.1% beat)

• Operating Margin: 28.7%, down from 37.3% in the same quarter last year

• Market Capitalization: $2.98 billion

Company Overview

Founded in 1976, Red Rock Resorts (NASDAQ:RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.

Casino Operator

Casino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can't do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.

Sales Growth

A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Red Rock Resorts struggled to consistently increase demand as its $1.94 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and is a sign of poor business quality.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Red Rock Resorts’s annualized revenue growth of 8% over the last two years is above its five-year trend, but we were still disappointed by the results. Note that COVID hurt Red Rock Resorts’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

We can better understand the company’s revenue dynamics by analyzing its three most important segments: Casino, Dining, and Hotel, which are 65.9%, 18.6%, and 10.6% of revenue. Over the last two years, Red Rock Resorts’s revenues in all three segments increased. Its Casino revenue (Blackjack, Poker) averaged year-on-year growth of 6.8% while its Dining (food and beverage) and Hotel (overnight stays) revenues averaged 13% and 10.7%.

This quarter, Red Rock Resorts reported year-on-year revenue growth of 7.1%, and its $495.7 million of revenue exceeded Wall Street’s estimates by 1.4%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges.

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Cash Is King

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Over the last two years, Red Rock Resorts’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 2%, meaning it lit $1.96 of cash on fire for every $100 in revenue. This is a stark contrast from its operating margin, and its investments in working capital/capital expenditures are the primary culprit.

Key Takeaways from Red Rock Resorts’s Q4 Results

We liked how Red Rock Resorts beat analysts’ revenue and EBITDA expectations this quarter. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 2.8% to $52.35 immediately following the results.

Red Rock Resorts put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.