Is Las Vegas Finally on the Comeback Trail?

Gaming revenue on the Las Vegas Strip jumped 27.5% in July from a year earlier to $597.4 million, following two months of declines. Gaming revenue can swing wildly from one month to another, but a big number like this makes me wonder whether Las Vegas could be on a comeback instead of slipping slowly into the abyss, as Atlantic City did. So is this positive news from Las Vegas a blip or a trend?

Place your bets
To do our analysis, we should look at more long-term trends, such as 12-month gaming revenues. Over the past 12 months, Strip revenues are up 2.6%, a step in the right direction but not a big jump. Over the past three months, the gain goes down to 0.04% because of a terrible performance in May compared with a year earlier.

The gaming growth in July is a positive, no doubt, but it clearly isn't a long-term trend. Let's look at room rates and food and beverage trends to see if those are picking up.

A place to sleep -- or not
When the recession set in, room rates and occupancy took a hard hit. Since most resorts get 50% or more of their revenue from non-gambling activities, this is a big deal. Even if gaming isn't growing, room revenue can have a big impact on a casino's results.

We haven't seen incredible performance in day rates, but they have begun to improve in Las Vegas. Let's look at the average daily rate, revenue per available room, and the change over last year. MGM Resorts (NYSE: MGM  ) , Caesars Entertainment (Nasdaq: CZR  ) , Wynn Resorts (Nasdaq: WYNN  ) , and Las Vegas Sands (NYSE: LVS  ) have all managed to raise prices over the past year.

Company

Average Daily Rate

Change Y/Y

RevPAR

Change Y/Y

MGM Resorts $131 4% $124 5%
Caesars Entertainment $97 4.5% n/a n/a
Wynn Resorts $254 5.6% $222 3.8%
Las Vegas Sands $205               2.5% $176 (0.6%)

Source: Company earnings releases.

This trends are improving, but this is hardly a sign that Las Vegas is back in full force.

Eating and drinking
The big change in Las Vegas over the past 15 years or so is the big focus on food and beverage revenue, including the insanely priced restaurants, $20 drinks at nightclubs, and those crazy pool parties that have become a driver of young traffic to Las Vegas. In some places, the food and beverage show has become bigger than gaming itself, which has been good for Las Vegas.

Wynn's biggest revenue segment and fastest-growing segment overall in the last quarter was food and beverage, larger than gaming and room revenue. Revenue grew 9.8% to $138.4 million, driven by the nightclub business. Las Vegas Sands' Venetian hotel isn't quite as big into food and beverage, but with 6% growth in the segment and 20% of the business, it's a big deal.

Nightclubs, pool parties, and expensive diners are now driving the growth of Las Vegas. Gaming is no longer the growth engine. Is this a sign that Las Vegas is back? In a way it is. Younger people seem to be more focused on the party than the gambling, and if Las Vegas is going to get back on its feet, this seems to be the best way.

Tomorrow and beyond
There's still a lot of innovation taking place in the casino business, and gaming may once again become a growth driver. Companies such as Shuffle Master (Nasdaq: SHFL  ) are building capabilities to do online gaming and mobile gaming, which is where the revolution has begun. Players can now make bets from their hotel rooms or across the state with some mobile sports betting apps.

Foolish bottom line
Las Vegas is a lot like the current economy -- growing slowly but not impressively. I would call that anything but a comeback, and it would make me weary of any company with too much exposure to Las Vegas. Caesars and MGM Resorts are the heavy hitters in town, and with huge debt loads, they're both on my do-not-buy list.

But Las Vegas Sands is a stock that is on my radar, and we have a premium report highlighting the company's position in the gaming market. It's full of useful information, including reasons to buy the stock right now. Find out more about the report.

Fool contributor Travis Hoium manages an account that owns shares of Wynn Resorts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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