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Wynn Resorts Stuck Waiting for Cotai Resort

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As small as Macau is, it's already turning into a regional affair. The Cotai Strip is acting completely differently from the Macau Peninsula. and it's having a big impact on the fortunes of the gaming operators there.

Las Vegas Sands (NYSE: LVS  ) reported earnings last week, and while Sands Cotai Central was the biggest addition to its revenue, the trends showed that mass-market table play will be a long-term driver. Venetian Macau saw a 56.1% increase in mass-market volume and Four Seasons Macau was up 104.5%, compared with just a 14.8% increase at Sands Macau on the Macau Peninsula. ¬†

When Wynn Resorts (NASDAQ: WYNN  ) reported earnings this morning, investors expected to see more of the same. Results generally held true to form, with VIP table game volume down 1.6% and mass market volume up 8.5% in the second quarter. That's a nice increase in the mass market but isn't anywhere near what Las Vegas Sands is doing on Cotai.

Overall, Wynn is pretty much holding steady in Macau until its new resort opens on Cotai in early 2016. Revenue was up 2.6% to $930.9 million, property EBITDA was down 4% to $290.1 million, and adjusted net income rose 10% to $152.9 million, or $1.51 per share. That's fairly strong, because holding steady or slight increases in revenue and EBITDA is about all investors can expect until its Cotai resort is ready.

The following graphic shows how important Cotai is from a geographic perspective and why Las Vegas Sands' figures were so much better. Las Vegas Sands, Melco Crown (NASDAQ: MPEL  ) , and Galaxy have built new resorts there, and they're all growing quickly on Cotai, sucking the air out of the Macau Peninsula. That won't change until Wynn and MGM Resorts complete resorts there. You can think of it as downtown Las Vegas versus The Strip in the late 1980s.

Beyond Macau
Las Vegas was a lot better for Wynn, but it was affected heavily by luck. Net revenue rose 16.2% to $401.4 million, and EBITDA was up 65.6% to $135.7 million, but table game drop fell 4.8%, showing slowing gaming volume. The big revenue increase was due to a comparison to a very unlucky quarter in 2012.

Beyond gaming, non-casino revenue was up 3.9% to $302.1 million, and since non-casino revenue accounts for three-fourths of Wynn's Las Vegas revenue, this bodes well for the long-term picture.

Foolish bottom line
Like Las Vegas Sands, Wynn's results fell short of expectations, but the two companies are on two different paths. Las Vegas Sands and Melco Crown will continue to grow and take share as Cotai develops critical mass, while Wynn and MGM just hope to hold steady until their Cotai resorts are complete.

For investors (like me), the hope is that revenue and EBITDA will double when the Cotai resort opens, but it's a long wait until that happens. Until then, even mild growth is a slight positive for Wynn Resorts, and that's what we got in the second quarter.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 29, 2013, at 7:32 PM, prginww wrote:

    I noticed in the key for the map included in this column that Melco's Studio City parcel uses the term "gamble here".

    While Melco's CEO, Lawrence Ho, is insistent that he will get a gaming license for the resort, it was never initially approved for one and one has yet to be approved.

    While it's possible, maybe even probable, that a gaming license will be issued for S.C., we need to remember that those covenants were applied at the same time as Sands China was verbally assured by then-SAR CEO Edmund Ho of retaining rights to build gaming resorts on Cotai parcels 7 and 8... and assurance that has since been withdrawn and denied.

    Separately, I noticed today that the aggregate analyst's estimate for LVS's Q3 earnings has ticked up yet another notch, to 73 cents.

    Thus, the history of the aggregate is: 68 cents 90 days ago... to 70 cents 60 days ago... to 71 cents 30 days ago... to 72 cents a week ago... to 73 cents currently......

    .... if only Wynn could see such a consistent and smooth upward trajectory of expectations by the 24 "real" analysts who cover these stocks.


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