Macau's Growth Fuels Wynn Resorts

Wynn Resorts took market share in Macau last quarter, a shocking development considering it doesn't have prime real estate on the Cotai Strip.

Jan 31, 2014 at 11:15AM

Wynn Resorts (NASDAQ:WYNN) wowed investors with its earnings report last night, growing faster than Macau despite a location in the "Old Macau." It's a surprising result because Cotai has been stealing players away from the Macau Peninsula since Las Vegas Sands (NYSE:LVS) completed The Venetian Macau in 2007.

As critical mass has built on Cotai, and the hope was that Wynn Resorts and MGM Resorts (NYSE:MGM) could just stay afloat on the Macau Peninsula until their Cotai resorts are done. So, if Wynn is going to gain market share in the meantime, it's great news.

The numbers
Overall, Wynn's revenue was up 17.9% to $1.52 billion and EBITDA was up 25.1% to $498.4 million. Net income nearly doubled to $213.9 million, or $2.10 per share.

Macau was the clear winner with a 24.6% increase in revenue to $1.12 billion and a 32.1% increase in EBITDA to $374.2 million. Play improved in both the VIP segment, where Wynn specializes, and the mass market.

To give the quarter some context, I've laid out VIP (rolling chip volume) and mass market play (non-rolling chip volume) for Wynn and Las Vegas Sands' two most established resorts: The Venetian Macau and Sands Macau. The Venetian is on Cotai, which is like the Las Vegas Strip of Macau, and Sands Macau is on the older Macau Peninsula with Wynn.

Growth figures are year over year/quarter over quarter. For context, Macau's gaming grew 23.9% year over year in the fourth quarter and 12.3% quarter over quarter.

Resort 

Rolling Chip Volume

Non-Rolling Chip Volume

Revenue per Room

Wynn Macau

$34.4 billion

23.9%/13.5%

$292.9 million

34.6%/22.1%

$304

0.6%

The Venetian Macau

$16.8 billion

32.3%/18.4%

$2.3 billion

86.7%/13.1%

$254

10%

Sands Macau

$5.8 billion

0.8%/11.1%

$1,025 million

44.7%/16.9%

$269

10.7%

Source: Company earnings reports.

The Venetian Macau clearly took a considerable amount of share over the past year, but there's surprising strength at Wynn. I would expect to see slow growth on the Macau Peninsula, but that's not necessarily the case. Sands Macau's VIP play is slowing but the mass market is doing well, and what was shocking this quarter is that Wynn beat Macau's growth both in comparison to last year and last quarter. It's taking share despite having an inferior location.

Wynn Exterior Image

Wynn Las Vegas made $100 million more last year than any other resort in Las Vegas. Source: Wynn Resorts.

I'll also point out that rolling chip volume was more than double The Venetian Macau and larger than that and Sands Cotai Central combined. Las Vegas Sands is clearly winning the mass market, but Wynn is dominating VIP play, so there are two ways to play Macau there.

What this means for gaming companies
If both Wynn and Las Vegas Sands are taking market share, someone is losing it. MGM Resorts and Melco Crown are the two U.S.-traded companies to report next, and I'd say it's more likely that MGM lost ground than Melco Crown on Cotai, but we'll have to see the numbers.

After Las Vegas Sands' strong numbers in Macau earlier this week, it was surprising to see Wynn with a strong quarter as well. This bodes well for the company ahead of the opening of Wynn Palace in almost exactly two years. If Steve Wynn is right, we'll all be wowed by the property and it'll easily be the company's most profitable resort.

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Travis Hoium manages an account that owns shares of Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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