Wynn Holds a Hot Hand in Macau

Until it completes its resort on Cotai, Wynn Resorts (NASDAQ: WYNN  ) is playing a game of catch-up in Macau. Las Vegas Sands (NYSE: LVS  ) and Melco Crown have gotten a head start on Cotai, which is the new hot spot on the peninsula, and Wynn's results will lag as a consequence.

But Wynn has managed to gain market share despite these challenges and is set up well as it builds its Cotai resort.

A view of Wynn Las Vegas, which has been overtaken by Macau as the growth driver for Wynn Resorts. Source: Wynn Resorts.

Outclassing the competition on Macau
Wynn's first-quarter revenue grew 9.8% to $1.5 billion on 14.2% growth in Macau and a slight decline in Las Vegas revenue. Net income was up 11.8% to $226.9 million, or $2.22 per share.  

Those numbers may not look impressive on the surface, but the story changes when you dig into Wynn's Macau gaming data. VIP table volume jumped 26.7% in the quarter and mass-market table play was up 23.7%, compared to 19.8% growth in Macau as a whole.

Revenue wasn't up quite as much, but that's because hold, or luck, worked against Wynn last quarter.

The numbers are strong on their own, but they also need some context. Sands Macau, which is also located on the Macau Peninsula, saw VIP volume fall 15.7% in the first quarter to $5.4 billion, versus $36 billion at Wynn. Sands' Venetian Macau, which is on fast-growing Cotai, grew faster than Wynn Macau's VIP play, but it's less than half the size.  

Resort 

Rolling Chip Volume

Change Year Over Year

Wynn Macau

$36 billion

26.7%

Venetian Macau

$15.3 billion

31.2%

Sands Macau

$5.4 billion

(15.7%)

Source: Company earnings reports.

Wynn focuses on the VIP segment, which still provides about 70% of Macau's gaming revenue. It doesn't get nearly as much revenue from the mass market, where Las Vegas Sands dominates, but it's doing extremely well in its bread-and-butter market.

Cotai is the next stop
What investors should really be looking forward to is Wynn Palace on Cotai, which is set to open in early 2016. With Wynn Macau performing as well as it is on the Macau Peninsula, it's reasonable to assume that Wynn Palace will do even better.

By the time it opens, the Macau market may be big enough to generate more than $2 billion in EBITDA at the resort, thus paying off the $4 billion project in about two years. For investors, that's a game changer and something that could only be derailed by a major drop in Macau's gaming.

Wynn is still a top gaming stock
I wouldn't bet on any gaming stock outside of Macau, and for the few options in Macau, Wynn is a top pick. Despite having a less than ideal location today, the company is performing incredibly well, stealing market share in the process. Investors should be comfortable owning the stock for years to come and should be rewarded with strong growth once Wynn Palace opens up.

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