Over the last few decades, the gambling industry has experienced a major geographic shift. As growth on the Las Vegas strip has dried up, major casino operators have moved to China's Macau in order to sustain growth. This has paid off big-time for some companies. Las Vegas Sands (NYSE:LVS) was the first major U.S. company to develop the area, and it still seems to be leading the market. The company's most recent figures have alleviated concerns over the possibility of growth slowing in the area, providing a boost to the industry.
Battle of the strips
A quick look at some growth figures will show just how much more lucrative Macau's gambling industry is than that of Las Vegas at the moment. Although the overall growth of China has been slowing, Macau is still charging on with expected growth of between 10% and 12% this month and around 16% for the full year. So far, gambling revenue is down 12% in Vegas this year. Macau also has a bigger market with $45 billion in revenue versus a total U.S. take of $38 billion.
U.S. casino operators that lack exposure to Macau are suffering as a result of this. Caesars Entertainment (NASDAQ:CZR), which owns iconic Strip locations such as Caesars Palace, has not posted an annual profit since 2009. Ratings agency S&P has called for a restructuring of its business, which is expected to burn over $1.2 billion in cash in 2014. Another worrying sign for Caesars and the U.S. gambling industry is the closure of an unprofitable Harrah's location in Mississippi, which will eliminate some 1,300 jobs.
Holding on to the lead
Due to its huge presence in Macau, Las Vegas Sands is the biggest casino operator in the world. The figures indicate that it may retain this position for some time. The company's net income soared 36% for the first quarter as its earnings per share of $0.95 beat the $0.92 consensus. The company's revenue also beat expectations as it rose 21% to $4 billion, some $100 million higher than analysts expected. This strength largely resulted from the company's excellent performance in Macau.
According to CEO Sheldon Adelson, all sectors of the company's business in Macau delivered growth. He commented that although gambling had only recently been legalized in this former Portuguese colony, "[the Chinese people] have been wanting to challenge luck for 3,000 years and nothing, through thick or thin, tall or short, slim or fat, nothing has stopped them, and I don't think anything will."
Let's take a look at the Macau operations in a bit more detail. The company's Macau properties enjoyed more than 17 million visits for the period, which generated some $940 million in EBITDA. The flagship property, The Venetian Macau, delivered a 35% increase in EBITDA. Rolling Chip volume, the sum of non-negotiable chips wagered and lost by VIP and premium players, was up 31.2% to $15.32 billion. The mass-market segment saw an even bigger increase, with the Non-Rolling Chip drop up more than 80% to a property record of $2.41 billion.
Moreover, the company is looking to further expand its Macau operations, with a new Integrated Resort on the Cotai Strip, the Parisian Macau, scheduled for completion in late 2015. The company's fourth property on the Cotai Strip will feature around 3,000 rooms, 450 game tables, 2,500 slot machines, and to top it all off, a replica Eiffel Tower, with an estimated cost of around $2.7 billion. The investment is encouraging, as it means that Sands does not yet see an end to Macau's spectacular growth.
The bottom line
As the world's gambling capital, Macau offers incredible opportunities for growth. Despite worries about the sustainability of this trend, so far no end is in sight. The first major U.S. casino operator to develop the Cotai Strip, Las Vegas Sands has a dominant position in the area and its China segment has been consistently delivering excellent results. Moreover, with expansions under way, the company expects to earn even more money in Macau.
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