This Could Be a Huge Setback for Las Vegas Sands, Wynn, and Melco Crown

With each of the major names in Macau building new resorts on the Cotai strip, shouldn't we be more concerned about which do, and more importantly do not, yet have gaming licenses from the Macau government?

Jul 14, 2014 at 2:32PM

Macau Night Via Four Seasons
Macau's beautiful skyline gets better and better. By the end of 2015, it will be even more amazing than this. Photo: Four Seasons

Las Vegas Sands (NYSE:LVS), Melco Crown (NASDAQ:MPEL), and Wynn Resorts (NASDAQ:WYNN) are each preparing for their new resorts to open on Macau's Cotai Strip in the next 18 months. Macau has brought incredible profits over the last decade and a half since beginning its gaming growth story in 2002. Amazingly, the growth has continued with as much as 21% revenue growth for Las Vegas Sands in Q1 of this year over Q1 2013. However, with all of these new casinos coming, there is one important issue to continue watching while you are thinking of placing your bets.

Macau Skyline And Logo

Photos: ChinaTourAdvisors and Macau Government, Edited: Bradley Seth McNew

All of these casino resorts are under construction and preparing to be opened as early as summer of 2015 for Melco Crown's Studio City and Las Vegas Sands The Parisian, with Wynn Palace likely coming by the end of 2015. However, we have yet to get confirmation that the Macau government has granted gaming licenses for these new resorts, and the deciding officials have remained relatively tight-lipped on the subject. Without such casino approval, the resorts would essentially be luxury hotels.

What's at stake? Curbed growth
Casino companies in Macau have posted incredibly strong 2013 earnings, and that trend has stayed strong through the first quarter of 2014. Wynn Resorts and Melco Crown have been expanding rapidly in Macau over the last decade with revenues that grew in 2014 Q1 by 10% and 19% year over year, respectively. For Las Vegas Sands, growth this year has been even more impressive with revenue of a record $4.01 billion, up over 21% year over year, highest in the industry. While these growth rates are impressive, to sustain this growth the gaming companies will need to continue drawing in higher and higher visitation. Enter the mass market segment.

Operations in Macau over the last decade have been largely focused on VIPs -- the high rollers of the gaming industry. However, the mass-market segment of gamblers going forward is what will drive increased visitation and sustainable growth. Wynn and Melco Crown are both betting big on the mass market segment, but once again, it's Las Vegas Sands that is doing it the best. Melco Crown currently derives more than two-thirds of its EBITDA from this segment. Las Vegas Sands took a huge winning from mass table revenues in 2013 with a 58.3% jump in this revenue segment from Q4 2012 to the same quarter 2013.

Macao Mass Market Table Revenue By Operator
Source: Sands 2013 earnings presentation

With increased wealth and leisure travel spending by mainland Chinese, Macau's largest audience already, there is still plenty of room for this segment to grow. With advancements like a new bridge from Hong Kong to Macau, a better rail system linking separate parts of the island for faster transportation to and around the island, and digital passport entry and exit into and out of Hong Kong and Macau, there are plenty of reasons to be bullish that this increase in visitation will come. Therefore, the casino companies are confident that if they build it, they will come. However, to get the kinds of revenues investors have come to expect, those visitors will also need to be able to gamble at these new resorts.

Even without official gaming approval, casino companies are still building and remain optimistic
These casino operators are unfazed by the risk of the Macau government's not handing over gaming licenses right away. Instead, they are continuing to focus on Macau's massive potential for even more growth than we've already seen. To gain on this growth, especially in terms of driving in new mass market gamers, Las Vegas Sands, Melco Crown, and Wynn Resorts are each ramping up production on their upcoming casinos.

Steven Wynn Introduces His New Cotai Casino

Steven Wynn shows off his new Wynn resort. Photo: Reuters

Wynn Resorts is hoping for a surge in revenues from the addition of its $4 billion Wynn Palace Cotai, which could open as early as the end of 2015. This amazing new resort will help to increase the number of guests that Wynn can host in Macau. One highlight for the company's most recent quarter is that mass market operations led to an increased room occupancy rate from 93% in Q1 2013 to 98% during the same period this year. This new casino is a bet on driving even more guests to Wynn properties in Macau.

But before Wynn can open the doors to the Wynn Palace, Melco Crown's Studio City resort will already be open. This cinematically-themed integrated resort on the Cotai strip is set to be better than anything Melco Crown has produced yet, with 500 gaming tables, more than 1,500 slot machines, a five-star hotel, shopping mall, and more.

Lawrence Ho Melco Crown Via Businessweek

Melco Crown's CEO Lawrence Ho has continued to drive growth in this quickly expanding company. Photo: Bloomberg

According to the Crown resorts website, Studio City will be a mass-market focused, large-scale integrated resort that incorporates gaming and non-gaming amenities. But even here they throw in "Subject to receiving the necessary approvals from the Macau Government..."

Analysts have said that Studio City will be the "best situated" resort on the Cotai strip, as it will be directly adjacent to the Lotus Bridge that connects the strip to mainland China via Hengqin Island, and is on a proposed stop for the new intercity light rail coming next year.

Close sources, including the Macau Business Daily, have reported that very positive government commentary has been made by government officials that Melco Crown will be able to offer casino gaming at Studio City.

Yet once again, Las Vegas Sands is still the one winning on this one as well. The two casinos on the strip owned by Sands, The Venetian Macao and the Sands Cotai Central, have already posted solid growth and revenue.

The Parisian
The coming Parisian resort on Cotai, the biggest of the coming casinos. Photo: Las Vegas Sands

Las Vegas Sands is preparing its own newest integrated casino resort, its fourth resort and fifth casino on the Cotai Strip. The Parisian, which will open in mid-2015 in a race with Melco Crown, is set to be a major advance for gaming in Macau. This resort will be the biggest of the new resorts put up by Wynn or Melco Crown with over 3,000 hotel rooms and suites, roughly 450 table games, 2,500 slots, a retail mall, and an impressive replica of the Eiffel Tower at 50% scale.

Foolish move for investors: Stick with it
One thing we do know is that the Macau government, per leadership guidance from Beijing, is seeking to diversify Macau with more than just gaming revenue. However, there is very little reason to believe that these casinos are not going to get their gaming licenses. With billions in tax revenue on the line, it's a good bet that the Macau government wants to grant gaming licenses for these coming casinos. Furthermore, if Las Vegas Sands, Melco Crown, and Wynn Resorts, who are much closer with the Macau government than we are, are each confident enough to continue building these resort casinos, then we should be confident as well. Of course, for the safest bet, continue watching for official announcements that gaming licenses have been granted. Otherwise, these coming casinos will likely be huge profit drivers, especially for Las Vegas Sands, and Foolish investors might want to bet early.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Bradley Seth McNew owns shares of Las Vegas Sands. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers