Image source: Wynn Resorts.
The past two years have been rough for Wynn Resorts (WYNN -1.42%). The stock is down 66% over that time, and a once growing business faces a shrinking market in Macau and falling profits overall.
If you're looking for the drivers of Wynn's fall and what could drive its future, these three charts tell the story.
Macau takes its toll
Nothing drives Wynn Resorts more than Macau. The region makes up well over half of its revenue, and has made up over two-thirds of the top-line as recently as 2014. So when Macau's gaming market started to fall apart in 2014, it took Wynn with it.
Data source: Macau Gaming Inspection and Coordination Bureau. Chart by author.
The good news is that it appears Macau has hit bottom, and may now be slowly trending higher. Steve Wynn was very bullish on the company's fourth quarter 2015 results conference call, and with Wynn Palace set to open later this year it's an opportune time for Macau to finally start growing again.
Revenue and earnings have taken a beating
The chart below is a five year look at Wynn's revenue and net income. You can see just how much Macau's gaming revenue decline hit the company; in 2015, the company was left with net income that dropped nearly 75% from a year ago.
WYNN Revenue (TTM) data by YCharts
While the last two years have been bad, there might be some light at the end of the tunnel. As noted above, Macau's gaming revenue may have hit bottom, and Wynn Palace is on the way. The impact of Wynn Palace shouldn't be understated. The resort will be Wynn's first property in the Cotai region of Macau, where gaming dollars are trending, and will be Wynn's most expensive property ever at over $4 billion. If it lives up to expectations, the property could generate nearly $1 billion in EBITDA -- a proxy for cash flow from a resort -- in the first year it's open.
Debt is on the rise
Leverage has typically been a huge risk for gaming companies, and with Wynn Resorts it's no different. You can see below that debt has risen rapidly in the past five years.
WYNN Net Total Long Term Debt (Annual) data by YCharts
But unlike companies over-leveraging themselves, Wynn has been adding debt for good reason. Wynn Palace is being added to the portfolio, and will soon be a major contributor to cash flow. Wynn has also typically paid a hefty dividend, while managing to keep its debt/EBITDA ratio below 5x (until recently in anticipation of Wynn Palace).
Debt isn't a problem for Wynn Resorts yet, but it's worth keeping an eye on given the drop in Macau revenue. If Wynn Palace doesn't perform up to expectations, debt could be a bigger burden than Wynn would like.
Could 2016 be the year of a turnaround?
The charts above all look very bad for Wynn Resorts. But the upside is that the worst is probably behind us. Macau's gaming revenue may be starting to grow slowly, and billions invested in Wynn Palace will soon start to bear fruit. If the down trends that have hurt the company the past two years turn around, the recovery for Wynn Resorts in 2016 could be just as rapid as its recent fall.
