Image source: Wynn Resorts.
Macau has been the talk of the gaming world for a decade now, and for good reason. The region brought in $27.1 billion in gaming revenue over the past 12 months, dwarfing the Las Vegas Strip.
What's changed in the last few years is that Macau's gaming market has dropped by about 50% and Las Vegas continues slow, but steady, growth. Recently released revenue numbers out of Las Vegas show just how strong the region has been.
Las Vegas hot streak
In July, Las Vegas Strip revenue jumped 16.8% from a year ago to $613 million on strength across the board. Blackjack, craps, and slots all rose sharply in the region. Most importantly, baccarat, a game that was hurt by the decline in Chinese gamblers and is a majority of Macau revenue, made a recovery as well. Baccarat play was up 16.5% and mini-baccarat was up 12.1% in the month.
A single month of strength doesn't mean the Las Vegas Strip is going to grow double digits for the foreseeable future. After all, over the past 12 months, gaming revenue is up just 0.9% to $6.4 billion. But Las Vegas has been extremely stable as Macau has declined.
Image source: Las Vegas Sands.
Why Las Vegas casinos will outperform Macau in 2016
For gaming companies like MGM Resorts (MGM 2.00%), Las Vegas Sands (LVS 0.39%), and Wynn Resorts (WYNN +0.65%), the Las Vegas and Macau trends are very important. All three companies have exposure to both markets and Macau weakness has resulted in a decline in operations and stock prices over the past two years.
Las Vegas' solid performance should mean a steady rise in revenue and earnings from Las Vegas Strip properties for all three companies. There's volatility in those results, but long-term the trend is higher.
After a two-year decline, Macau is starting to stabilize overall, but that doesn't necessarily mean revenue and earnings will do the same at resorts. Wynn Palace just opened on Cotai and Las Vegas Sands and MGM Resorts are both completing new resorts nearby. Even if gaming revenue is flat in Macau over the next year, revenue and earnings at existing resorts will likely decline.
Right now, Las Vegas is like a slowly rising tide that is raising all boats and Macau is, at best, a flat water level that's adding more boats to the water. From that perspective, Las Vegas resorts will probably perform better on a relative basis this year and next.
Why you shouldn't give up on Macau
Las Vegas gaming resorts will likely grow more than their Macau neighbors this year, but that doesn't mean you should give up on Macau altogether. Above, I laid out the total gaming revenue for Macau and the Las Vegas Strip, and Macau is still four times as big as the Las Vegas Strip on that level.
The most profitable resort on the Las Vegas Strip, Wynn Las Vegas, generated $477 million in EBITDA for the year and Wynn and MGM both had resorts in Macau that beat that figure while Las Vegas Sands had two that topped it. The profits are still in Macau, even if gaming companies will see more growth in Las Vegas.
