Any investor who thought Wynn Resorts (WYNN -0.05%) was going to open Wynn Palace in Macau and have it begin racking in the cash like a decade-old property was sorely mistaken. Wynn just reported its first quarter that included the new property -- albeit with only 40 days of operations -- and the results fell a little short of expectations. But it'll take time for new resorts to ramp up, and for good reason.
What Q3 looked like
Overall, Wynn Resorts' revenue was up 11.4% in the third quarter to $1.11 billion and net loss was $17.4 million, or $0.17 per share. Adjusted EBITDA, which is a measure of cash flow coming from resorts, was up 9.1% to $305.4 million, primarily because of Wynn Palace.
I'll cover the individual resorts in more detail below, but the other notable items were Wynn's $2.0 billion in cash and $9.4 billion in debt to end the quarter. As the company built Wynn Palace, it became much more leveraged, which is something investors should watch long term.
What happened in Las Vegas
Strangely enough, Las Vegas has become the stalwart of companies like Wynn, Las Vegas Sands (LVS 1.17%), and MGM Resorts (MGM 0.58%). Last quarter, Wynn Las Vegas saw revenue rise 3.9% to $427.1 million and EBITDA jumped 10.1% to $128.9 million.
Non-casino revenue was up 4.2% in the quarter, showing continued improvement in locations off the casino floor. That's the strength of Wynn Las Vegas and The Strip in general, so investors should be comforted by that.
What happened in Macau
Macau is a much more complicated story than Las Vegas. Wynn Macau's revenue fell 11.5% to $518.1 million and EBITDA at the resort was down 7.3% to $151.0 million. VIP play was down 10.5% and mass-market volume fell 7.6%, so the losses were general. And those gaming figures didn't look good compared to 1.2% growth in Macau gaming overall.
But part of the reason Wynn Macau was down is because of the Wynn Palace opening. Over a 40-day period during the quarter, the property generated $164.6 million in revenue and $25.5 million in EBITDA. Overall, the company's Macau revenue was up significantly, but the new resort likely took customers from the old one. And Wynn Palace's results didn't hit analysts' expectations, a fact that is taking a toll on the stock price right now. But the launch of new resorts can be bumpy, and there are special challenges with this property in particular.
Why Wynn Palace will be a slow ramp
Steve Wynn talked extensively on the conference call about how Wynn Palace is surrounded by construction. MGM Resorts' new Cotai resort has large fences, and near the gondola station, the light rail system is under construction. Those assets will be a boost to Wynn Palace over long term, but until construction is completed sometime in the middle of next year, the casino's curb appeal will be lacking.
What isn't yet clear is how much money Wynn Palace will make long term. The history of Wynn's properties indicates that it will outperform its neighbors, meaning we can expect something close to the $1.1 billion in EBITDA of the much larger Venetian Macau, or the $639.0 million made at Sands Cotai Central. But we're a long way from hitting those results. And that's what has investors worried today, because the short-term figures didn't show the bright future of this resort.