There's no doubt that Airbnb and its similar counterparts are a risk for traditional hotel companies that are increasingly facing a changing consumer landscape -- one that seems to be very interested in the kind of service Airbnb offers. Airbnb management predicts $10 billion in revenue by 2020, about 70% of Marriott International's (NASDAQ:MAR) 2015 revenue.
However, while Airbnb is disrupting the hotel industry, one segment of the market is much less worried: casino hotels in Las Vegas like MGM Resorts International (NYSE:MGM) and Wynn Resorts (NASDAQ:WYNN).
Airbnb and the traditional hotel disruption
Airbnb started just eight years ago, but during that short time, the service has grown extensively to now serve more than 60 million guests through 2 million listings in nearly every country worldwide. "Whether an apartment for a night, a castle for a week, or a villa for a month," it says on the company's site, "Airbnb connects people to unique travel experiences, at any price point, in more than 34,000 cities and 191 countries."
The still-private company has been getting a lot of interest from the investment community lately, not only by companies that have invested directly in it (valuing it at around $30 billion, which is larger than Hilton Worldwide's market cap of $23 billion, and Marriott's market cap of $29 billion, even following the Starwood merger) but also increasingly from investors in traditional hotel companies that are afraid of what this renewed competition could mean for the hotel industry's growth prospects. Airbnb has its own risks, such as the recent legislation in New York, but there's no doubt its business model of allowing consumers to share each others' homes could negatively affect sales for traditional hotel companies.
Why Las Vegas hotels aren't worried
Las Vegas hotels are known not only for their extravagance and unique themes, but also their sheer size. By room count, 17 of the largest 20 hotels in the United States and 27 of the largest hotels in the world are in Las Vegas. The largest hotel in the country is Las Vegas Sands' (NYSE:LVS) The Venetian (and adjacent Palazzo) with about 7,200 rooms total. The reasoning for large hotels is that Las Vegas welcomed more than 42 million guests in 2015, and that number is expected to continue growing to more than 43 million by the end of 2016.
Of the out-of-town visitors to Las Vegas last year, 96% stayed in hotels, according to a study by the Las Vegas Convention and Visitors Authority (LVCVA), and about 75% of those stayed on the Las Vegas Strip. During their stay, the length of which averaged 3.4 nights, visitors spent an average of nearly $900 (not including the $102 night average on hotel rooms) on things like dining, shopping, seeing shows, and of course, gambling -- all things that are available inside of the hotel resort that would not be available through an Airbnb host.
Because there are very few residential buildings on the strip in comparison, it looks like the Las Vegas hotels that cater to this growing visitor audience are pretty well insulated from the disruption risk the broader hotel industry faces from Airbnb. Additionally, the visitors staying in Las Vegas so far seem to be pretty happy. For the second year in a row, 100% of respondents to the LVCVA's survey said they were satisfied or very satisfied with their trip (88% claiming "very satisfied," the highest level), and 90% said they were very likely or extremely likely to visit Las Vegas again.
The best bets on Las Vegas hotels
While Las Vegas Sands' massive Venetian and Palazzo hotel claims the top spot by size, it's actually MGM and Wynn Resorts that look to have the best hotel operations in Vegas now. MGM controls around half of the roughly 70,000 rooms on the Strip. MGM, in fact, dominates the Strip on both ends, with more properties than any other resort company varying from the lower price point of the market, like the Luxor, to the higher end, like the Bellagio, and everything in between.
Beyond having so many hotel rooms in Las Vegas, MGM is also working to control much more of the entertainment and convention business in Las Vegas. MGM opened its 20,000-seat arena in April that will host conventions, concerts, and the city's newly designated NHL team. It has also been working to upgrade and expand its convention space in Las Vegas to cater to the more than 20,000 conventions that are held in Las Vegas each year.
Another interesting bet on the Las Vegas hotel industry is Wynn Resorts. MGM has by far more hotel rooms in Vegas, but Steve Wynn's namesake property is one of the most profitable resorts per room. Thanks to its upscale clientele and high occupancy rates, Wynn Resorts has kept its average daily rate per room at $321. As a result, Wynn generated an average of $106,620 per hotel room in 2015, and 2016 looks like it will be even more profitable.
To take even more advantage of its property, Wynn has announced it will overhaul its famous golf course to replace it with a new 1,000-room hotel that will sit on the shore of a new 38-acre clear-water "lagoon." The lagoon will feature activities like wind sailing and nightly fireworks, and it will be surrounded by white-sand beaches all around its one-mile perimeter. The $1.5 billion "Paradise Park" is expected to open in 2020.