We're just a week away from seeing whether Macau can extend its winning streak to six straight months of higher year-over-year monthly gaming revenues, but regardless of the outcome, the rally may be over for Las Vegas Sands (LVS 0.97%) and Wynn Resorts (WYNN 1.44%).

Image source: Wynn Palace.

A lucky roll of the dice?

Gambling revenue in Macau dropped for a third consecutive year in 2016 as gambling revenue fell 3.3% to 223.2 billion patacas (the local currency of Macau), or about $28 billion at current exchange rates. It's also some 38% below the peak achieved in 2013 when revenue hit 360.7 billion patacas.

Data source: Macau Gaming Inspection & Coordination Bureau.

The Chinese government's protected campaign against luxury, gift-giving, and corruption amid a slowing economy caused the VIP gamblers the casinos of Macau typically relied upon for sustenance to look elsewhere for gambling opportunities.

Yet it can't be denied that Macau is well off its bottom. Since August, when Wynn opened its new Palace resort in Cotai, the gambling enclave has been rebounding. It was the first month in 26 months that saw revenues higher than the year before, and each month thereafter it has recorded gains. The concern for Wynn, Sands, and others is that the rally may stall.

Hitting lower highs

While December's gaming revenue came in 8% greater than they were in December 2015, that's a rate of growth significantly slower than the 14.4% gain recorded in November and is less than the 8.8% gain of October. In two out of the past three years, December's gaming revenue was higher than in the preceding month and it was only in 2014, when the gambling enclave was still in free fall and gaming revenue plunged 30% to end the year, was that month worse than the one before it.

Data source: Macau Gaming Inspection & Coordination Bureau.

It may indicate the growth spurt is weakening. Because Macau's fortunes had been so depressed, it couldn't help but show gains, but it may have plateaued and this may indicate a new lower level of normality for the region. There are other indicators, too, that suggest casinos may not see straight-line growth going forward.

Only fun for some

The Cotai district is, of course, under an edict to transform Macau into a more family-oriented, mass-market destination spot like Las Vegas. When Melco Crown Entertainment (MLCO -0.60%) opened its new Studio City resort, it added theme park flair to its entertainment options, including a figure-eight Ferris wheel and a Batman 4D roller-coaster ride. Wynn Palace added more luxury shopping venues and a gondola skyride to take in the city's views, while Sands new Parisian resort that opened in September had a scale mockup of the Eiffel Tower.

Although Sands has done well since the new venue opened, Melco and Wynn have struggled. There are unique reasons behind each of the successes and, well, underperformance, yet they all indicate the peninsula's recovery is still on shaky ground.

The Parisian, for example, though it's located off the so-called Cotai Strip, it is adjacent to Sands' Four Seasons resort, making the interconnected layout a more attractive one to guests. Wynn Palace, on the other hand, although it is also off the strip, is in the middle of a construction zone, which makes it difficult for guests to get to the resort. And Melco Crown initially decided to forgo having any VIP gambling at its casino, only to backpedal when it posted disastrous results.

Image source: Parisian.

A cloudy future

These are things that ought to work themselves out over time and if the recovery holds. But MGM Resorts (MGM 0.59%) just said it was delaying yet again the opening of its new MGM Cotai resort to the second half of 2017, pushing it back from its previously delayed opening in the second quarter of the year. When MGM said a year ago its resort wasn't going to open on time, it blamed the depressed Macau market for it. That wasn't necessarily a bad idea as gaming revenue was still falling by rates of 20% or more month after month, but now it says it is because it wants to make sure the customer experience is the best possible.

Perhaps, and it may have learned something from Wynn's fumbled opening. Chairman and CEO Steve Wynn says the Palace is going to be undergoing extensive renovation to make its cavernous casino hall somewhat more intimate while also expanding casual dining options for guests. Las Vegas Sands Parisian has a casino half the size of the Palace and quite a few more restaurants that would appeal to a mass-market audience. MGM may want to implement some of those concepts as well.

Yet multibillion resorts that aren't ready for their debuts may also indicate the market isn't ready for the influx of new opportunities hitting the ground. With several new venues opening over the next few years, Macau may be inundated with an excess of capacity for the demand available. The enclave may be better off than it was, but it still might not be as healthy as we've been led to believe.