It looks like Macau's rally is running out of steam. While gaming revenues climbed for the sixth straight month in January, the rate of increase was below analyst expectations, indicating the recovery may be petering out.

If it continues on its current trajectory, revenues could turn negative again, perhaps next month, and it may be difficult to determine whether Las Vegas Sands (NYSE:LVS), MGM Resorts (NYSE:MGM), or Wynn Resorts (NASDAQ:WYNN) will be worse as a result.

Scale replica Eiffel Tower in front of the new Las Vegas Sands Parisian resort

Image source: Las Vegas Sands Parisian.

Although there were anomalies specific to January that may have made the results seem worse than they were, it's an indication nonetheless that the recovery isn't as robust as once thought, and if the rally turns into a rout, look out below!

On a roll

Macau gaming regulators said January's monthly gross revenues were 19.26 billion patacas, a 3.1% increase from the year-ago period (patacas are the local Macau currency). While any gain is a good one, considering the deep hole the industry is climbing out of, the rate of increase was significantly below the 8% gain notched in December, which itself was below November's 14% rise. It's almost as if the excitement that accompanied the opening of Wynn's new Palace resort and Sands' Parisian has finally dissipated.

Macau monthly gaming revenue growth chart

Data source: Macau Gaming Inspection and Coordination Bureau. Chart by author.

Of course, January presented a shift in some calendar events. For example, the month had one less Friday and Saturday than last year, and the Chinese New Year began on January 28 this year versus February 8 in 2016. Gaming is said to ease up in the weeks leading up to the new year celebration, and analysts at Fitch Ratings still see Macau generating nearly 10% growth in gaming revenues this year.

Still, there are indications that kind of growth might be tough to come by. Both Las Vegas Sands and Wynn Resorts have reported results from their new casinos that show rather than creating new gambling opportunities, all they're really doing is cannibalizing existing properties.

Highs and lows of high rollers

As my colleague Travis Hoium recently pointed out, VIP play at Sands resorts fell in the period, even though it was up 25% overall in Macau, and VIP play at several specific venues was down by some significant amounts. For example, the Venetian suffered in a 14% drop, an amount not even the new Parisian was able to offset. And that's despite the new resort having a better quarter than Wynn's Palace, which stumbled out of the gate, forcing the casino operator to immediately undertake a retrofit and upgrade to the facility.

MGM Resorts apparently saw what happened at the Palace and thought better of opening its new MGM Cotai without first making some modifications itself. After having pushed back the new resort's debut to the second quarter of 2017, MGM now says it won't happen till sometime in the second half of the year to ensure the best possible customer experience.

MGM Resorts new Cotai casino with its distinctive "jewelry box" design

Image source: MGM China Holdings. 

Maybe, but Macau remains standing on a shaky foundation. Beijing is trying to transform the district from a destination reliant upon VIP gamblers into one that's more attractive to tourists and casual gamblers. The new resorts are all geared toward the new directives mandating they offer more non-gambling entertainment.

Yet the Macau gaming authority's numbers indicate VIP gambling grew faster in the fourth quarter of 2016 than did mass-market revenues. VIP baccarat, a proxy for the market because of its preference by high rollers, rose to 33.3 billion patacas during the period, a 12.6% gain over the same period in 2015. Mass-market gaming revenues were up 7.4% to 27 billion patacas by comparison.

Pull back the lens

Some analysts, though, believe that's not the full picture, that some gaming tables are classified by VIP for Macau regulators, but in their SEC filings, they count them as mass market. They say that suggests the mass market is healthier than VIP, and the growth rates are exactly reversed.

It was, of course, the crackdown on luxury, gift-giving, and corruption among Communist Party officials that precipitated the decline in the gambling enclave, the only place in China where gambling is legal. Concerned the country's ultra-wealthy were using Macau as a jumping-off point to spirit money out of the country, Beijing clamped down on money flows out of China.

Macau skyline at night

Image source: Getty Images.

In December, the government let everyone know it was still keeping a close eye on Macau by changing the rules slightly on how much money can be withdrawn at any one time from ATMs on the peninsula. Though not a dramatic rewriting of the rules, it still showed there are lingering concerns about money flowing through Macau and indicated to wealthy gamblers who prefer not to be in the limelight that the government still had its eye on the enclave.

Expecting more, getting less

Las Vegas Sands derives 60% of its revenues from Macau, while Wynn Resorts gets more than half. Although MGM realizes significantly less from the gambling enclave, with a new resort opening soon, its percentage will rise, making the region even more important to it.

One would presume that a recovery that's been going on for six months would have a more definitive feel to it, but that's not the case with Macau. With so much contradictory information, it means the rebound remains wobbly, and it might not be until February's numbers are posted, or even later, that investors will be able to feel Macau is a safe bet once more -- or that it's time to cash in their chips.