Macau's gaming growth streak hit 10 months in May and is picking up steam, helped partly by improving comps a year ago. Gaming revenue jumped 23.7% to 22,742 MOP, or $2.8 billion, the second highest monthly revenue figure this year. So far this year revenue is up 15.8% versus a year ago.
The news has helped push Las Vegas Sands (LVS +0.85%), Wynn Resorts (WYNN +1.03%), Melco Entertainment (MLCO +1.58%), and MGM Resorts (MGM 0.62%) stock higher and this could be just the beginning of a great run for gaming stocks.
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Macau's growth is big news
The growth in gaming revenue is huge for Macau because it comes as new resorts are opening. Wynn Palace, The Parisian, Studio City, and soon MGM Cotai will all added to capacity for gaming, so growing revenue will keep resorts from canibalizing each other.
What we can't take away from this solid month is that Macau is on a permanent growth path. Gaming revenue has bounced between $2.4 billion and $2.9 billion per month in 2017 and is far from being on a path straight upward. May was the second best month so far, but April was the second worst. Rather, we're moving past a low in 2016 gaming revenue, and fairly flat results sequentially are therefore seen as strong growth year over year.
Nevertheless, steady results and year over year growth are huge positives for Macau's gaming industry. It makes profitability more predictable, and at the current level Macau will be a tremendous cash generator for those with resorts there.
The winners if Macau continues to grow
Long-term, the hope is that Macau will continue to grow beyond the range it's currently seeing for gaming revenue. It's probably too much to ask to see $4.8 billion in monthly gaming revenue, but even a small amount of growth from the current level would leave plenty of extra cash for companies to de-leverage their balance sheets and/or pay out dividends.
I also think it's important to watch how trends in non-gaming revenue change for resort operators in 2017. Gaming growth is great, but long-term it would be more sustainable if non-gaming revenue from hotels, restaurants, shops, and entertainment venues grew to become a more substantial percentage of revenue. Right now, non-gaming is dwarfed by revenue from the casino.
Gaming stocks continue to move higher
Nothing does more to push gaming stocks higher than news of rising gaming revenue in Macau. It's the tide that raises all boats. But some may rise faster than others.
Melco gets nearly all of its revenue from Macau, so it has a lot to gain from rising gaming revenue. Wynn Resorts and Las Vegas Sands also generate a majority of their revenue from Macau, and with few opportunities to expand could use the added profits to reduce debt or increase dividends. MGM, on the other hand, has the least to gain with just one Macau resort (though another on the way) and just over a 50% stake in the Macau operations.
The bar is getting higher for second quarter results from gaming operators with this news of continued growth. And if the trend continues, these stocks could have a lot higher to go.
