Please ensure Javascript is enabled for purposes of website accessibility

Why 26% Growth is No Longer Enough for Macau's Casinos

By Travis Hoium - Jul 8, 2017 at 9:26AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Macau is growing again, but the trend may not be as bullish as you'd initially think.

Macau's gaming revenue jumped 25.9% in June, the best monthly growth figure since February 2014. But it didn't meet analysts' expectations, and gaming stocks dropped in a short trading day Monday.

When you dive into Macau's gaming revenue history, the disappointment makes a little more sense. And after a strong run for Las Vegas Sands (LVS -0.24%), Wynn Resorts (WYNN -2.81%), Melco Resorts (MLCO -4.80%), and MGM Resorts (MGM -2.50%), we may see gaming stocks take a breather to sort out what the future will look like. 

Rendering of Morpheus Tower at City of Dreams in Macau.

Rendering of Morpheus Tower at City of Dreams in Macau. Image Source: Melco Resorts.

Macau's unimpressive growth record

The chart below shows Macau's growth over the past year pretty clearly. Gaming revenue did jump 25.9% in June to $2.48 billion, but it was down quarter over quarter and hit the second lowest monthly mark of the year. 

Chart of Macau's monthly gaming revenue.

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

You can see that the low comparison to June 2016 was really what drove growth, not necessarily a good month for 2017. In Macau, the month over month trends can often be more important than year over year changes, because we have so much data about gaming trends. And outside of a few holiday spikes (which didn't happen in June), revenue should be relatively consistent month to month. 

This could be a drag on gaming stocks

The biggest reason gaming stocks have been trending higher most of the past year is that Macau's gaming revenue was growing. Less growth is bad for everyone, and that's the broad trend investors should be worried about. 

But the other concern is that the growth we saw over the past year was just a short-term bump. Melco's Studio City, Las Vegas Sands' The Parisian, Galaxy's Cotai addition, and Wynn Palace all opened recently, and visitors may have flooded back to the city just to see new resorts and attractions. The situation is analogous to when the Las Vegas Strip getting a new breath of life when CityCenter or Cosmopolitan opened. 

If the bounce in gaming revenue was temporary and Macau is now going to enter a slow phase of decline, it would be a huge negative for all gaming stocks. And the optimism priced in during the past year of growth may have been overdone, because the new resorts may now cannibalize old resorts as revenue declines. 

Bumpy waters ahead in Macau

Depending on what happens in the next few quarters, gaming stocks could rise or fall on whether Macau's gaming revenue rises or falls. And the long-term trend looks like revenue is moving higher -- but short-term the trend is currently lower. Investors will need to keep an eye on where revenue trends the next few months to see where stocks will be headed. 

Travis Hoium owns shares of Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wynn Resorts, Limited Stock Quote
Wynn Resorts, Limited
WYNN
$63.67 (-2.81%) $-1.84
MGM Resorts International Stock Quote
MGM Resorts International
MGM
$34.73 (-2.50%) $0.89
Melco Crown Entertainment Limited Stock Quote
Melco Crown Entertainment Limited
MLCO
$5.36 (-4.80%) $0.27
Las Vegas Sands Stock Quote
Las Vegas Sands
LVS
$37.63 (-0.24%) $0.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.