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 0.64%), Wynn Resorts (WYNN -0.03%), Melco Resorts (MLCO -0.94%), and MGM Resorts (MGM 0.28%), 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. 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.
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.
