Las Vegas Sands Corp. (NYSE:LVS) didn't have a bad 2017 by market standards, climbing 35% for the year. But the company had arguably its worst operating year since the recession nearly a decade ago and underperformed main rivals Wynn Resorts (NASDAQ:WYNN) and Melco Resorts (NASDAQ:MLCO)

At a time when Macau's gaming market is growing double digits, you would think the company with the largest market share (Las Vegas Sands) would be able to outperform rivals. But it's where the gaming market has grown that has hurt the company and the strategy Sheldon Adelson has built his gaming empire on. Here's where things went wrong in 2017. 

City of Dreams in Macau.

Image source: Melco Resorts.

Macau wasn't as hot as it could have been for Las Vegas Sands

Overall, Macau's gaming market grew 19% in 2017, which has driven revenue for Las Vegas Sands, Wynn, and Melco higher. But Las Vegas Sands saw the least benefit of the group. Keep in mind that the growth below includes the opening of The Parisian in Macau. 

LVS Revenue (TTM) Chart

LVS Revenue (TTM) data by YCharts

What's shocking is when you look at casino specific results. Venetian Macau casino revenue was down 7.9% in the third quarter, Sands Cotai Central casino revenue dropped 12%, and Four Seasons Macau casino revenue fell 12.1%. As three of the most established resorts in Macau's Cotai region, it's shocking to see them have a revenue decline when Macau overall is growing. 

In the chart above, The Parisian is really what makes up for revenue losses at older casinos. If it weren't for the new resort, Las Vegas Sands may have had a revenue decline in 2017. 

Why Las Vegas Sands is losing market share

The decline in market share may be shocking for Las Vegas Sands, but the reason for the losses aren't. Sheldon Adelson has built his gaming empire on serving the mass gaming market with large hotels, convention space, and lots of gaming tables. That strategy has served him well in Macau, but in 2017 it was VIP play that experienced the most growth. 

Mass-market play rose just 9.6% in 2017 in Macau and that growth was spread among new casinos like The Parisian and Wynn Palace, plus other upgrades across Macau. It's VIP play that fueled growth, rising 26.7% versus 2016. These gains were concentrated at operators like Wynn Resorts, who caters to high-end gamblers. Las Vegas Sands just isn't built to serve the VIP market as effectively and that was why 2017 was a little disappointing for the company. 

Will trends repeat in 2018? 

Strong VIP play and dilution from new resorts don't appear to be slowing down in Macau, so 2018 could be another year of underperformance for Las Vegas Sands. Not only does the company have to worry about existing high-end resorts like Wynn Palace and City of Dreams, it will have to deal with MGM Resorts' (NYSE:MGM) new MGM Cotai resort and a new property from SJM, both due to open in 2018. These could pull more customers in the mass market away from Las Vegas Sands and make for another year where the stock underperforms rivals. 

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