Earnings season begins this week, with Wynn Resorts, Limited (NASDAQ:WYNN) reporting on Tuesday, April 24, Las Vegas Sands Corp. (NYSE:LVS) on Wednesday, and MGM Resorts International (NYSE:MGM) on Thursday. Caesars Entertainment (NASDAQ:CZR) will report on May 2 with Melco Resorts (NASDAQ:MLCO) to follow later in May.
Public data from Macau and Las Vegas can give us an idea of where we should see growth and how to compare the performance of different resorts. Here are a few keys I'll be watching as earnings are released in the gaming industry.
Macau is the key
Early in 2018, the story will be about Macau. First-quarter gaming revenue is up 20.5% in the region versus a year ago, following 19.1% growth in 2017, and there seems to be nothing but positive momentum.
Las Vegas Sands is the most invested in Macau, with five integrated resorts and 60% of its $4.9 billion in property EBITDA, a proxy for cash flow coming from a resort, coming from the region. But the real growth may come from Wynn Resorts and MGM Resorts in 2018.
Wynn Palace has over a year of operations under its belt, but the property is still ramping operations and construction projects like a light rail system and MGM Cotai across the street is finally being completed. An update given in March showed that Wynn Palace's revenue was up 37.4% to $437.2 million in the first two months of 2018 and property EBITDA nearly doubled to between $138 million and $144 million. I think it's clear that Wynn Palace will outperform the market overall and that should bode well for the company's results.
MGM Cotai opened in February and this is the first time we'll hear how it's doing. The property is in an ideal location, sandwiched between Las Vegas Sands' Sands Cotai Central, Melco Crown's City of Dreams, and Wynn Palace, so there should be more than ample foot traffic. Investors shouldn't expect blowout results given how slowly resorts can ramp, but proving that it can generate revenue in the neighborhood of more than $6 million per day that competitors do would be a big step in the right direction.
Melco Crown doesn't have any new properties to provide growth, so expect the company to ride Macau's growth higher in the first quarter. But watch for market share losses as competitors grow, a real threat to the aging City of Dreams in particular.
Las Vegas has cooled off
March numbers aren't out yet, but we know that in the three months ended Feb. 28, 2018, Las Vegas Strip gaming revenue fell 0.7% to $1.73 billion. According to the Las Vegas Convention and Visitors Authority, the total number of visitors coming to Las Vegas was down 2% in the first two months of 2018, so indications are that revenue will likely be down.
For Las Vegas Sands and Wynn Resorts, which generate most of their revenue in Asia, the impact may not be big in the first quarter. But for Caesars Entertainment and MGM Resorts, there could be a drop in revenue and earnings as a result of the decline in visitors and gaming volume.
Flat or slightly lower results in Las Vegas aren't surprising given multiple years of stagnant revenue, so investors shouldn't have high expectations for the first quarter.
Who will win this earnings season?
I think it's clear that Caesars Entertainment is in the toughest position this earnings season. It doesn't have exposure to the growing Asian gaming market, and expectations should be low for Las Vegas.
I'll be watching the early returns for MGM Cotai in Macau, which could quickly become the company's most profitable resort. Neighboring casinos are generating in excess of $500 million in property EBITDA, so there's high potential, but the company needs to execute.
Las Vegas Sands and Melco Crown don't have any new resorts opening, so investors will want to see if the companies can maintain market share in Macau. Given MGM Cotai's opening and the growth at Wynn Palace, I think both Sands and Melco will likely lose market share, even if they grow revenue in the quarter.
The winner this earnings season is likely to be Wynn Resorts, which should ride Wynn Palace to sharply higher revenue and earnings. Given the cloud hanging over the company after Steve Wynn's resignation, a good quarter would be welcome news for investors.