Please ensure Javascript is enabled for purposes of website accessibility

Cotai Drives Wynn Resorts' Blowout Quarter

By Travis Hoium - Apr 26, 2018 at 8:46AM

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

The casino resort company continues to be the biggest winner in Macau.

Wynn Resorts' (WYNN 0.21%) first quarterly report without founder Steve Wynn as CEO -- or even owning any shares of the casino resort operator -- went about as well as it could have. The sexual misconduct allegations against Steve Wynn don't seem to have caused any disruption to the business in the U.S., and Wynn Resorts continued to take market share from competitors in Macau. 

While a cloud still hangs over the fate of Wynn's $2.5 billion Boston Harbor project, a good quarter is a nice distraction for investors. Here's a look at the highlights, and some analysis of why revenue and earnings may only get better. 

Wynn Palace from the fountain side.

Image source: Wynn Resorts.

Wynn was the star of the show

In Macau, the benchmark one must compare earnings to is the 19.1% growth of gaming revenue overall in the region. That's the rising tide lifting all boats (or casinos) in the Chinese territory. 

Wynn Macau, the company's original resort there, reported an 11.9% increase in revenue to $618.2 million, and adjusted property EBITDA (a proxy for cash flow from a resort) jumped 15.9% to $209.8 million. But those figures reflect some unusually bad luck at the gaming tables for the house. VIP gaming volume was up 28.6%, outpacing the market, and mass-market play jumped 16.4%. But the percentage of  total volume won by the casino on the VIP side was below the expected range, or results would have been better. 

At Wynn Palace, located in the Cotai region, revenue increased 47.2%  to $665.8 million, and adjusted property EBITDA rose 89.4% to $211.9 million. VIP gaming volume was up 39.3% in the quarter, and mass-market gaming play increased a shocking 58.1%, showing that Wynn  can steal share in the mass market there. 

Skyline of Macau from the water.

Image source: Getty Images.

On top of the gaming growth, non-casino revenue at Wynn Palace was up 29.5% to $97.4 million, driven by a 30.6% increase in room rates to an average of $252 per night. Stronger non-gaming revenue could be a stabilizing factor for Wynn Resorts long term if gaming revenue goes through another downturn. 

Wynn Resorts picked up a tremendous amount of market share in Q1, and proved that Wynn Palace is on its way to being one of the most profitable resorts in Macau: It could, it think, generate over $1 billion in annual adjusted property EBITDA long term, which would make it a tremendous source of cash for the company. 

Las Vegas is so-so

Gaming revenue on the Las Vegas Strip was off 0.7% in the first two months of the year, so investors shouldn't have expected much from the region. But at Wynn Las Vegas, revenue increased 3% to $431.5 million and adjusted property EBITDA was up 6% to $142.6 million. 

However, much like in Macau, luck worked against Wynn Resorts in Las Vegas. Table game drop -- which should be a proxy for casino revenue -- jumped 17%, but actual casino revenue was only up 8% to $134.6 million. 

Wynn's balance sheet is no longer a drag

One of the biggest risks Wynn Resorts has faced over the past few years has been its ballooning debt, primarily due to the costs associated with building Wynn Palace and Wynn Boston Harbor. At the end of Q1 2018, debt outstanding was $9.36 billion and total cash was $2.16 billion, adding up to a net debt of $7.20 billion. 

What has changed is the EBITDA coming from the business, particularly in Macau. Total adjusted property EBITDA was up 32% in the quarter to $564.3 million, which on an annualized basis is $2.26 billion. As a result, the net debt to EBITDA ratio was just 3.2, a very reasonable amount of leverage for Wynn Resorts, which is still looking forward to the boost Wynn Boston Harbor will give to its financials when it opens next year. 

A leader in the global gaming market

There weren't any glaring flaws in the first quarter for Wynn Resorts, and Macau was really the shining star for the company. Given its outperformance versus Macau as a whole, and the momentum both Wynn Macau and Wynn Palace have operationally, the company appears set up for success for many years to come. 

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
$66.03 (0.21%) $0.14

*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
379%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

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.