Macau is the biggest gaming market in the world, generating $33 billion in annual revenue, about five times the gaming revenue of the Las Vegas Strip. The companies that have a presence there are likely to be big winners thanks to the scale of the market alone, but some companies will take more of the gains than others.
One company that I think is starting to show its power in Macau is Wynn Resorts (NASDAQ:WYNN). Wynn only has two resorts in Macau, but it serves the very top end of the gaming market, and as high rollers gamble more in Macau, it's set for better growth than rivals.
The players in Macau
There are six concessionaires in Macau: Wynn Resorts, Las Vegas Sands (NYSE:LVS), MGM Resorts (NYSE:MGM), Melco Resorts (NASDAQ:MLCO), SJM, and Galaxy. The last two aren't publicly traded in the U.S., so for the sake of this discussion, I'll leave them out of a comparison of gaming company growth.
Of the other four, MGM Resorts gets the lowest percentage of its revenue from Macau at less than 20%, so it's not as useful for investors looking for exposure to Macau. Las Vegas Sands, Wynn, and Melco Resorts all get over half of their revenue from Macau and are highly dependent on the region. What separates them is where they're located, the markets they serve, and the age of their resorts.
Why Wynn is best positioned in Macau
Like Las Vegas, location is everything in Macau. There are two main gaming regions in Macau: the Macau Peninsula, where older resorts are located (think Downtown Las Vegas) and the new Cotai region (similar to the Las Vegas Strip). Cotai is where the newest mega resorts are being built, and it's the new center of gravity for gaming in Macau.
Las Vegas Sands has traditionally been the biggest player in Cotai with four major resorts there, and Melco Resorts follows with two properties. Wynn Resorts is the newest player in Cotai, but it's come in with a bang, generating $665.8 million in revenue and $211.9 million of EBITDA, a proxy for cash flow, from Wynn Cotai in the first quarter alone. You can see below that the resort has sucked market share from its biggest rivals on Cotai.
|Company||Q1 2018 Macau Revenue||Change Y/Y|
|Las Vegas Sands Macau||$2.16 billion||16.8%|
|Wynn Resorts Macau||$1.28 billion||27.8%|
|Melco Resorts City of Dreams||$1.16 billion||4.4%|
You can see that Wynn is out-growing rivals in Macau, and Wynn Cotai is the biggest reason why. Not only is it riding Macau's 20.5% growth in the first quarter, it's also gaining market share, which is a trend I don't see stopping anytime soon. Wynn Resorts has a long history of generating disproportionately more revenue than neighbors, and Wynn Cotai is continuing that trend.
Wynn's stock is set up for success
From an investment standpoint, Wynn Resorts also has leverage working in its favor (as long as results are improving). You can see below that Wynn has increased debt to build resorts like Wynn Cotai and Wynn Boston Harbor (set to open mid-2019), which adds leverage to the balance sheet and therefore the stock. At the same time, Las Vegas Sands and Melco Resorts have been reducing leverage.
If Macau continues to grow and Wynn Cotai continues to take market share, Wynn Resorts is primed to outperform rivals by a wide margin. It's a riskier stock because of the leverage you see above. But in the world's biggest gaming market, this is leverage investors should be willing to accept.