Despite all of the challenges Wynn Resorts, Limited (NASDAQ:WYNN) has faced in the past year, the company continues to perform well in all of its markets. It's gaining share in the competitive Macau market and is expanding an already profitable business in Las Vegas. Within a year, it'll also add Encore Boston Harbor, its first foray to the East Coast.
Recently released second quarter 2018 results showed where the company's strength lies and why management sees an opportunity to invest more in Asia.
Wynn Palace is the star of Macau
Wynn Resorts' revenue was up 9% to $1.61 million, and adjusted EBITDA, a proxy for cash flow from resorts, was up 10.8% to $476.4 million in the quarter.
But the highlight was Macau. Wynn Macau, the older of Wynn's two resorts in Macau, had a 14.9% decrease in revenue to $543.3 million, and EBITDA dropped 17.8% to $172.9 million. Management said short-term pressure from competitors offering discounts to VIP players accounted for the lost business -- and we can see that in the 13.1% drop in VIP play to $13.93 billion. Wynn Macau tends to be volatile quarter-to-quarter, so I wouldn't read too much into losses here.
The real highlight was Wynn Palace, which continues to take market share from competitors. Revenue jumped a whopping 56.6% to $620.6 million and adjusted EBITDA was up 105% to $179.3 million. Luck was a little better than a year ago, but VIP play was also up 20.9% and mass market play jumped 67.2% in the quarter, easily outpacing the 17.2% growth in Macau overall.
Competition has been heated in Macau as new resorts from Las Vegas Sands, Melco Resorts, and MGM Resorts have opened in recent years. But Wynn Resorts continues to take market share, now holding 17% of Macau's gaming market in just two casinos. That's an incredibly impressive position from such a small base.
Las Vegas chugs along
Wynn Las Vegas continues to be a steady, if unimpressive, performer. Revenue was up just 0.8% to $441.6 million and EBITDA fell 6.1% to $124.2 million in the quarter.
Management also said they expect revenue per available room to be flat in July and August as Las Vegas deals with tough room comparisons to a year ago, when events like the McGregor fight drove demand.
What could be valuable for investors long-term is the 400,000 square feet of group and meeting space being built behind the existing Wynn Las Vegas. New CEO Matt Maddox quickly pared back a $3 billion expansion plan in Las Vegas when he took over earlier this year, favoring a convention expansion that leverages existing infrastructure. Instead of investing in Las Vegas, Maddox sees a lot more opportunities in Asia.
Japan recently passed a bill that will allow for a few gaming resorts, which will be hotly contested by the biggest players in the gaming industry. Wynn has been laying the groundwork for a bid there for years, with Maddox saying:
We were encouraged by the passage of the Implementation Bill several weeks ago. We have been quietly active in Japan for a numbers of years now. I've been dozens of times myself, building strong relationships in a country where trust and relationships matter. We believe that the Wynn aesthetic, our unrelenting focus on excellence and our commitment to thoughtful, immersive entertainment will resonate well in Japan. And we look forward to competing there.
This is where Maddox is saving some dry powder, because a Japan resort could cost $10 billion to build. But whoever wins the right to operate there could be part of the second or third biggest gaming market in the world, possibly with only one or two competitors to compete against. If Wynn Resorts wins a bid in Japan, it could transform the company for decades to come.
Now is the time to buy Wynn Resorts
Second quarter results come against the backdrop of Wynn Resorts' shares falling 11.5% in 2018, which seems odd given the market share gains. But that's why I think shares are undervalued at the moment.
Over the past year, Wynn Resorts has generated $1.99 billion in EBITDA from its existing resorts. This compares to $6.73 billion of net debt and $17.4 billion market cap for an enterprise value (EV) of $24.1 million. The EV/EBITDA ratio of 12.1 is very reasonable considering the fact that Encore Boston Harbor has yet to contribute anything to the business, Wynn Palace continues to gain market share, and Japan provides huge upside potential.
I think Wynn's shares are once again a great value, and investors willing to hold the stock long-term will benefit from the company's growing presence in Macau and maybe even Japan.