Just because a company has a presence in Macau, the world's largest gaming market, in a growth year doesn't mean that all was well at the company's casinos. The fourth quarter of 2018 was a tale of two casinos for Wynn Resorts, Limited (NASDAQ:WYNN): growth for Wynn Palace in the Cotai region, and a big decline for the Macau Peninsula's Wynn Macau.

Overall, Wynn Resorts was able to grow revenue in the quarter, but not enough to overcome higher operating expenses, partly due to preparation for Encore Boston Harbor's opening later this year. As Macau's gaming market changes, so should investor expectations for the company's casinos. 

Macau's skyline with Wynn Macau in the foreground.

Image source: Getty Images.

Wynn's bright spot in Macau

Macau's gaming revenue rose 8.9% in the fourth quarter of 2018, which is ultimately the benchmark we can use to measure resort revenue against. At Wynn Palace in the Cotai region revenue was up 12.8% to $740.6 million, and adjusted property EBITDA -- earnings before interest, tax, depreciation & amortization -- increased 19.2% to $226.6 million. This was driven by a 15.6% increase in mass market gaming play, a sign the resort is winning premium mass market players in the region. On the downside, VIP volume was flat versus a year ago, and growth in the segment was only due to the casino's unusually good luck. Add up the numbers and Wynn Palace took market share in the quarter, despite lumpy results. 

Non-casino revenue is a fairly small segment for Wynn Palace, but was up 15.7% to $103.6 million on higher room rates. Wynn's table games will be limited going forward, so non-gaming revenue will be a key growth driver in the future. 

The other side of the coin

As Wynn Palace has grown, however, Wynn Macau on the Macau Peninsula has been losing market share. Operating revenue was down 5.2% in the quarter, and adjusted property EBITDA fell 9.9% to $167.6 million. Casino revenue was down 5.9% to $479.0 million on an 18.2% drop in VIP volume and a flat play in the mass market. Non-casino revenue held steady at $74.4 million, a positive sign as room revenue increased 17.8% to $29.9 million. 

Over the past decade, Macau's center of gravity has moved from the Macau Peninsula to Cotai -- that's why we're seeing the revenue shift above. It's natural that Wynn Macau will slowly decline as Cotai grows. 

Check out the latest Wynn Resortsearnings call transcript.

Wynn's next growth driver

Wynn will continue to ride the ups and downs of Macau's gaming market, likely gaining share on Cotai and losing on the Macau Peninsula. What investors will want to watch is Wynn Macau's EBITDA to make sure it's still making significant money in Macau. A run rate over $500 million annually would make the resort more profitable than Wynn Las Vegas, and keep the cash coming from Macau. 

Wynn Palace is on its way to a $1 billion EBITDA run rate, and should be the company's cash cow going forward. That's where investors' focus should be now that it's one of the most profitable casinos in the world. 

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