Wynn Resorts, Limited (WYNN +0.06%) has been through a wild ride since early 2018, when founder Steve Wynn was accused of sexual misconduct. The company changed construction plans in Las Vegas, reconfigured its ownership structure (buying out Steve Wynn), and set out to grow its share of Asia's casino market.
In a recent presentation to investors, CEO Matt Maddox laid out what's working in Macau and how he and his team plan to grow the company. Understanding what's going on in the region is key to understanding where Wynn Resorts is headed.
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Wynn continues to take market share
One of the best ways for a casino company to grow earnings is to take market share from competitors because it doesn't require building multibillion-dollar resorts. In Macau, companies can do this partly by focusing on the right market segments. The market in Macau is usually split into VIP players, who work with junkets and would be considered whales in Las Vegas, and mass-market players.
What Macau has experienced over the last few years is strength in the mass market and weaker conditions from VIPs. Since 2014, which was the peak of Macau's gambling market, VIP revenue has fallen 21.8%, and mass-market revenue is only down 3.9%. There are ups and downs within that period, but that's a good snapshot of why casinos like Wynn Resorts are clamoring to attract more mass-market players and reduce reliance on VIPs.
Wynn Resorts won't ever be focused on the lower-end mass-market player, but it has put a focus on premium mass-market players in the last year or two. These aren't quite VIPs, but they are still betting large sums of money and are very profitable for resorts. This focus has allowed the company to grow its mass-market share from 8.5% in 2015 to 14.9% in 2018. The opening of Wynn Palace has helped, but marketing to premium players has been key.
Wynn's growth in Macau recently has been driven by market share gains in the premium mass market. The focus of future development in Macau will center around bringing more of these premium mass-market players into the resort and getting them to spend money on hotel rooms, meals, retail, and entertainment, which could help earnings for many years to come.
Wynn Palace's growth continues
Wynn Resorts has always said that it planned to grow Wynn Palace into available space on its property. The initial expansion will be a new hotel tower with about 650 rooms and a destination mall called Crystal Pavilion, followed by another 650-room tower in the future.
The addition doesn't even include a casino, so it's meant to be an attraction for visitors, particularly the premium mass-market player. The Crystal Pavilion will include an all-glass structure, an immersive theater, a large art museum, and a destination food hall. A timeline for the expansion hasn't been finalized, but the bill will likely be around $2 billion. If it helps attract more VIPs and premium mass-market players, it could be well worth the cost, but this is another big bet on Macau.
Investing in Wynn Macau
Wynn Macau, which is Wynn's oldest resort in the region and is located on the Macau Peninsula, is currently getting a $125 million investment to increase retail by 7,000 square feet, update 400 hotel rooms, and add two new restaurants. These improvements are going to be incremental, but this resort is a foundation of the company's Macau strategy, so keeping it operating well is important for the long term.
Where investors should expect Wynn Resorts to go in Macau
In the first quarter alone, Wynn's Macau properties generated $1.25 billion of revenue and $386.5 million of property EBITDA. That's a run rate of $5 billion in revenue and more than $1.5 billion for the year, which is a very strong performance. But I think the company can push EBITDA above $2 billion easily by adding attractions and hotel rooms at Wynn Palace and continuing to take share in premium mass gambling. The foundation has been laid; now it's time for the company to execute on some of the most valuable casino assets in the industry.
