Third-quarter earnings reports have shown a sharp decline in revenue for operators like Wynn Resorts (WYNN +0.06%) that cater to the high-end gamblers known as VIPs. But some operators, like Las Vegas Sands (LVS +1.65%) and Melco Resorts (MLCO 0.53%), are holding up a little better, so there are some market share shifts afoot.
Most of the changes in revenue and earnings have to do with macro trends in VIP and mass-market baccarat play, which investors will want to watch closely. But there are also some operators taking market share. Here are the trends to know about today.
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The ups and downs of baccarat
In the third quarter of 2019, VIP baccarat play plunged 22.5% versus a year ago, and mass-market play rose 20.5%. These are the biggest driver of earnings changes, and below are the raw numbers from the Macao government.
| Table Game | Q3 2018 | Q3 2019 | Change |
|---|---|---|---|
| VIP Baccarat | 40,092 | 31,085 | (22.5%) |
| Baccarat | 25,381 | 30,577 | 20.5% |
Unit: MOP.
Source: Macao Gaming Inspection and Coordination Bureau.
These numbers help explain why Wynn Palace's revenue was down 18.1% and Wynn Macau had an 18.2% drop, two of the biggest declines in the industry.
But the macro trends aren't the only thing to watch in Macao.
Where market share is changing hands
Within Macao, market share is always changing hands as operators shift strategies and consumer preferences change. When analyzing market share changes, it's best to look at gambling volume rather than revenue because it takes out the luck factor that casinos deal with quarter-to-quarter. Below, I've outlined the change in VIP and mass-market baccarat volume for the third quarter versus a year ago.
| Resort | Change in VIP Volume (y/y) | Change in Mass Volume (y/y) |
|---|---|---|
| Wynn Palace | (32.3%) | 9.2% |
| Wynn Macau | (42.5%) | 11.5% |
| City of Dreams (Melco) | 39.8% | 5.2% |
| Venetian Macao | (20.6%) | 7.6% |
| Sands Macao | (39.2%) | 6.6% |
Source: Company earnings.
For the most part, resorts are losing volume in the VIP segment and gaining in the mass market. The exception is City of Dreams, which has benefited from the addition of new tables and a new hotel tower in 2018, known as Morpheus.
The most notable trend here for investors is that Wynn Resorts' losses are bigger than those of the overall market in the VIP business at both of its resorts. Wynn Macau is losing share in part as more business moves to Cotai, but Wynn Palace is clearly losing some business that's going to City of Dreams.
For one quarter, at least, Melco Resorts is taking market share and Wynn Resorts is losing customers. There are always ebbs and flows in the industry, but this is why some of the bullish momentum Wynn Resorts had has been lost.
Macao's bumpy stretch
There are a few factors affecting Macao's VIP market, highlighted by a weakening economy in China, tariffs, and protests in Hong Kong. If those pressures ease the high-rollers may return, but right now the clear trend is a decline in VIP play, and that's affecting resorts that rely on high-rollers.
However, declining play in the VIP market hasn't spilled over to mass-market players, or even what's known as premium mass. That's a positive for Macao, because mass-market players are higher margin than VIPs, so earnings losses have been muted. But the trouble in the VIP area may eventually spill over, and that's what investors in any casino stock should be on the lookout for.
