Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Where the Money Is Flowing in Macao

By Travis Hoium - Nov 13, 2019 at 9:11AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

VIPs aren't the hot market they used to be.

Third-quarter earnings reports have shown a sharp decline in revenue for operators like Wynn Resorts ( WYNN -6.11% ) that cater to the high-end gamblers known as VIPs. But some operators, like Las Vegas Sands ( LVS -4.60% ) and Melco Resorts ( MLCO -6.15% ), 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. 

Macao's skyline during the day.

Image source: Getty Images.

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. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wynn Resorts, Limited Stock Quote
Wynn Resorts, Limited
WYNN
$76.06 (-6.11%) $-4.95
Las Vegas Sands Stock Quote
Las Vegas Sands
LVS
$33.98 (-4.60%) $-1.64
Melco Crown Entertainment Limited Stock Quote
Melco Crown Entertainment Limited
MLCO
$9.16 (-6.15%) $0.60

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
656%
 
S&P 500 Returns
144%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.