Few industries have been hit as hard by COVID-19 in 2020 than gambling in Macao, the world's largest gambling market. Casino revenue was down as much as 97% versus a year ago, hitting a low in June as lockdowns across Asia and travel restrictions to and from China and Hong Kong hit their peak.
Recently, there's been some thawing in the flow of visitors to Macao. Gambling revenue tripled between June 2020 and September 2020, albeit from a very low base, but the industry has to start somewhere. Now that Golden Week has passed, we've seen that the recovery is picking up pace.
Out of the abyss
It's worth covering just how bad conditions got in Macao. In January, Macao casinos generated $1.52 billion in gambling revenue. That dropped to $389 million in February and just $90 million by June.
Since then, travel restrictions that included complete travel bans or 14-day quarantine rules have been eased or lifted, often with the completion of negative COVID-19 tests by travelers. Getting to Macao isn't easy, but it's easier than it was a few months ago. In September gambling revenue was up to $277 million, down "just" 90% from a year ago.
The good news right now is that Golden Week, which was the first week of October, saw revenue down just 76% versus a year ago, according to analysts at Sanford Bernstein Ltd. That looks bad, but put another way, revenue was up 279% in the first week of October versus the average week in September.
Will 2021 be better for Macao?
It's hard to see the rest of 2020 being great for Macao's casinos by historical standards, but it's improving. If COVID-19 remains under control in China and nearby regions of Asia, it wouldn't be surprising to see gambling revenue continue to improve in Macao. But 2021 could be much better.
COVID-19 vaccines are expected to be available at the end of 2020 or early in 2021, which will likely lead to fewer illnesses and looser travel restrictions. If the pandemic is coming to an end by spring or summer, we could see Macao return to normal, and that would be welcome news for casinos there. You can see below that Wynn Resorts (WYNN 0.36%), Las Vegas Sands (LVS -0.69%), and Melco Resorts (MLCO 2.04%) have all been hit rapidly by the pandemic.
The nice thing for operators is that they don't have to return to the old levels of revenue just to break even on a cash basis. In the first quarter of 2020, all three companies reported positive EBITDA, a proxy for cash flow from resorts and casinos, despite the fact that gambling revenue was down 60% in the quarter versus a year ago. With that in mind, casinos may not be far from EBITDA breakeven in October if early reports are correct.
Macao's rebound is near
When the pandemic began early in 2020, I don't think investors would have expected it to affect gambling revenue throughout 2020 and into 2021. But that's what has happened, and we're only now seeing a light at the end of the tunnel. If travel restrictions continue to be lifted and a vaccine is rolled out, we could see a swift recovery in 2021. Long-term investors could see that help recovery for Macao's gambling stocks, and I think now is when investors can comfortably buy shares knowing that an operational recovery is on the way.