When the pandemic began, there weren't many people who thought it would last through 2020 and into 2021, especially in regions of the world where outbreaks have been contained. But we've seen in Asia that limits on travel which have been a key to containment have also meant fewer visitors to Macao, even as restrictions have slowly been lifted.
For casino companies with resorts there, like other consumer discretionary stocks, the impact has been devastating. Las Vegas Sands (LVS -1.50%), Wynn Resorts (WYNN -1.07%), MGM Resorts (MGM -0.10%), and Melco Resorts (MLCO 0.21%) are all swimming in red ink and hoping for operations to turn around. Recently released revenue from November doesn't show much of a light at the end of the tunnel, and it's not clear when gambling will rebound in the region.
Macao's recovery stalls out
In October 2020, Macao's gambling revenue jumped more than 200% from a month earlier to $910.8 million. It was the best result since January when restrictions on travel and gatherings began in China and Macao. The hope was that a recovery had begun.
But recently released figures for November 2020 weren't particularly promising. Gambling revenue was just $845.4 million during the month and are now down 80.5% for 2020.
Investors are looking for signs that Macao's gambling revenue will start on an upward trajectory. But every time there are signs of life it seems the recovery is stunted.
Will a vaccine save the day?
It's clear that current travel restrictions like needing a recent COVID-19 test, visa limits in China, or bans from some countries entering Macao are going to limit the upside for casinos. It won't be until the pandemic is over, meaning a vaccine is widely administered, that we should expect a real recovery.
China, Hong Kong, and Macao have all been willing to allow visitors with negative COVID-19 tests, so it's plausible they'll allow travelers who can prove they've gotten a vaccine in as well. If the vaccine is widely available by mid-2021, as hoped, we could see gambling revenue return to more normal levels.
What we don't know is if there will be a slow ramp up of demand or a rush of pent-up demand in Macao. Given the cautious nature of governments in Asia around COVID-19, it's likely we'll see restrictions last longer than in the U.S., but with low infection rates, the flood gates could open when travel restrictions are lifted.
An uncertain future
The backdrop of the slow recovery in Macao and the potential for months of extremely weak demand is that gambling stocks haven't lost all that much value in 2020. Revenue may be down 80% or more, but MGM's shares are down less than 10% this year and none of the U.S. traded companies with casinos in Macau are down more than 22%. The market is clearly pricing in a recovery long term -- we just don't know when it'll come.
Betting on gambling stocks now is betting on the future of Macao. But until we see a recovery in gambling revenue, investors will be disappointed by the cash being generated by the world's biggest casino stocks.