The past year has been rough for Wynn Resorts (WYNN -0.47%) and the whole casino industry. Resorts were shut down as early as February 2020 in Macao due to COVID-19, and soon the pandemic shuttered properties in the U.S. as well. Business still hasn't recovered.
With vaccines rolling out, though, resorts are beginning to book large parties for later in the year, and Wynn's shares have recovered back to around their January 2020 levels. Does that make the entertainment stock a buy, or are its best days behind it?
Image source: Getty Images.
What was lost
At the end of 2019, Wynn Resorts was generating $6.6 billion in revenue and $1.53 billion in EBITDA (a proxy for cash flow) on an annual basis. The company has operations in Las Vegas and elsewhere, but most of its cash flow came from Macao, where Wynn operates two casinos.
In 2020, revenue dropped 68.3% to $2.1 billion and EBITDA cratered to a loss of $324.3 million. Not surprisingly, the business was really in dire straights.
WYNN Revenue (TTM) data by YCharts
While last year's plunge in performance is important to keep in mind, it's really the future that investors should focus on now.
A recovery has begun
Despite everything, Wynn Resorts did begin to show some signs of life late in 2020. Fourth-quarter revenue was down just 58.5% year over year to $686.0 million, including a more modest decline in revenue of 53.2% in Las Vegas and 38.6% in Boston. And management has indicated that U.S. resorts are beginning to make a recovery.
Macao has been more of a problem. Wynn Palace revenue was down 62.5% year over year to $221.5 million in the fourth quarter, and Wynn Macau revenue was off 65.4% to $181.9 million. Given the more stringent restrictions in Asia, it shouldn't be a huge surprise that Macao's business is being more heavily affected than the U.S. right now. But revenue is up more than 10 times from the monthly lows of a year ago, so the situation in Macao is improving.
Visitors are gradually returning to resorts around the world. Revenue in Macao is rising and visas to visit the region are opening up. In Las Vegas, we're seeing that Wynn and others are starting to book more events for late in 2021, and it's likely that business in the U.S. will recover by then. Macao may be slower given the more conservative nature of the government there, but it'll recover as well. Overall, I wouldn't be surprised to see the revenue and EBITDA run rate in 2022 exceed 2019's numbers.
Reasons to be bullish
One thing I think investors should consider is what Wynn Resorts has added while COVID-19 has been the biggest topic in gambling. In Las Vegas, the company has a new convention space that has never been used, and it should drive incremental revenue from both gambling and non-gambling sources when groups start to pour into the city again.
In Macao, the company has reconfigured some of its properties to focus on premium mass-market players as opposed to junkets. Premium mass-market players are typically higher margin (because casinos don't have to compensate them as they do with junket operators) and can be a more stable business than working with high-end junkets.
The biggest reason to be bullish may actually be online gambling, which Wynn doesn't get much credit for on Wall Street. The company owns 71% of Wynn Interactive, a partnership with BetBull, and is now active in nearly a dozen states. Wynn Interactive currently has a revenue run rate of about $50 million, but that could grow by multiples as more states legalize online gambling and more players give it a try. If you're already bullish about Wynn's resorts, the incremental benefits here only add to the investment thesis.
Good odds for Wynn Resorts
Given the opening of its new convention space, more optimized facilities in Macao, and the addition of online gambling, Wynn Resorts could generate even more in EBITDA than before the pandemic after the economy fully recovers. Factoring in the added debt and equity that Wynn has issued to get itself through the past year, its enterprise-value-to-EBITDA ratio would be about 16.5 if EBITDA recovered to its end-of-2019 level, but I think there's upside from there.
Customers and businesses are going to be looking to spend on entertainment in late 2021 and 2022, which should deliver a windfall to companies like Wynn Resorts. Long term, this is still a great stock to own, even if its share price and operational metrics will be volatile for the foreseeable future.
