The gambling industry is having an uneven recovery no matter where you are in the world. The U.S. market seems to be doing best with entertainment travelers coming back, driving regional casino revenue and weekend revenue in Las Vegas. But the lucrative corporate customers who have long driven mid-week revenue have been absent.
We're seeing that play out in real time with Las Vegas Sands (NYSE:LVS) and its recent earnings report. The company's Las Vegas properties, which it's selling to affiliates of Apollo Global Management (NYSE:APO) for $6.25 billion, are struggling despite weekend traffic being back to pre-pandemic levels. But Macao and Singapore continue to struggle all around with revenue down over 50% from pre-pandemic levels. Here's the good and bad from the quarter for Las Vegas Sands.
Asian gambling is still struggling
The COVID-19 pandemic began in Macao in February when casinos were shut down for half of the month and gambling revenue plunged 87.8%. So, year-over-year figures are starting to look pretty good, but if we look back to the fourth quarter of 2019, we can see that revenue is still down dramatically.
|Resort||Q4 2019 Revenue||Q1 2021 Revenue||Change|
|Las Vegas resorts||$475 million||$139 million||(70.7%)|
|Venetian Macao||$908 million||$340 million||(62.6%)|
|The Londoner Macao||$505 million||$137 million||(72.9%)|
|Marina Bay Sands (Singapore)||$853 million||$426 million||(50.1%)|
Macao is starting to recover, as indicated by revenue being down less than 90% like it was in the middle of 2020, but there's still a long way to go.
Complicating matters is that we don't know when the economy will open fully in Asia. There's a huge COVID-19 outbreak in India right now and Singapore and Macao still have restrictions on entry. So, it could be the rest of the year before we see a meaningful recovery.
Where is all the money going?
As Las Vegas Sands puts its focus on Macao and Singapore following the sale of its Las Vegas properties, investors should be wondering what the company will do with its cash infusion.
Management has indicated that it's eyeing opportunities in Asia and the U.S. and definitely has an interest in online gambling in some form. But the good opportunities in all three markets have likely been taken.
There's no reason to believe Las Vegas Sands would reinvest in Las Vegas and markets that have been rumored in the past like Miami don't yet have a framework for legalizing gambling or opening mega-resorts. In Asia, Las Vegas Sands already has the biggest market share in the two biggest gambling markets (Macao and Singapore) and backed out of bidding in Japan, so there aren't clear opportunities left that would move the needle for the company.
In online gambling, Las Vegas Sands seems to have missed the boat entirely, and starting from scratch now would be either extremely difficult or costly. Companies like DraftKings and Rush Street Interactive have already built businesses worth billions of dollars and don't need Las Vegas Sands' money. And the company no longer offers any geographical presence in the U.S., so from a regulatory standpoint, it doesn't help give a physical presence that some regulators desire.
At the end of the day, Las Vegas Sands will be flush with cash after closing the Las Vegas property deal and could have a cash flow machine from its casinos in Asia, but there are very few opportunities to invest in growth. And that's going to be the company's biggest long-term challenge.
Is Las Vegas Sands worth a bet here?
Las Vegas Sands could end up being a great cash flow company and a dividend machine, but this is no longer a growth stock, especially in the gambling industry. Investors should be looking for companies with upside in online gambling like MGM Resorts or even Wynn Resorts, which also generate hundreds of millions of dollars per year from casinos in Macao.
I don't see Las Vegas Sands as a great buy here. And with a slow recovery taking place in Macao, it could be years until we see this company get back to pre-pandemic operating levels.