What happened
Shares of casino stocks took a nosedive on Monday morning and for good reason. Macao casinos have been shut down following a COVID-19 outbreak in the region. While financial results have been relatively weak for more than two years because of the coronavirus, this is a huge blow because revenue will be zero for at least a week.
Shares of Las Vegas Sands (LVS 0.44%) fell as much as 10% today, while Wynn Resorts (WYNN -0.69%) fell 10%, and Melco Resorts (MLCO -0.64%) plunged 13.8%. The stocks were down 7.5%, 7.7%, and 11.3%, respectively, at 2 p.m. ET.
So what
Officials in Macao have shut down casinos and ordered everyone to stay home in an effort to combat the spread of COVID-19. According to the BBC, 1,526 cases have been discovered since mid-June and 19,000 people are in mandatory quarantine.
Nonessential businesses have been shut down for a week, including casinos. It's not entirely clear how long the lockdown will last, but given how China has handled coronavirus outbreaks in the past, it could be well over a month.
The reality is that casino revenue will go to zero for now and may not come back for some time. In 2020, when casinos were shut down in February, it took until October before any meaningful business came back, and even then it was less than one-third the gambling volume of January 2022. This recovery process has taken years, and it looks like it's going to take even longer.
Now what
It's hard to see any silver lining for casino stocks. China's "zero COVID" policy has meant lockdowns in numerous cities, affecting tens of millions of people at this point. Macao had been spared until now, but unless the overall policy changes, there seems to be very little upside for casino companies.
Financially, these companies are in an even more difficult position. They have billions of dollars of debt and very little cash flow to pay interest, much less pay down debt.
LVS Total Long Term Debt (Quarterly) data by YCharts
The casino business could be a cash machine long term if China and Macao get back to a level of "normal" travel. But right now it's unclear when that would happen, which is weighing on stocks. Given what we've seen over the past three years, I wouldn't expect a recovery to come quickly.
Investors are likely best waiting to see when Macao recovers and China changes its COVID-19 policies. Without a broader change in how China handles the virus, there's little casino companies can do to grow their businesses.
