The results from Wynn Resorts' (NASDAQ:WYNN) third quarter were great. Operations in Macau are kicking it up a notch, and the flagship Las Vegas hotel is likewise performing well. Too bad investors were already expecting all that -- and more.
The business
Net revenue for the third quarter more than doubled, thanks largely to a full quarter of operations from the Macau location. Adjusted property EBITDA (EBITDA adjusted for expenses such as stock-based compensation and pre-opening expenses) grew even faster, and increased as a percentage of revenue from 25.0% to 28.5%.
Earnings per share on a non-GAAP basis were $0.67, ahead of Wall Street's expectation of $0.63, and greater than last year's loss. On a GAAP basis, EPS fell to $0.41 from $6.43, but last year's results are pretty meaningless because of a one-time gain of $779 million that exceeded total net profit.
On the gaming side, Wynn raked it in on the tables. Total revenue was up 14%, on an increase in total drop of 4%. Hold percentage at the tables jumped from 22.3% last year to 26.4% this year. Slots revenue offset some of that strength, as volume slid. An opposite result at rival MGM Mirage (NYSE:MGM) -- slots increased as table game revenue fell -- suggests that the issue is casino-specific, not an industry trend.
Wynn's Macau casino, which opened partway through the third quarter of 2006, contributed $348 million in revenue and $93 million in adjusted property EBITDA -- slightly more than half of the company's total revenue, and exactly half of adjusted property EBITDA. The property appears to be performing well, but comparisons will be easier once it gets a few more quarters behind it.
On the horizon, Wynn -- like competitors MGM, Las Vegas Sands (NYSE:LVS), and Harrah's (NYSE:HET) -- is knee-deep in new construction. On U.S. soil, it's working on Encore, an expansion hotel for its Strip property. Overseas, Wynn is busy on an expansion of its Macau property, as well as the Wynn Diamond Suites, a resort hotel at Wynn Macau. The company is also working on getting a land concession in Cotai (part of Macau) to start yet another project.
The stock
Alas, Wynn's great performance is no secret to investors. As of this writing, the stock is down almost 5% on the day, and it's still trading at more than 50 times 2007 earnings expectations. Basically, this means that strong performance now, as well as all the great things to come, have largely been priced into the stock. So while it might seem funny that the stock would fall after such a strong quarterly report, many investors may have had the bar set even higher for the company.
From where I sit (in southwest Las Vegas), the future looks bright for Wynn. Investors, however, should keep in mind that no matter how great the company is, returns will still depend on how much they pay for the stock.
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