This week has been an earnings bonanza in the gaming industry. On Monday, Caesars Entertainment (Nasdaq: CZR) reported an even bigger loss than it had a year ago and on Tuesday, MGM Resorts (NYSE: MGM) and Melco Crown (Nasdaq: MPEL) delivered mixed results, continuing a trend of so-so numbers coming out of China. Let's dive into the numbers by location.
China slowdown hurting play
Reports from Las Vegas Sands (NYSE: LVS) and Wynn Resorts (Nasdaq: WYNN) previewed mixed results for MGM and Melco Crown, driven by a slowing of VIP play.
MGM bucked the trend last quarter to some extent, experiencing a 6% rise in revenue to $709 million and a 14% increase in property EBITDA to $187 million. Meanwhile, Melco Crown's revenue fell 2% to $960 million and adjusted EBITDA fell 6% to $203.8 million. The better performance from MGM was the big driver of the company's 10% pop yesterday, despite reporting a loss overall.
Melco's City of Dreams did experience a 12.6% increase in revenue to $684.2 million and adjusted EBITDA rose 21.8% to $184.3 million. The decline in revenue overall was fully attributed to Altira Macau, which doesn't have an attractive location in relation to other resorts.
Melco did show that it appears to be getting spill over from Las Vegas Sands' new Cotai Central resort. The revenue trends of the Cotai resorts will need to be watched closely going forward, but for now City of Dreams' performance is very good.
Back to the desert
In Las Vegas there wasn't a lot to cheer about, but numbers were steady. MGM's wholly owned resorts (primarily in Las Vegas) saw no change in revenue from a year ago and property EBITDA rose 4.2% to $345.2 million. CityCenter actually swung to an operating profit of $642,000, hardly enough to justify the $8 billion resort, but a good thing nonetheless.
Caesars, on the other hand, saw a slight decline in revenue to $780.7 million in Las Vegas and property EBITDA fell 8% to $214.4 million. Revenue actually held up well in comparison to Las Vegas Sands and Wynn so Caesars isn't losing ground in Las Vegas.
The big picture
Now that all five major gaming companies have reported earnings we can look broadly at how they are performing. As you can see below, the two Las Vegas-centric companies, MGM Resorts and Caesars Entertainment, are the only two that are still losing money on the bottom line because of massive debt loads and continued weakness in gaming. While others are paying down debt, Caesars actually increased debt and is the one company I would avoid like the plague.
The decline in EBITDA at all three companies dependent on Asia is surprising and shows the slowdown in growth occurring right now. The good news is that Sands Cotai Central is the only new supply to hit the market for at least three more years, so growth should follow more closely with Macau's gaming expansion in coming years.
| Q2 Revenue / % Change | Q2 EBITDA / % Change | Q2 EPS | |
|---|---|---|---|
| MGM Resorts | $2.32 billion / 28.7% | $501.5 million / 37.1%* | ($0.30) |
| Melco Crown | $938.5 million / (2.2%) | $203.8 million / (5.8%) | $0.15 |
| Caesars Entertainment | $2.17 billion / 0.2% | $512.4 million / (2.6%) | ($1.93) |
| Las Vegas Sands | $2.58 billion / 10.1% | $844.7 million / (6.3%) | $0.29 |
| Wynn Resorts | $1.25 billion / (8.4%) | $384.1 million / (14.1%) | $1.37 |
* Note: MGM China was not fully consolidated in Q2 2011, so the growth rates are skewed higher.
The biggest thing we can take from the table above is that growth is slowing tremendously in the gaming industry. After explosive growth in Macau and Singapore companies are now facing single-digit growth overall in Macau gaming and increased competition for VIP players.
The landscape is changing
With the industry entering a relative lull in expansion, I think it's time for investors to focus on the most profitable companies in gaming. Melco Crown, Wynn Resorts, and Las Vegas Sands are all making money, despite the slowdown in revenue in EBITDA at their resorts. These are the only three worth buying into right now.
As U.S. gaming companies set out to dominate Asia -- and soon Europe -- we have our eyes on three more companies benefiting from international growth. Check out which stocks they are in our free report called "3 American Companies Set to Dominate the World." The report is free when you click here.
