The earnings reports from Las Vegas Sands (LVS 8.62%) and Wynn Resorts (WYNN 0.97%) over the last two days couldn't have been any more different. Sands had a great quarter in Macau, growing revenue and EBITDA well ahead of the Macau market's overall pace; Wynn lost a lot of ground in Macau. Wynn had an outstanding quarter in Las Vegas; Sands dropped like a rock.
For both companies, the Macau market accounts for more of their revenue and earnings, so the quarter's win goes to Las Vegas Sands, no questions. Let's take a closer look at the results.
Digging into the numbers
In yesterday's review of Las Vegas Sands' results, I covered the EBITDA growth of the company's casinos, pointing out that Cotai is continuing to steal share. The narrative continued today because Wynn saw a 9.7% decline in revenue and a 9.5% decline in EBITDA to $283.2 million.
I don't expect this general trend to reverse anytime soon, and I expect to see somewhat negative Macau results from MGM Resorts (MGM 0.77%) and similar positive results from Melco Crown (MPEL 5.51%).
To take a fundamental look at where gaming play is headed, I've listed below the VIP (rolling chip) level of play and the mass market level of play at the three most established and profitable casinos Wynn and Las Vegas Sands own. Companies report numbers slightly differently, so don't pay attention to the absolute number; instead focus on the change year over year. These numbers also take luck out of the equation, something that can skew EBITDA numbers quarter to quarter.
|
Casino |
Rolling Chip Drop |
YOY Change |
Mass Market Drop |
YOY Change |
|---|---|---|---|---|
|
The Venetian Macau |
$12.7 billion |
(6.6%) |
$1.2 billion |
10.5% |
|
Wynn Macau |
$27.7 billion |
(6.6%) |
$699.3 million |
(1.0%) |
|
Sands Macau |
$5.8 billion |
(24.2%) |
$708.6 million |
3.1% |
Source: Company earnings releases.
What we see are two things: Mass market is clearly stronger than VIP play right now, and Cotai is where gaming is headed, particularly for mass play.
The table above shows why Las Vegas Sands is outperforming Wynn and likely the other players on the Macau Peninsula right now.
Growth opportunities
On the conference call, CEO Steve Wynn talked a lot about expanding the company, not only in Macau, but also urban developments in places like Boston and Philadelphia. More U.S. development doesn't excite me given the massive competition, and until the company announces something concrete, it's hard to evaluate an opportunity.
In Macau, Wynn is spending as much as $4 billion on a resort that will be completed in three years. This will open about the time that Las Vegas Sands opens The Parisian and MGM Resorts opens a new resort.
What happens in Vegas
The interesting part of today's report, and what has kept the stock out of free fall, is very good numbers in Las Vegas. Revenue was up 12.1% in the quarter to $390.4 million and EBITDA was up 29.4% to $115.3 million.
Better-than-expected win percentage helped results, but so did a 14.3% jump in table game play and a 14.9% jump in slot play. This compares to a 13.7% drop in table play at Las Vegas Sands' strip resorts and a 0.7% decline in slot play.
MGM Resorts and Caesars Entertainment (CZR +0.00%) both have a lot riding on Las Vegas, which has recovered slowly in 2012, and it will be interesting to see what they report. Both room revenue and food and beverage was mixed for the two companies that have reported, and they don't give a lot of indication of what MGM or Caesars will report.
Foolish bottom line
The results for Wynn out of Macau are disappointing, and I don't expect them to markedly improve until 2016 when the company's new Cotai resort is complete. Until then, I think flat revenue and EBITDA for Wynn as a whole would be a reasonable expectation, along the lines with what the past year has been. For long-term investors, the thesis is that the Cotai resort can double both revenue and EBITDA for the whole company and that's worth hanging on for.
In the near term, Las Vegas Sands will continue to take share because of growth on Cotai, and so will Melco Crown.
