Cotai is no doubt the hottest area of Macau for gaming and Wynn Resorts' (NASDAQ:WYNN) results from the first quarter are another data point showing one of the downsides to this trend. Macau's gaming revenue overall was up 14.8% in the first quarter, but Wynn's revenue was only up 4.4% because its only resort is on the Macau Peninsula. Casinos won't average 14.8% growth across the board because Las Vegas Sands' (NYSE:LVS) Sands Cotai Central added some capacity vs. last year but we definitely see gaming dollars moving to Cotai, which hurts Wynn.
Cotai is where it's at
Wynn is the first of Macau's operators to report earnings so this is our first peek into earnings trends. The VIP segment was down 15.3% from a year ago despite a higher-than-expected win percentage. VIP dollars can swing wildly based on junket movement and, with Galaxy and Las Vegas Sands opening new junket rooms, Wynn has lost out on some business there.
Mass-market win did show some strength, growing 13.6% to $243.1 million. Win percentage jumped to 35.5%, which is abnormally high, and Steve Wynn pointed out that this has been driven by player behavior. In Macau, players will go to the casino cage to get chips instead of putting money down on the table as we do in the U.S. So when win is divided by table game drop, this lowers the denominator, effectively raising the win rate even though Wynn may not have been particularly lucky in the quarter. For more on how win rate is calculated, check out my guide to understanding casino earnings.
Average daily room rates fell 2.7% to $315 per night and non-casino revenue fell 0.9% to $105.3 million, showing a slow and steady decline for Wynn's only property in Macau.
What we can take from this is that, most likely, Las Vegas Sands and Melco Crown (NASDAQ:MLCO) will see a large increase in revenue when they report earnings. We can also assume that MGM Resorts (NYSE:MGM) will show similar trends in Macau because its location is next to Wynn's. There's far more growth to be had than what Wynn is showing and Las Vegas Sands and Melco Crown likely took significant share during the first quarter.
Las Vegas improves
The high end of the Las Vegas market continues its steady recovery. Wynn's net revenues on The Strip were up 6.6% to $386.6 million, driven by an 11.8% rise in casino revenue.
If Las Vegas can continue to trend slowly higher, it will be an incremental positive for Wynn instead of a drag on earnings.
The long wait for Cotai
For investors in Wynn Resorts, the real payoff won't come until the company's $4 billion Cotai resort is complete in early 2016. Until then, Las Vegas Sands and Melco Crown will likely be the operational winners in Macau.
Wynn isn't a screaming buy at an enterprise value/EBITDA of 10.4, but that's lower than competitors' and if you can wait until 2016, there's a lot of upside.
A deep dive into Wynn Resorts