A Tale of Two Cities for Las Vegas Sands

Macau continues to drive growth for Las Vegas Sands (LVS -0.37%), but it wasn't all roses in the fourth quarter for the gaming giant. Macau was great again, but Singapore's Marina Bay Sands continues to underperform expectations and experience bad luck that may require adjusted expectations.

Let's take some time to point out the good and the bad and put this quarter in some context.

Macau continues to drive growth
Cotai in Macau is Las Vegas Sands' biggest bet and that's where most of the company's growth has taken place. The Venetian Macau grew revenue 36.3% and EBITDA 30.1%, outpacing 23.9% growth for Macau overall in the fourth quarter.

Sands Cotai Central also performed well, more than doubling EBITDA to $237.8 million, partially because it opened new phases this year. You can see below that while these two resorts did very well, Four Seasons Macau and Sands Macau saw disappointing VIP play, which still accounts for about 65% of all betting in Macau.  

Source: Las Vegas Sands fourth-quarter earnings report.

In Macau, there's really very little to complain about for Las Vegas Sands. Cotai continues to pull gaming dollars from the Macau Peninsula, reinforcing Sheldon Adelson's huge bet there. This should translate well to upcoming earnings for Melco Crown (MLCO 1.13%), while being a drag on Wynn Resorts (WYNN -1.78%) and MGM Resorts (MGM -0.33%), which are yet to finish developments on Cotai.

Why Singapore disappoints again
The real disappointing numbers came out of Singapore, which was supposed to be Las Vegas Sands' most profitable resort. Revenue was down 8% in the fourth quarter to $659.8 million and EBITDA dropped 14.4% to $258.8 million, primarily because of the drop in VIP play shown in the table above.

Marina Bay Sands in Singapore was once Las Vegas Sands' biggest resort, but it's run into bad luck lately. Source: Las Vegas Sands.

Bad results are driven by lower play as well as by good luck among VIP players. Las Vegas Sands expects to win 2.7% to 3% of the rolling chips bet by VIPs (for an explanation of what rolling chips are, click here) but hold last quarter was just 1.92%, and in six of the last seven quarters hold has been below expectations.

Management spent a fair amount of time talking about this on the conference call and said players in Singapore play a little differently than in Macau, not betting pairs or ties in baccarat. That's a smarter play for the gambler, but means that the house's win percentage goes down.

President of Global Gaming Operations Robert Goldstein brought in experts to study the situation and came away thinking hold should still be 2.7% to 3%, but didn't rule out lowering hold expectations. Keep an eye on hold percentage and expectations going forward, because that would impact hold-adjusted numbers that Las Vegas Sands now reports.  

The future of Las Vegas Sands
Macau is going very well, and with The Parisian set to open in late 2015, ahead of Wynn and MGM in Macau, the company has one resort for growth. Sheldon Adelson is also talking with officials in Japan and South Korea on potential expansion there. Japan certainly would be a competitive process and I wouldn't expect a concession winner there until late 2014 at the earliest.

Outside of some weakness in Singapore, I think Las Vegas Sands is doing well in Macau and at least holding ground in the U.S. It's still an expensive company with an enterprise value of more than 14 times earnings, and that's my one note of caution. But if Macau continues to grow near 20% per year, that price will be worth it for investors. 

Reading into coming earnings reports
When it comes to reading the tea leaves and gaining insight into upcoming earnings reports, I think it's clear we'll see continued growth on Cotai. The Venetian Macau's and Sands Cotai Central's gaming play outgrew Macau quarter over quarter, and that should translate to strong results for Melco Crown. 

Wynn Resorts and MGM Resorts would be happy to grow revenue or EBITDA at all on the Macau Peninsula and are likely in a holding pattern until they finish resorts on Cotai. Look for those two to grow less short-term but also have a bigger impact when Cotai resorts open because they're starting from a smaller base of comparison.