Steve Wynn has led Wynn Resorts for years. Following success in 2013,
can he keep the steam going in 2014? Source: Forbes.
Wynn Resorts (WYNN +0.28%) reports second-quarter earnings on July 29, ahead of competitor MGM Resorts International (MGM +3.12%). However, Las Vegas Sands (LVS +2.56%) already reported second-quarter earnings, and investors were disappointed as EPS reported was lower than expectations. This miss follows months of regulatory issues in Macau, competition for attention with the World Cup, and lowered VIP revenue growth. In light of Las Vegas Sands' miss, and before MGM Resorts reports, what should investors expect ahead of Wynn Resorts' Q2 earnings?
To start, don't focus on short-term noise
The World Cup, which some analysts have said caused lowered revenue over the summer, as people were more interested in watching soccer than gambling, is an example of short-term noise. For an event that happens one month every four years, this is not a lasting issue for Macau gaming investors.
Furthermore, these events affected companies evenly, not one single gaming company. However, because revenues were lower industrywide in the second quarter, it is helpful in telling us that it's likely each company will feel the effects of lowered revenues this quarter. Therefore, in line with how much these concerns dropped Q2 revenue for Las Vegas Sands, expect to see lowered revenues for Wynn Resorts and MGM Resorts as well. Don't let this short-term noise sway your long-term investing decision, but do know that as it affected Sands' Q2 results, it probably will for Wynn Resorts, too.
VIP gaming and the switch to the mass market
In 2014 Q1, Wynn Resorts' investors were pleased with revenue growth of nearly 10% year over year. This was helped in part by solid revenue from Wynn's VIP gaming operations. However, no company will be touting its VIP operations growth this quarter. As there are more regulatory concerns with VIP gamers and "junket operators" (the middleman companies that provide credit to high-rolling gamblers, an industry that has come under regulatory scrutiny recently) become a concern, and the number of VIP gamers plateaus, the mass market segment still offers the most growth potential.
For Wynn resorts, which has relied more heavily on VIP revenues recently, more so than Las Vegas Sands or MGM Resorts, this trend is going to be a hard switch. If the VIP segment drop caused a temporary drop for Las Vegas Sands' Q2 results, it will likely be even worse for Wynn. However, the switch to a mass-market focus is good for the industry long term and will continue to drive growth in Macau for years to come. Over the last five years, Las Vegas Sands has understood this best and has been the industry leader in mass-market growth.
Since the end of 2009, Las Vegas Sands has been the best mass market growth story in the industry. It likely will be for the years to come as well. Photo: Las Vegas Sands
This is one reason Las Vegas Sands has been able to do so well over the last five years and rewarded investors with incredible growth.
Photos: Las Vegas Sands, Yahoo! Finance; Editing: Bradley Seth McNew
Betting on Q2 results between these three
Las Vegas Sands led the field with first-quarter 2014 revenue of a record $4.01 billion, up over 21% year over year. MGM Resorts came in at a not-so-close second with revenue growth of barely more than half of that of Las Vegas Sands, and Wynn came in third for this group.
|
Wynn Resorts |
MGM Resorts |
Las Vegas Sands | |
|---|---|---|---|
|
Q1 Net Revenue Growth YoY |
9.7% |
12% |
21.4% |
|
Q1 Net Revenue Growth YoY |
TBA |
TBA |
12% |
|
Share Price in April |
$219 |
$24.33 |
$76 |
|
Share Price in July |
$204 |
$25.5 |
$73.8 |
|
P/E (TM) |
27.6 |
249.8 |
24.1 |
|
P/E est. 2015 |
21.4 |
38.7 |
16.7 |
Source: Yahoo! Finance
Even though Las Vegas Sands missed EPS estimates and saw lowered total revenue in Q2 compared to Q1, the company still posted incredible revenue growth that will again likely be the highest in the industry. Unless Wynn grows faster this quarter than last, which is very unlikely, it is still not as well performing as Las Vegas Sands.
CEO Steve Wynn introduces the vision for the new resort on the Cotai strip back in 2012. Source: Reuters.
Even more long term: The coming casinos
The coming $4 billion Wynn Palace on the Cotai Strip, with an expected opening date within 18 months, is a huge Macau bet for Wynn. The brand new resort will include a 1,700-room hotel and casino, a performance lake, and much more. Likewise, MGM is planning its own new casino resort in Macau, planning to open the following year in 2016.
Construction progress of Las Vegas Sand's Parisian. Source: Las Vegas Sands.
However, once again, Las Vegas Sands is making a bigger bet with an even more impressive resort. The company's new Cotai resort, the Parasian, is set to open in mid-2015, and it will include over 3,000 new rooms. Because Las Vegas Sands has done a better job of recruiting mass-market players to come to its casinos, it will need places for those gamers to sleep. This is one more sign that Las Vegas Sands is making bigger bets on the trends that are driving growth in Macau, and it will continue to win on these trends over the next few years.
Foolish takeaway
Las Vegas Sands' earnings shortfall has led investors to question Macau as a whole. Those investors looking ahead at Wynn Resorts' coming earnings can likely expect similar lowered revenue. However, as long-term investor,there are still reasons to be bullish on the whole industry. Las Vegas Sands, even with a second-quarter miss, will probably continue to be the strongest of these companies.
Shares of Macau-focused gaming companies have been beaten down over the last few months. Thus, regardless of Las Vegas Sands, Wynn Resorts, and MGM's incredible Q1 earnings, the prices have still not performed very well since April. This creates a buying opportunity, especially as Las Vegas Sands is down slightly after earnings. For those who still want in on Wynn Resorts, there is reason to be optimistic long term but cause for concern going into this earnings release.
