One of the best ways for investors to gain insight into a company's operations is through the conference call and questions and answer session companies usually conduct after issuing quarterly earnings. Gaming companies use these events to provide specifics on new projects and to update operational details that can be key for investors over the long term.
For Las Vegas Sands (NYSE:LVS), the conference call is one of the best times to get insight from industry visionary Sheldon Adelson, the company's CEO and majority shareholder. Here are five takeaways from Adelson's discussion of the second quarter.
Market share is growing
"During the quarter we again outpaced the market in terms of gaming revenue growth. Our growth gaming revenue was up 12% versus the market that was up 5%."
In a market like Macau, the key to success is gaining market share. A company that can build resorts that attract more customers than its competitors will win more at the tables, have more hotel guests, and make more money from entertainment venues.
Las Vegas Sands is gaining share in large part because it is finishing its Cotai Strip strategy, completing Sands Cotai Central and now constructing The Parisian. This critical mass of resorts will give the company a major draw to the Cotai Strip, which is where it's winning the battle of the mass market.
Mass market is Las Vegas Sands' focus
"For the second quarter our gaming revenue mix was 44% VIP and 56% non-VIP whereas the Macau market, the overall Macau market was 60% VIP and 40% non-VIP. The VIP segment represents just 17% of our departmental profit in Macau."
One of the keys to Las Vegas Sands' Cotai Strip strategy is its focus on the mass market. The Venetian Macau, Four Seasons Macau, and Sands Cotai Central provide thousands of hotel rooms for guests and space for mass-market gaming, which provides higher margin than VIP play.
Recently we've also seen mass-market play grow more quickly than VIP play, which is actually declining this summer, and that has been a boon to Las Vegas Sands over its competitors. For the long term, this focus on the mass market should help the company smooth out results, as millions of patrons will now be coming from mainland China and elsewhere around Asia to play at the company's gaming tables in Macau.
There's a corruption crackdown in China, not Macau
"The press has extensively reported a crackdown of corruption in the PLC, not in Macau. As in the past as I have experienced, that type of criton creates uncertainty, and that uncertainty temporarily slows the VIP market in Macau. Let me emphasize -- it's temporary and it's cyclical."
As gaming revenue has declined in Macau in recent months, one cited cause has been a crackdown on corruption in China. But Adelson wants investors to know what this is happening within the People's Republic of China and not Macau.
Such events take place periodically, and gaming will suffer over the short term. But when gamblers and junkets regain confidence they head back to the gaming tables. Adelson and others in the industry think it's just a matter of time before players return.
Singapore is a showcase for future markets
"Marina Bay Sands serves as the most important reference site for emerging jurisdictions anywhere in world but considering large-scale integrated resort developments, particularly convention based."
As countries such as Japan and South Korea consider expanding gaming with multibillion-dollar integrated resorts, Las Vegas Sands will use Marina Bay Sands in Singapore as an example of what it can bring to the table. The resort has become an icon of the Singapore skyline and has brought conventions and major entertainment shows to Singapore.
Few companies can showcase the kind of venue Las Vegas Sands offers in Singapore, so it's important to have the resort as a model for winning future gaming bids.
Las Vegas Sands is returning billions to shareholders
"Over the last 10 quarters through June 30, 2014, we have returned $8.3 billion to our shareholders through dividends and stock repurchases, including over $6.7 billion to Las Vegas Sands shareholders, and then Hong Kong Dollars, the equivalent of overall $1.5 billion to the non-LVS shareholders of Sands channel."
Until recently, gaming companies weren't known for returning money to shareholders with either dividends or share buybacks. They were focused on expansion, and more were highly leveraged as well.
But the success of resorts in Macau and Singapore has provided so much cash that companies like Las Vegas Sands are now focusing on returning cash to shareholders. Given the long-term cash generation potential of Las Vegas Sands' operations I would view dividends and even share buybacks as an important part of any investment in the company.