Las Vegas is the city that made huge successes of the casino resorts operated by companies such as Las Vegas Sands (NYSE:LVS) and MGM Resorts (NYSE:MGM). However, for the last five years gaming in Asia, rather than U.S. operations, have lifted these companies' profits. But with 2014 profits in Las Vegas on the rise, is Sin City on the way back?
Following the 2008 financial crisis, Las Vegas profits dropped as U.S. gamers spent less on leisure travel and nonessentials like gambling. At the same time, Macau profits started surging as the Cotai strip there opened and Las Vegas Sands dominated the Cotai Strip with the most casino resorts and the highest total gaming revenue. Now, though,Vegas might be making its comeback.
Is this really the Las Vegas comeback?
Nearly 40 million people visited Las Vegas in 2013, helping the city to pick up both gaming and non-gaming revenues over 2012. Now, total revenue is continuing to increase to date this year. If current forecasts are correct, 2014 could be getting close to those peak 2007 revenues. The chart below lays out the past 10 years of gross gaming revenues for Las Vegas, while the graph compares those numbers to total gaming revenue in Macau during the same time.
Las Vegas GGR ($US)
(Strip + Downtown)
Macau took over as the largest gambling region in the world by annual revenue in 2009, and Macau GGR nearly quadrupled Las Vegas GGR by 2010. So savvy investors who bet on this rising region reaped huge share price gains from the companies that have done well there.
Looking at the year-over-year growth for each region individually, Las Vegas has started to pick up again slightly from the slow progress it saw following 2008. Meanwhile, Macau growth seems to be curbing. However, the very low 6% YOY growth Morgan Stanley analysts estimate for Macau revenue for full year 2014 is still higher than the growth in Las Vegas seen so far this year. With 3.4% YOY revenue growth for the Las Vegas Strip and the 1.9% YOY revenue growth for Las Vegas downtown so far this year, if this revenue growth holds current for the rest of the year it'll be lower than that of Macau.
Still, revenue is rising again in Las Vegas and that's a good thing. And it's not only gaming operations that are starting to pick up. Resort and hotel nongaming operations are helping to spur on casino companies' Las Vegas revenues as well. MGM's resorts in Vegas, including the Bellagio and MGM Grand, gained revenue from higher occupancy rates and revenue per available room, or RevPAR, during the most recent quarter reported.
MGM Resorts looks good, but is it the best bet now?
For Las Vegas Sands, which has made a much bigger bet on Macau than MGM, unfortunate events during the summer lowered revenue in that market and caused the company to miss earnings expectations for the second quarter.
MGM did well in Las Vegas, or at least better than expected. Revenue from MGM's U.S. wholly owned resorts were up 6% over last year's second quarter, and EBITDA at those properties was up 10% over the same time.
This offset MGM's slow summer in Macau. However, taking a global view, this does not make the company the industry's gaming profit leader. Las Vegas Sands, regardless of the weak second-quarter numbers, still posted the most profitable quarter of the two gaming companies: a net income increase of 27% year over year coming from net revenue of $3.62 billion, up nearly 12% on an annual basis; EBITDA in Macau was up 21.9% year over year.
Foolish conclusion: Where to bet now?
Las Vegas revenues are improving, and that's encouraging. But It's hard to say that this small upward trend, in light of the higher growth and nearly eight times higher revenue that Macau will bring in by the end of 2014, supports the notion that Las Vegas will once again be the gaming hub of the world.
Whether you believe in MGM Resorts for the Las Vegas comeback or Las Vegas Sands for continued growth and dominant gaming profits, there is still plenty of growth in this industry and current prices look attractive. This is especially true for Las Vegas Sands' stock, which was hit recently due to lowered forecasts on Macau's 2014 gaming revenue. At less than $70 a share, Sands is selling at a price-to-earnings multiple of just 22, less than MGM and the industry average. For consistently posting the highest profits in the industry, that makes Las Vegas Sands a very attractive bet now.