Conference calls can provide insights into a company that investors rarely get. In the case of Wynn Resorts (WYNN 1.86%), they're also an entertaining look at Steve Wynn's thoughts on everything from gaming to politics.
With gaming stocks struggling because of a decline in Macau's gaming, the second-quarter conference call was also a key time to get insights into what Wynn Resorts will look like long term. Here are five takeaways from the call and founder Steve Wynn.
Wynn Palace on Cotai is on schedule
The progress of our construction and our $4 billion Wynn Palace hotel in Cotai, I am happy to say we are on budget, we are proceeding a pace on schedule, and we are about 18 months out, and still feeling that we will make Chinese New Year of 2016. -- Steve Wynn, Chairman of the Board and CEO
When it comes to Wynn Resorts' future, there's no project more important than Wynn Palace on Cotai in Macau. The $4 billion resort will have 1,700 hotel rooms, 500 table games, a performance lake, and much more. But investors are focusing on the fact that it could double both revenue and EBITDA for Wynn when it opens in 2016.
Keeping the project on schedule is key for Wynn because it's competing with five other new resorts or expansions on Cotai, and it wants to be one of the early movers in the market.
Wynn continues to be make more with less than competitors
The Sands has ten times as many rooms as we do. They have -- we have 1,000, they have 10,000. They have multiples of machines, multiples of tables, multiples of square footage of retail being operated, and multiples of restaurants. They are twice the EBITDA of our company, a little better than twice, we are approximately half as profitable in Macau as The Sands, with only 10% of the rooms. -- Steve Wynn
Steve Wynn spent much of the conference call highlighting the comparison between his company and Las Vegas Sands both in Las Vegas and in Macau. The quote above references the fact that Las Vegas Sands has 10 times as many hotel rooms and multiple times as many table games, but only twice as much profit as Wynn in Macau.
The difference comes down to the business model of the two companies. Las Vegas Sands is focused on the mass market convention business, which is all about having more volume than competitors. Wynn targets affluent customers who are willing to spend more on hotel rooms, retail, entertainment, food, and gambling.
The difference shows in Las Vegas, where Las Vegas Sands neighbors the smaller Wynn Las Vegas, but Wynn outperforms based on profitability. If the trend continues on Cotai, we could see Wynn's EBITDA once again outperform all of its neighbors.
Reinvention continues
We are in construction on the whole south end of the original Wynn casino [in Macau], and we are adding two really spectacular spaces, that we decided we wanted to introduce into the market for Chinese New Year, one year ahead of Cotai. And so we took and closed half of that casino months ago, and started a very expensive $60 million [renovation]. -- Steve Wynn
If there's one constant in gaming, it's change, and that's the case in Macau as well. Wynn Resorts is remaking its gaming floor a year ahead of the opening of Wynn Palace to keep the area fresh and competitive with new offerings in the region.
Wynn has a long history of creating great venues and then remaking the ones that aren't working to their standards. It happens in Las Vegas as well as in Macau, and this is just the latest example of Steve Wynn not being satisfied with the status quo, even if that's the best in the industry.
Las Vegas is still highly profitable
We are pushing $50 million this month in Las Vegas. I never had a $50 million in July in my business career, 40-odd years in gaming. -- Steve Wynn
The $50 million in July that Steve Wynn is talking about is EBITDA, a proxy for cash flow in gaming. If Wynn Las Vegas is able to keep profitability like that, it'll potentially lead to a $500 million EBITDA year in Las Vegas, which would be incredibly profitable given the struggles Las Vegas has had since the recession.
The bottom line is that Las Vegas is doing well for Wynn Resorts and is no longer a drag on results, but instead is adding incremental value for the company.
Corruption isn't a long-term drag for Macau
The corruption stuff, the idea that the central government is making a concerted effort to clarify to the citizens of the People's Republic of China that the government is not corrupt, is probably a wonderful thing. I know President Z has made that a centerpiece of this administration. -- Steve Wynn
Across the gaming industry in the second quarter we heard comments from executives about how the recent reduction in gaming will be temporary in nature. Part of the decline was driven by a crackdown on corruption in Mainland China, something Wynn said is probably positive for business long term.
The key here for investors is that Wynn and others aren't seeing the corruption crackdown expand into Macau; they see it as a short-term blip on their results. If that's true, the harsh reaction by the market over the past few months will have created a buying opportunity for investors willing to buy when uncertainty is at its highest.
