If there are challenges going on in Macau, you wouldn't know it from Las Vegas Sands' (NYSE:LVS) third-quarter results. Revenue slipped 1% to $3.47 billion, but net income was up 7.2% to $671.7 million, or $0.83 per share.
As usual with gaming results, there's a lot of nuance to Las Vegas Sands' results. Here's what you need to know.
Why revenue is down and profit is up
How can revenue be down and profit be up so much in one quarter, especially against a backdrop of a 7.1% drop in Macau's gaming revenue last quarter? The answer is in the margins Las Vegas Sands earns in different segments of its business. Earlier this week I highlighted that mass-market gaming is about 4 times as profitable as VIP gaming, and it's the mass market where Las Vegas Sands excels.
In the third quarter, Las Vegas Sands' Macau mass-market table win was up 14% and VIP rolling win was down 21.9%. But the fact that the mass market is so much more profitable makes up for the lost VIP play. Even mall revenue, which jumped 17.5% to $105.0 million, helped results in the quarter.
A similar dynamic played out in Singapore, although overall revenue did drop 5% and EBITDA was down 5.9% from a year ago to $351.7 million. Mass table and slot win was up 6.6% from a year ago to $443.8 million, and rolling win fell 38.6% to $241.2 million. Once again, non-gaming activities helped offset some of the loss in VIP play, with room and mall revenue up 8.9% and 17.9%, respectively.
In general, Asia is seeing a sharp pullback in VIP play, in large part because of a corruption crackdown within Mainland China. But mass market players are still traveling to Macau and Singapore in growing numbers, and that plays right into Las Vegas Sands' business model. It has more hotel rooms, convention space, and table games than all of its competitors, and that's allowed the company to increase profits even though VIPs are staying away at the moment.
The future of Las Vegas Sands looks bright
Macau is going through a bit of a transition right now, but Las Vegas Sands is weathering the storm well. Its dominant position on the Cotai Strip is paying off with strong mass-market play, and this year or early next it will add The Parisian to the mix.
But the big upside in the future comes from growth opportunities in Japan and South Korea. Both countries are looking at allowing integrated resorts, and CEO Sheldon Adelson is working hard to be the one who wins potential bids there. Competitors are sure to show their best as well, but Marina Bay Sands shows just what Las Vegas Sands has to offer.
A great company at a good price
For investors, the good news is that Las Vegas Sands is performing well in the current challenging environment and still has lots of room to grow both through existing resorts and new opportunities. But they're also getting a decent value, with the company's enterprise value trading at 10.5 times trailing EBITDA, well below historical averages.
Investors are also getting a 4.3% yield based on the announced dividend increase to $2.60 per share next year. This is a business that continues to spit out massive amounts of cash, and CEO Sheldon Adelson has shown the vision to lead the gaming market and the ability to execute as well. This quarter shows just how well that strategy is playing out despite some macro challenges for Las Vegas Sands.