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Earnings News: Wynn Resorts Struggles in Macau but Wins Big in Las Vegas

By Travis Hoium – Oct 28, 2014 at 6:16PM

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Las Vegas saved the day for Wynn Resorts, which posted a stronger than expected quarter after the market closed Tuesday.

An exterior view of Wynn Las Vegas. Source: Wynn Resorts.

There's a lot of turmoil going on in China, which is affecting gambling in Macau, but that doesn't mean profits for the world's largest gambling companies are plunging as well. Last week, Las Vegas Sands (LVS 1.11%) reported strong earnings, considering the decline in gambling revenue in Macau, and today, Wynn Resorts (WYNN 4.36%) followed suit with solid numbers for the third quarter.

Overall, revenue for Wynn Resorts fell 1.4% to $1.37 billion, but net income rose 5.2% to $191.4 million, or $1.88 per share. A little luck combined with a good mass market in Macau saved the day for Wynn Resorts in the third quarter.

Where Wynn Resorts is winning in Macau
Before we get to how Las Vegas saved the day for Wynn Resorts, let's cover Macau, where Wynn Resorts is still getting a majority of its profits. Third-quarter net revenue fell 5.6% to $942.3 million, and adjusted EBITDA, which is a measure of cash flow for the casino, dropped 1.1% to $329.1 million.  

That compares with a 0.1% decline in revenue and a 3.1% increase in EBITDA at Las Vegas Sands' resorts. The difference in EBITDA is the mass market, where Las Vegas Sands shines. That market is four times as profitable per dollar of revenue as the VIP segment is.

Indeed, the difference between the two companies is simply Las Vegas Sands' focus on mass-market players and Wynn Resorts' focus on VIPs, and that difference showed up in the results for both companies.

 Casino

Mass Market and Increase/Decrease

Slot Machine Play and Increase/Decrease

VIP Volume and Increase/Decrease

Wynn Macau

$327.2 million

36.4%

$1.4 billion

23.2%

$25.1 billion

(17.4%)

The Venetian Macau 

$2.21 billion

10.1%

$1.44 billion

25.9%

$10.13 billion

(28.4%)

Sands Cotai Central

$1.89 billion

32.3%

$2.03 billion

38.7%

$10.57 billion

(32%)

Four Seasons Macau

$320.4 million

17.7%

$214.6 million

(18.5%)

$6.24 billion

(40.3%)

Sands Macau

$884.6 million

0.8%

$833.4 million

26.2%

$4.32 billion

(17.5%)

Source: Company earnings releases.

Given Wynn's heavy focus on the VIP market, it's amazing that Wynn's revenue was down only 5.6% compared with a 7.1% decline in Macau's gaming revenue overall. The healthy growth in mass-market play saved the quarter from being far worse than it could have been, but Las Vegas was really the star this time around.

Wynn Palace in the Cotai region of Macau is Wynn Resorts' next growth project. Image source: Wynn Resorts.

How Las Vegas came to the rescue
While Macau was struggling, the party continued for Wynn Resorts in Las Vegas. Revenue for the third quarter climbed 9% to $427.8 million, and property EBITDA jumped 25.1% to $133.3 million, in part because of good luck in the quarter.

Gambling play was down in the quarter, but Wynn's strength in Las Vegas goes far beyond the gambling floor. Room revenues climbed 7.2% to $102.5 million, food and beverage revenues rose 5.8% to $136.4 million, and entertainment and other revenues increased 1.8% to $59.1 million.

It may surprise people to learn that nearly 60% of Wynn Las Vegas' revenue comes from activities outside gambling, including running the most profitable nightclubs in the country.

On the conference call, CEO Steve Wynn reiterated that he thinks Wynn Las Vegas can hit $500 million in EBITDA this calendar year, and the strong results last quarter show why.

A steady player in an unsteady industry
Gambling can be a volatile industry to invest in, but the quality resorts Wynn Resorts builds show why it's one of the top-performing companies in the industry. With Wynn Palace due to be completed early in 2016, the company is primed to potentially double profits when the new resort opens and will get a boost from a new resort in Boston as well.

Wynn Resorts is one of the top stocks in gaming along with Las Vegas Sands, and their strength amid turmoil in China has showed why they should be on investors' radars. A dividend boost to $6 per year at Wynn Resorts doesn't hurt for long-term investors, either, and with the potential growth ahead, I'd expect solid returns for investors who can hold on through this volatile ride.

Travis Hoium manages an account that owns shares of Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Wynn Resorts Stock Quote
Wynn Resorts
WYNN
$78.20 (4.36%) $3.27
Las Vegas Sands Stock Quote
Las Vegas Sands
LVS
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