Las Vegas Sands (NYSE:LVS) investors would no doubt like to forget 2014, during which the share price lost over a quarter of its value. But last year ended with good news from Macau for the gaming giant, and I believe this development is indicative of improving prospects that should help the shares recover in the new year.
Paris in China
The Macau government in late December gave Las Vegas Sands the go-ahead to complete its Parisian Macau resort in the gambling enclave.
The new complex will be impressive. Parisian Macau, to be located on the Cotai Strip, is planned as a 3,000-room resort with plenty of gaming, a host of dining and drinking options, and sufficient meeting, convention, and entertainment space to bring in revenue from various events. It will be Las Vegas Sands' fourth property on the Strip.
All told, the company estimates the project will cost about $2.7 billion. Completion is projected for the end of this year.
Folding their hand
At first blush, the timing of the new property is awful. Macau suffered a notable drop in the casino business last year, with gaming revenue falling by 2.6% from 2013.
That doesn't sound too bad, but it was the first annual decline since the Chinese special administrative region ended its government-sanctioned monopoly and opened up its casino market in 2001. Worse, Macau saw revenue fall by 30% in December on a year-over-year basis.
This situation is a major reason Las Vegas Sands and its publicly traded peers active in Macau had a lousy 2014. Wynn Resorts, Melco Crown, and MGM Resorts International all saw stock price declines for the year.
Why did Macau slump? The key reason appears to be the Chinese government's crackdown on corruption, which has spooked the VIP segment of the market -- high rollers responsible for over 60% of gaming revenue. Forbes magazine reported that Credit Suisse estimated revenue from this segment fell as much as 40% in December on a year-over-year basis. Furthermore, the mass market (i.e., gamblers playing at the lower-stakes games) saw a smaller, unexpected drop of 19%.
Massing at the tables
Las Vegas Sands deserves more credit than it has received for holding up in the face of such declines.
It continues to do well in the mass market. During the third quarter, the Venetian Macau on the Strip saw a 26% year-over-year rise in slot handle (i.e., total wagering on slots) to $1.4 billion and a 10% increase in nonrolling chip drop (money wagered at its table games) to $2.2 billion.
Those masses were also happy to eat, drink, shop, and stay in the Venetian -- hotel, food and beverage, and mall revenue all advanced at double-digit rates during the third quarter. All told, total revenue for the resort eked out a slight year-over-year gain, which is admirable given the enclave's overall decline.
Like its Cotai Strip siblings, Parisian Macau will focus its gaming options on the mass market and will boast plenty of non-casino revenue sources. As such, it will only boost Las Vegas Sands' strength in that segment.
Unlike VIPs, the mass market should start to recover this year. Although China's economic growth has slowed, the country is still outpacing much of the West, and people still have more money in their pocket to wager in Macau. Meanwhile, the current anti-corruption initiatives don't target this segment.
That's why the final approval of the company's new project is such good news. Once the market accepts the shift away from VIP gambling in the region and recognizes the potential of the mass market, it should reward Las Vegas Sands with greater demand for its stock. Just now, it might a good idea to place a bet with the company while it's in a slump at the table.