But it appears a turnaround is in sight, and the company looks like one of the best plays for when conditions in the region recover. Here is why I am sticking with this company through the slump.
Better bets outside of Macau
Even though Las Vegas Sands has experienced large declines from its Macau operations -- revenues were down 16% year-over-year for the fourth quarter -- the company has still been able to report rising year-over-year total quarterly earnings.
In fact, the company posted the strongest income growth of any of its peers during the third quarter last year. The most recent fourth quarter rise of 23% in net income, reported on Jan. 28th, will likely be the highest again when all companies have announced earnings. At a time when Macau is posting its first ever year of declining gaming revenue, Sands has still been the most successful.
A major contributing factor to the recent earnings growth has been the Marina Bay Sands, which saw revenues up over 33% from a year ago. While Macau properties still account for the majority of Sands revenue, Singapore now makes up about a quarter of the top line.
While MGM and Wynn are a bet on just the Macau and U.S. markets, Las Vegas Sands has done a better job of diversifying its properties, as its Singapore segment shows. Additionally, there are hopes for similar projects in South Korea, Vietnam, and Japan.
The best play when Macau does turn back around
The weakness in Macau began when the Chinese government decided to regulate the use of "junket operators" (companies that bring high-net worth players to the city) more heavily over the summer of 2014, following reports that the operators were linked to corruption. VIP traffic saw significant declines, and 16% of the junket operators have since shut down.
The crackdown hurt every casino in the city but in the end, will be a blessing in disguise. For one thing, if these gamers were in fact engaged in illicit activity, that is simply not a sustainable practice. The transition should eventually help these companies focus more on the mass market, a segment that is rising steadily and can pave the way for a more stable and profitable Macau. And within this segment, Las Vegas Sands is already in the lead.
With an increasing number of mass market visitors, spurred on by transportation and infrastructure improvements that make it easier for people to travel into the region (as opposed to the personal helicopters commonly used by VIP players), Macau will need rooms for these guests. Las Vegas Sands has more hotel rooms on the island than any of its competitors.
Furthermore, each of the casino companies listed above have new resorts opening on the up-and-coming Cotai strip. However, Las Vegas Sands will be one of the first with Parisian Macau, set to open later this year. This resort will add 3,000 hotel rooms, more capacity than the other new resorts, and should help LVS scoop up even more of the mass market.
Still the best value
In addition to its diversified business, positioning with the mass market, and strongest year-over-year growth in recent quarters, Las Vegas Sands is also the best value.
With a price to earnings of just 17 times, Las Vegas Sands is still less expensive than Wynn at 23 times earnings and MGM at 37 times earnings (data from S&P Capital IQ). Once gaming in Macau returns to business as usual, Las Vegas Sands looks to be the best bet going forward.