For investors in gaming companies like Las Vegas Sands (NYSE: LVS), Wynn Resorts (NASDAQ: WYNN), and MGM Resorts International (NYSE: MGM), 2014 was a very interesting (read: stomach turning) year. When 2013 ended with Macau gaming revenue up 19% over 2012, most analysts predicted similar growth in 2014.
All of a sudden the bottom fell out of the Macau gaming market. The Chinese president started a campaign against high net worth individuals gambling in Macau, a smoking ban was put into place in casinos there, and other issues befell the Macau gaming economy. Suddenly, the growth was gone. By the end of 2014, the industry was in decline for the first time in years.
Las Vegas Sands looks bad, but Wynn will look worse
This year could start to look better, but be warned, the hardships are not over yet, especially for a companies that depends on the Macau market so heavily, such as Las Vegas Sands and even more so Wynn Resorts.
In the fourth quarter 2013, Sands reported an 18% rise in revenue, and an astounding 32% rise in income, year over year. In the fourth quarter of 2014, revenue was actually lower than in 2013, but income still rose 23% year over year, surprising analysts. That boost was mainly do to Sands surprisingly strong earnings during the quarter in Singapore, as well as better cost management.
Unfortunately, Sands couldn't do that again this quarter. While Sands overall EBITDA margins, gaming mix, and non-gaming growth was impressive, the fall in Macau was just too large to post another rise in year over year income. Sands reported a full 37% lower income this quarter than in Q1 2014.
Yet Wynn is probably going to look much worse. During Q1 last year, Wynn received around 75% of its global income from Macau, a higher portion than Las Vegas Sands it with more emphasis on the VIP segment there, the segment hit the hardest by the current drop. Wynn's expected earnings this quarter are about 40% lower than what they were a year ago, but with Macau itself dropping lower than analyst estimate, expect Wynn's earnings drop to look even worse than Sands'.
MGM could actually be profitable
After the recession in 2008, Las Vegas has been slow to pick back up. However, revenue is back up for the major companies there, Las Vegas' current resurgence has many investors excited. . Gaming revenue in Las Vegas is still below its 2007 peak, and actually declined in 2014 year over year. However, that's a good thing as Las Vegas diversifies away from gaming, which now makes up only about a third of the total tourism economy there. Instead, revenue from hotels, entertainment, and convention space usage are what's driving growth now.
The company benefiting most from a resurgent Las Vegas is MGM, which dominates the Vegas' hotel industry with about 27% of the hotel rooms there. Unfortunately, MGM still posted losses in Q4 and for full year 2014 despite this increased revenue in Las Vegas. Part of that was due to the issues in Macau, as well as costs of development for new resorts in the U.S. and Macau. However, another big part of that loss was a one time tax settlement for a Las Vegas property that MGM put on the books last quarter.
So far in 2015, Las Vegas overall hotel revenue per available room has grown at a faster clip than in 2014 . Because of that, MGM could be reporting some higher than expected numbers in Las Vegas, potentially even enough to post a quarterly profit for the first time in three quarters.
Why Las Vegas Sands still might be the best long term bet
Yes, Las Vegas Sands' earnings looked rough, but in this turbulent industry, it still looks like Sands is the best bet for the long term. Because Las Vegas Sands has its hand in Macau, Singapore, the U.S., and if it gets its way, Japan, Korea, and Vietnam as well. Both MGM and Wynn have resorts in both Vegas and Macau, but neither one has much of a bet anywhere else other than the U.S. This diversification could help smooth Sands' earnings during tough times more so than its peers.
Additionally, even though a 37% decline in year over year income looks extreme, Sands still posted earnings of more than $700 million this quarter, which will likely be more than all of its competitors combined. When each company's earnings have been released during this bumpy quarter, one thing we can safely expect is that Las Vegas Sands will once again be the winner.