Las Vegas Sands Holding Off Onslaught in Macau

Marina Bay Sands is Las Vegas Sands' most iconic resort. Source: Las Vegas Sands.

It was no surprise when Las Vegas Sands (LVS -1.28%) reported a big decline in both revenue and earnings for the second quarter. Macau has seen over a year of declining revenue, and there's simply not enough money to go around for any of the operators to grow. But the decline comes just as all six concessionaires are looking to expand their offerings, so it should be a concern for investors.

But before panicking over declining revenue and earnings, what's important to look at in this earnings report is how the company did compared to the market. On that front, there was some positive news.  

Behind the numbers
Below is a table of revenue and EBITDA for Las Vegas Sands' five most important resorts. The top three are in Macau, where gaming revenue dropped 37.4% in the second quarter. It's this bar that we should compare results to, and you can see that revenue didn't drop that far at any resort.  

Source: Las Vegas Sands earnings release.

The advantage Las Vegas Sands has over Wynn Resorts (WYNN -1.94%) or Melco Crown (MLCO 0.24%) is that it's focused on mass market players who haven't been as affected by the corruption crackdown in Macau. VIP players are staying away from Macau, so a focus on the mass market and non-gaming revenue has helped Las Vegas Sands.

We haven't heard from either Wynn Resorts or Melco Crown, but given Las Vegas Sands' market share gain over the past year, I wouldn't be surprised to see them suffer even more. The bigger question comes as new resorts, which are currently under construction, start to open. Then Las Vegas Sands' overall share could fall.

The Parisian, Las Vegas Sands' next resort in Macau due to be completed next summer. Source: Las VegasSands.

Results in Las Vegas and Singapore are weak as well, although not as bad as Macau. They're likely being hit by reduced Chinese gambling, so Macau's problems are spreading throughout the company. It's nice to have those two resorts to fall back on, though, something most operators in Macau don't have.

The biggest questions Las Vegas Sands faces
Las Vegas Sands is weathering the storm in Macau better than most companies, mostly because of its focus on mass market and non-gaming revenue. The Cotai region of Macau has become the hottest area around, and Las Vegas Sands has three megaresorts there with another under construction.

But five other resorts or expansions are adding to supply in Cotai, notably Wynn Resorts' project called Wynn Palace. This will be Wynn's first resort on Cotai, and historically, Wynn has had more profitable resorts than Las Vegas Sands when they're located next to each other.

On top of the expanded supply, we don't know when Macau's declining revenue will stop. If it doesn't soon, companies will begin cannibalizing each others profits as new resorts open up.

Lots of questions, but Las Vegas Sands holding up well
Most of the challenges Las Vegas Sands faces are out of its control, like dropping gaming revenue in Macau. But for now, the focus on mass-market and non-gaming revenues is paying off, and the company is gaining market share.

I don't think there's as much upside for Las Vegas Sands as some competitors who are opening new resorts on Cotai, but it's probably the lowest risk of the Macau gaming stocks right now. For the next year, investors should watch how the market as a whole grows or shrinks, because that's really what's going to drive this stock going forward.