Macau's gambling market isn't exactly booming, but there's increasing optimism that the market has bottomed out. When Las Vegas Sands (NYSE:LVS) reported earnings late last month, its management saw signs of improvement ahead, and that view was reinforced when Wynn Resorts (NASDAQ:WYNN) reported earnings on Thursday.
Ahead of the opening of Wynn Palace and a number of other new resorts in Macau, the improvement can't come fast enough.
Good vibes in Macau
Wynn's Macau operations were still down in the fourth quarter, which is no surprise. Revenue fell 27% to $555.7 million and EBITDA was down 33.6% to $160.1 million, which compares with a 27.5% decline in Macau gambling revenue overall in the quarter. What's encouraging is that Wynn didn't lose market share, something it's struggled with because of its focus in VIP gambling. The VIP market has been hit harder than the mass market over the past two years, and that's been a driver of Wynn's underperformance versus competitors such as Las Vegas Sands, which has a more mass market appeal.
On the conference call after earnings were released, Steve Wynn said January was "our best month in a long time," a very bullish sign for the company. Investors have seen gaming revenue level out in Macau over the past six months, so indications that improvement may be coming in 2016 is good news for the industry.
The bullish comments also come ahead of the expected June opening of Wynn Palace, which will probably be the company's most profitable resort from the moment it opens.
Las Vegas continues its steady ways
A few years ago, you would have shocked investors if you told them Las Vegas would be the best-performing location in gambling, but that was the case in 2015. Fourth-quarter revenue at Wynn Las Vegas increased 3.8% to $391.2 million and EBITDA jumped 14.5% to $127.4 million.
The increase was driven by a 6.7% jump in room revenue to $101.9 million. Las Vegas has shifted its focus away from the gambling floor to non-gambling revenues, and Wynn is one of the leaders in that space. Leveraging the space it has, Wynn recently sold its Ferrari dealership and will spend about $70 million to upgrade that space, which is expected to add another $20 million to $23 million in EBITDA when completed. "... we're going to have retail and a new retail mall that goes through where Ferrari was and a two-story building with a beautiful glass roof, an atrium kind of structure, that has 75,000 feet of rentable space," Wynn said in the Feb. 11 conference call.
New projects will drive Wynn's future
If you're looking at Wynn Resorts today, it should be with one eye on the performance of its two existing properties and another on the two currently under construction. Wynn Palace in Macau will probably add over $1 billion in EBITDA annually when it opens, assuming Wynn continues its trend of outperforming neighboring resorts. That property alone could double the company's EBITDA and profits.
Wynn Everett, which is near downtown Boston, has been a headache for Wynn to move forward, but according to Steve Wynn it's now full-steam ahead. Site preparations are under way, with full construction expected to begin in April or May, and the opening set for sometime in late 2018. It's unclear what the financial impact of Wynn Everett will be on the company, but with a prime location near downtown Boston and the airport, it could add hundreds of millions in cash flow when it opens.
The value of Wynn is coming to life
Over the past year, shares of Wynn Resorts have sold off because investors couldn't see the bottom of Macau's gambling market. With Las Vegas Sands and now Wynn Resorts predicting that we're at the bottom, it's giving investors reason to jump back into the industry. With Wynn Palace coming online in a few months, I think operations will improve from here. I think the stock provides tremendous value for investors, even after Friday's pop in shares.