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Gaming Roundup: LVS and MGM Disappoint

By Jeff Hwang - Updated Nov 15, 2016 at 12:20AM

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Las Vegas Sands and MGM Mirage post disappointing Q1 results.

I'm a little miffed about some people's skepticism regarding the potential drawing power of Las Vegas-style hotel casinos in Macau. Detractors say that Chinese gamblers are a special breed of hardcore, and that the non-gaming amenities that companies such as Las Vegas Sands (NYSE:LVS), MGM Mirage (NYSE:MGM), Wynn Resorts (NASDAQ:WYNN), and Melco PBL (NASDAQ:MPEL) are bringing to Macau may not appeal to the mass-market gambler as hoped.

I think that's absurd. I mean, it's true that the Chinese gambler is a special breed of hardcore. But there are 300 million people within a three-hour drive, and nearly three billion people within a five-hour flight of Macau.

And get this: We Chinese aren't all the same.

Take my parents, for example. My mother is almost diametrically opposed to the very idea of gambling. She'd drive halfway across town to save $0.30 on a head of cabbage, whether or not the trip actually made economic sense in aggregate. Trying to get her to put $20 in a slot machine is like cheering for the Cubs to win the World Series. (The rest of Mom's side of the family is another story.)

My dad is hardly a gambler, either. A wild night at the casino for him is a couple of hours at the quarter slots. And it's not as if my dad can't afford to gamble a little -- he's a heart surgeon. He's just not gambling-inclined. Yet both my parents still enjoy making the occasional trip from Florida to Las Vegas to take in a show, eat good food, stay in a nice hotel, and spend time with their siblings from L.A.

I'm guessing that if I lived in Las Vegas, my parents would visit me a lot more often, too.

But you get the point: Somewhere in those 3 billion people within a five-hour flight of Macau are people more like my parents, and less like the hardcore Chinese gambler that already visits Macau. These people will be more attracted to Macau with the opening of Las Vegas Sands' massive Venetian property on the Cotai Strip this August, and they should help annual visitation to Macau nearly double to around 42 million visitors by 2010.

Las Vegas Sands disappoints
The company's long-term prognosis remains intact, but Las Vegas Sands revealed a small hiccup in its Q1 earnings report. Despite a 24.4% increase in revenues to $346.1 million at the Sands Macao, the property reported a slight drop in property EBITDAR, to $102.3 million. The culprit was about $12 million in expenses related primarily to the advance promotion of key employees, in an effort to retain them as the opening of the Venetian Macao approaches. The move is considered a necessary expense to retain employees, since competitors -- such as Melco PBL's "6-star" Crown Macau next week, and MGM Mirage's jointly owned MGM Grand Macau later this year -- are springing up rapidly.

Overall, Las Vegas Sands reported an 18.5% increase in net revenue, while adjusted property EBITDAR gained a more modest 4.8%, thanks to a strong performance and a higher-than expected table-game win percentage at the Venetian Las Vegas. Meanwhile, adjusted earnings came in at $0.32 per share, down from $0.38 per share a year ago, and in line with analysts' estimates.

On a side note, I'd like to scoff at a recent article in which an analyst suggested that LVS is pricey by comparing its trailing-12-month P/E ratio to that of Harrah's Entertainment (NYSE:HET) and MGM Mirage. Most of the value of both Harrah's and MGM is based on casino operations that already exist and generate earnings. The vast majority of LVS' value is based on hotel and casino operations that don't yet exist. Just this year, LVS will double the number of casino operations, with the opening of the Venetian Macao due in late August, and the Palazzo on the Las Vegas Strip to follow in the Fall. In addition to the rest of the Macau developments, LVS will also open a 5,000-slot casino in Bethlehem, Pa. -- 70 miles from downtown Manhattan -- in 2008, while the Marina Bay Sands project in Singapore is slated for a 2009 opening.

While there's a definite element of chance in buying the stock of a company whose value is mostly based on forthcoming operations, it also makes zero sense to craft "apples-to-apples" comparisons to far more mature companies, based solely on trailing results.

MGM Mirage: The lion meows
MGM Mirage also folded in the first quarter, posting adjusted earnings from continuing operations of $0.55 per share, well short of the $0.63-per-share analyst estimate. Excluding results from the Beau Rivage in Biloxi -- which was out of commission during last year's period -- non-gaming revenue increased 10%, but gaming revenue fell 6%. The company attributed the decline in gaming revenues to a loss of 98,000 available room nights because of remodeling at Mandalay Bay and Excalibur. The NBA All-Star Game's scheduling during President's Day weekend in February -- coinciding with the second week of the Chinese New Year -- also hurt MGM Mirage, as rowdy crowds kept gamblers away from the tables.

Still, Las Vegas Strip REVPAR was up 9%, while several Las Vegas Strip properties reported record property EBITDA, including the Bellagio, MGM Grand, Mandalay Bay, Treasure Island, and Monte Carlo. Meanwhile, the Beau Rivage had its best quarter ever, generating $28 million in EBITDA as the premier casino resort along the Mississippi Gulf Coast. Biloxi, incidentally, will play host to the Southern Gaming Summit next week for the first time since Hurricane Katrina hit. I hope to see y'all there.

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Fool contributor Jeff Hwang owns shares of Melco PBL. The Fool has a disclosure policy.

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Stocks Mentioned

Las Vegas Sands Stock Quote
Las Vegas Sands
LVS
$33.82 (-2.51%) $0.87
MGM Resorts International Stock Quote
MGM Resorts International
MGM
$33.00 (-7.54%) $-2.69
Wynn Resorts, Limited Stock Quote
Wynn Resorts, Limited
WYNN
$62.82 (-5.39%) $-3.58

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