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What it does
Melco is a casino and hotel resort operator in Macau, one of only six licensed to do so. For those unfamiliar with tiny administrative regions of the People's Republic of China, Macau is like an Asian Las Vegas. Covering 11 square miles (one-sixth the size of Washington, D.C.), the city/region is along the southern shore of China. An enormous part of the region's economy is derived from the gaming (*cough* gambling *cough*) and tourism industry.
Melco owns and runs three major operations in Macau: the Mocha Clubs, the Altira Macau, and the City of Dreams that was just opened last June. The Mocha Clubs are a series of eight gaming parlors that primarily offer slot machines and electronic game tables. The Altira is a different beast: The first six-star casino hotel in the city, it is the tallest building on Macau's Taipa Island and boasts a 183,000-square-foot gaming area. But the real crown jewel in Melco's portfolio is the City of Dreams, a behemoth of a development that includes a hotel, a shopping strip, a theater, and a 420,000-square-foot casino.
At the end of the day, the casinos are the real cash cows. Melco generated $1.33 billion in revenues last year, $1.3 billion of which came from the spread between the casinos' winnings and the winnings of their patrons.
How it stacks up
While Melco's operations are not directly comparable with those of its Las Vegas brethrens -- they operate in a different environment with different demographics and economic conditions -- doing a comparative market study can still be an informative exercise.
|
Company |
Casino Revenue (millions) |
Owned Gaming Space (sq ft) |
Owned Slot Machines |
Owned Tables |
Casino Net Margin |
Casino Revenue/ Gaming Space |
|---|---|---|---|---|---|---|
|
Melco Crown Entertainment |
1,305 |
684,310 |
2,861 |
741 |
13.4% |
$1,907 |
|
Ameristar Casinos |
1,255 |
519,500 |
13,485 |
279 |
55.6% |
$2,416 |
|
Las Vegas Sands |
3,525 |
1,074,000 |
9,840 |
1,380 |
33.3% |
$3,282 |
|
Monarch Casino & Resort |
95 |
61,000 |
1,500 |
38 |
62.2% |
$1,557 |
|
Wynn Resorts |
2,207 |
408,000 |
3,910 |
610 |
33.7% |
$5,409 |
|
Vail Resorts |
615 |
- |
- |
- |
26.6% |
- |
What to watch out for
Melco's biggest problem is its continued inability to generate positive free cash flow. The situation gets worse when one considers the company's nearly $2 billion debt-load vs. its paltry $252 million cash hoard.
From an operational standpoint, being situated in Macau gives Melco a lot of exposure to the burgeoning Chinese middle class. However, PRC citizens are still required to get a visa to enter the city, and even then, there are restrictions about how much money a Chinese visitor can bring into Macau (and thus, how much they can gamble away at Melco's casinos).
Why you should care
While this statement could apply to most any company, Melco's past financial history really isn't a very good indicator of how well it'll perform going forward. Since City of Dreams just completed last year, investors still haven't been able to gauge a full year's financials with it included. There's a good chance this could be the turning point once that hand is revealed.
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