The Macau gaming market is making winners of casinos there, but one company can't seem to keep up with competitors' profitability. Melco Crown (Nasdaq: MPEL), which has long been this Fool's top pick in Macau, can't seem to make the same kind of money as its peers.
Growth is solid on the top line, with revenue growing 42% to $806.6 million in the first quarter. The company's flagship casino, City of Dreams, generated more than $500 million of that revenue as customers continue to flock to the Cotai Strip. But adjusted EBITDA was just $121.3 million for Melco, a 15% EBITDA margin, which left just $7.2 million for bottom line net income, or $0.01 per ADS.
Compare that to Las Vegas Sands (NYSE: LVS) and Wynn Resorts (Nasdaq: WYNN), which have Macau EBITDA margins of 33.4% and 31.5%, respectively, and you start to wonder where the money is going.
The slight sequential EBITDA decline at both Altira and City of Dreams continues a trend seen at Venetian Macau and Wynn Macau, so it isn't as if Melco is falling behind; it just isn't catching up. It was actually MGM Resorts (NYSE: MGM) that saw the biggest sequential EBITDA improvement Macau in the first quarter, jumping 5.7% from the fourth quarter.
Mixed outlook going forward
Non-gaming features of the property should help City of Dreams perform marginally better in coming quarters. The House of Dancing Water is helping drive mass-market visitation, and Cubic Nightclub opened just after the first quarter closed. But rival Galaxy Macau recently opened, and in the short term, that should be a drag on growth for Cotai competitors.
Foolish bottom line
With Las Vegas Sands hitting on all cylinders in Macau and Singapore, I'm seriously considering jumping from the Melco Crown bandwagon to Sands. Melco has vastly outperformed Sands so far this year on the stock market, but I've hoped the company could increase margins to catch up operationally. But that doesn't appear to be happening as quickly as I would like.
Interested in reading more about Melco Crown? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.
