U.S. Operations Remain Lackluster for Las Vegas Sands

by Trefis Team
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While Macau continues to mint money for Las Vegas Sands (NYSE:LVS), the picture at the Las Vegas Strip is not that exciting. Las Vegas Sands operates its casinos in two locations in the U.S. – Las Vegas Strip and Bethlehem. In the first three quarters of this year, the company witnessed a 5% revenue gain in its U.S. operations. However, EBITDA for the same period declined by 2% to $357 million due to higher operating costs. [1]

As far as the overall gaming revenues are concerned, Nevada has seen a mixed year so far. The state’s total gaming win decreased 8% y-o-y to $926 million for the month of July 2013. In August and September, the revenues increased by 11% and 7% respectively. Later in October, gaming revenues dropped by 3%. [2] October was a tough comparison as some of last year’s September revenues were rolled over to October. Gaming revenues are growing slowly with the help of baccarat. The growth of baccarat is helping the U.S. casino market in terms of table drop, especially at the Las Vegas Strip. Going forward, economic recovery and higher consumer spending will only make things better for the casino operators.

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Slow Growth In The U.S. Operations

According to our estimates, the U.S. operations contribute a little over 5% to Las Vegas Sands’ value. The casino operators at the Strip have been targeting the Asian high rollers, who prefer baccarat to other games and this has led to a steady increase in the game’s market share from 22% in 2004 to 44% in 2012.  Since January this year, the trend has continued at over 40% into June 2013. [3]

In Q3 2013, Las Vegas Sands saw a 2% revenue jump in the U.S. operations due to higher table games drop at Sands Bethlehem and better hotel revenues, which increased by 5% in Las Vegas and 16% in Bethlehem. [1] The major casino players in Las Vegas have large room capacity on the Strip. Las Vegas Sands currently has close to 7,092 rooms in Las Vegas. The hotel business is primarily driven by the occupancy rate and revenue per available room. Both these aspects are somewhat linked to the state of the economy. While the occupancy rate at the Las Vegas resort remained flat around 87.6%, there was a surge in Bethlehem hotel occupancy rate to 82% as compared to 70% during the same period last year. Similarly, revenue per available room was up 2% to $171 at the Las Vegas operating properties, it shot up 16% to $115 at Bethlehem as compared to the same period previous year. [1]

Consumer Spending In The U.S.

Las Vegas Sands’ businesses including casinos, hotel, retail malls, entertainment and food and beverages are linked to the strength of the economy and travel spending. A faster recovery in the U.S. economy will be great news for casino operators. According to the Bureau of Economic Analysis, consumer spending in the U.S. increased 0.4% to $10,732.30 billion in the third quarter of 2013, as compared to the second quarter this year. [4] The chart below reflects the consumer spending in the U.S.

Higher consumer spending will translate into better sales for casino operators and their other businesses. However, a recent report suggested that the consumer confidence has been damaged by rising mortgage rates and the government shutdown for 16 days in October. [5] Weak pay and higher taxes are also adding to the woes. It will be interesting to see how and when consumer confidence picks up and spending increases. An increase in spending is crucial for almost every business of casino operators. Overall, things are improving on the Strip, evident from the recent performance of the casino operators, and a recovery in the U.S. economy along with improving consumer spending, and growing numbers of Asian high rollers will boost Las Vegas Sands’ overall revenue growth in the region. We estimate the U.S. revenues to be northward of $1.75 billion by 2015. However, even if the revenues were to be any different, it will have a minimal impact on the price estimate due to lower value contribution of the U.S. operations to overall Las Vegas Sands’ value.

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Notes:
  1. Las Vegas Sands’ SEC Filings [] [] []
  2. Gaming Revenue Information, Nevada State Gaming Control Board []
  3. Mid-year report 2013, UNLV []
  4. UNITED STATES CONSUMER SPENDING, Trading Economics []
  5. U.S. Consumer Spending Remains Tepid, The Wall Street Journal, Nov 8, 2013 []
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