Wynn Resorts (NASDAQ:WYNN) recently reported its Q2 2013 earnings. While the company posted strong growth in Las Vegas, Macau’s growth was sluggish. The mass-market gaming segment in Macau witnessed a jump of 8.5% while VIP gaming turnover plunged 1.6%. The VIP segment accounts for the majority of Wynn’s gaming revenues and the lower numbers in this segment is a cause of concern. The company stated that around 600 guest rooms are being renovated and this led to 5% decline in available room nights in Macau. Last week, Las Vegas Sands (NYSE:LVS) had reported a healthy growth in its Macau operations, especially in the mass market gaming segment. (Read – Macau Mass Table Wins Fuel Growth For Las Vegas Sands) Wynn has only two properties operational in Macau and we believe that the company’s Cotai project, which will open in 2016 will significantly enhance its capacity in Macau and drive growth for the company.
Wynn Gains In Las Vegas But Macau VIP Gaming Plunges
Wynn’s Performance In Macau
For the first six months of 2013, Macau’s gaming revenues jumped 15% to $21 billion compared to the same period last year. In June alone, revenues were up 21% amounting to $3.54 billion.  While Macau’s strong growth is helping casino operators such as Las Vegas Sands in the region, Wynn posted disappointing results in Q2 2013 as the company’s Macau revenues were up only 2.6% to $930.9 million as compared to the last year.  The company’s Macau operations benefited from the strong mass market business with a win percentage of 34.6%, higher than the 29.8% generated during the same period in 2012. However, the Macau gaming market is VIP-centric and according to our estimates, this section contributes more than 50% to Wynn’s stock value.
VIP Segment Plunges
In Q2 2013, VIP games accounted for 67% of the Macau gaming revenues.  In this segment, Wynn reported a turnover decline of 1.6% to $29.9. billion. On the positive side, VIP table games win as a percentage of turnover for the quarter was 2.94%, higher than the 2.79% experienced in the second quarter of 2012.  The decline in VIP turnover is a cause of concern for Wynn. We continue to believe that the casino operator should focus on capturing greater mass market gaming share as the VIP gaming continues to struggle in the gambling hub of Asia.
Concerns Over VIP Gaming
VIPs usually come through junket operators and the amount a casino operator has to pay to them is more than the tax they have pay to Macau’s government. Junket operators act as middlemen and moneylenders that drive the VIP segment, which accounts for two-thirds of Macau gaming revenues. Moreover, the demand from VIP gamblers is also seen as volatile and vulnerable to the tightening of credit in China and the country’s periodic crackdowns on corruption. Earlier this year, a news report suggested that China’s government will start taking action to clamp down on junket operators that bring gamblers from the mainland to Macau. 
Las Vegas Grows Strong
According to our estimates, Las Vegas operations contribute more than 13% to Wynn’s value. The company reported a 16% jump in revenues from its Las Vegas operations. The Las Vegas Strip posted overall gaming revenue gain of 6.5% to $2.67 billion in the first half of 2013.  The company reported table games win percentage of 21.5%, higher than the 15.0% reported in the 2012 quarter. The company reported an increase of 4% in non-casino revenues to $302.1 million, primarily driven by the higher revenue gains from the hotel, food and beverage as well as retail segments, offset somewhat by lower entertainment sales. The company’s management warned against interpreting the relatively strong showing in Las Vegas as a sign of bouncing back along with the rest of the U.S. economy from the crushing blow dealt by the Great Recession. .
We are currently in the process of updating our model for Wynn Resorts in view of the recent earnings.
Our price estimate for Wynn Resorts stands at $132, roughly in line with the current market price.Notes:
- Macau Gambling Revenue up 21% on Year in June at MOP28.27 Bln, The Wall Street Journal, Jul 1, 2013 [↩]
- Wynn Resorts’ SEC Filings [↩] [↩]
- MACAU HITS NEW QUARTERLY REVENUE HIGH THANKS TO MASS MARKET SURGE, Calvin Ayre, Jul 18, 2013 [↩]
- Macau Casinos Decline After Report on Junket Crackdown, Bloomberg, Feb 6, 2013 [↩]
- The Last Six MonthsRecent Trends for Casino Revenues, December 2012 to May 2013, Nevada Gaming Statistics [↩]
- Casino operator Wynn Resorts’ 2Q results miss analysts’ estimates as Macau growth stalls, Nanaimo Daily News, Jul 29, 2013 [↩]