Wynn Resorts (NASDAQ:WYNN) will report its Q3 2013 earnings on Oct 24, 2013. Macau gaming revenues have shown steady growth this quarter driven by more visitors flocking to the gambling capital. While casino operators such as Las Vegas Sands (NYSE:LVS) have been benefiting from the surge in Macau, Wynn experienced a slight decline in VIP gaming turnover in the second quarter.
VIP gaming accounts for more than 65% of gaming revenues generated in Macau and contributes more than 50% to Wynn’s value, according to our estimates. While we expect flat volumes in this segment, it will be interesting to see how the win percentage trends for Wynn given there was a slight improvement in it during the second quarter. 
Mass-market gaming is growing strongly in Macau. In August, overall mass-market gambling revenue surged 44% compared to the same period previous year.  We expect Wynn to see healthy growth in this segment. This is an important segment for casino operators as it yields significantly higher margins than VIP gaming.
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Continued Growth In Macau Gaming Revenues
Macau has seen solid growth so far this year. Gross gaming revenues were up 20% in July, amounting to $3.7 billion, the third strongest figure this year. Revenues rose by 18% and 21% to $3.85 billion and $3.63 billion for August and September, respectively.    The strong growth was driven by an increase in the number of Chinese visitors. However, on September 22 a severe typhoon hit close to Macau and Hong Kong, disrupting air, road and rail links in the surrounding areas and resulting in a lower influx of visitors into the casino hub. Wynn will benefit from the growth in Macau as it has established an image of a premium casino and this has helped the company in attracting more VIP players. However, casino operators are now focused on capturing the mass-market gaming primarily due to higher margins. In the previous quarter, the company gained 9% in mass-market table games win. We expect Wynn to post double digit growth in this segment given the higher number of visits to Macau.
We believe that Macau gaming revenues will continue to grow as there is a very small percentage of Chinese population visiting Macau currently. As China grows and the number of HNIs increases, more people will visit the gambling capital. China’s macroeconomic situation is improving and showing signs of stabilization helped by government measures such as lowering taxes for small firms and quickening infrastructure spending for growth. China recently released its third quarter GDP data which was fastest this year at 7.8%.  Fortunately for Macau, it is the only place in China where gambling is legal. An overall improvement in China will further boost Wynn’s casino business in Macau.
Cotai Project Will Help Gain Market Share In Macau
During the previous quarter, the company posted strong growth in Las Vegas but Macau operations were sluggish. One of the reasons for the subdued performance was the renovation of 600 guest rooms that led to a 5% decline in available room nights in Macau. Wynn’s subdued performance this year is also weighing on its market share. Wynn has lost its market share in Macau to around 10% this year.  The company ranks sixth in terms of market share after SJM, Las Vegas Sands, Galaxy Entertainment, Melco Crown, and MGM Resorts in Macau. However, we expect the company to gain some market share once the Cotai resort becomes operational. Cotai is becoming a popular destination in Macau and has a material growth potential. Wynn’s Cotai resort will house 2,000 hotel rooms and 500 gaming tables.  In the meantime, mass-market gaming will drive growth for the company and it will be interesting to see how the win percentage trends in this segment.Notes:
- Wynn Resorts’ SEC Filings [↩]
- DB confirms Aug mass gaming up 44 pct y-o-y, Macau Daily, Sep 26, 2013 [↩]
- Macau rakes in 20 pct gain in July gaming revenues, Reuters, Aug 1, 2013 [↩]
- Macau gambling revenue up 17.6 percent in August yr/yr, Reuters, Sep 2, 2013 [↩]
- Macau gambling revenue up 21.4 percent in Sept yr/yr, Reuters, Oct 3, 2013 [↩]
- China GDP hits 7.8% amid credit concerns, CNN Money, Oct 17, 2013 [↩]
- SJM STILL TOPS MACAU’S MARKET SHARE IN JUNE, WYNN MACAU FALLS TO LAST PLACE, Calvin Ayre, July 3, 2013 [↩]
- Wynn Resorts SEC Filings [↩]