Wynn’s Q2 Earnings Jump 40% As Las Vegas Operations Rebound

July 31st, 2014 by Trefis Team
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Wynn Resorts (NASDAQ:WYNN) recently reported its Q2 2014 earnings, which came out largely on expected lines with slower growth in Macau due to a 12% decline in VIP gaming turnover. While Macau casino revenues were up for April and May, they declined in June due to a diversion to gambling on the FIFA world cup, leading to a drop in VIP gaming. Wynn’s VIP gaming turnover was down by 12% as compared to the prior year quarter. However, mass-market gaming continued to grow, which drove Wynn’s overall Macau revenues 3% higher to $961 million. [1] The company did well in Las Vegas with revenue growth of 13% and EBITDA growth of 18%, primarily led by an increase in table games win percentage. Wynn’s earnings were $2.11 per share, 40% higher as compared to the prior year quarter. [1]

We believe that the fall in June revenues does not warrant any caution. While casino revenues may see slower growth in July, the long-term market trends remain intact. We believe that post July Macau’s casino business will go back to normal over VIP gaming. Wynn will continue to benefit from this growth and attract more VIP players. At its quarterly conference call, the company stated that the Cotai resort is running on schedule and is expected to open around Chinese New Year in 2016. [2] We will soon be updating our price estimate for Wynn Resorts based on the second quarter earnings announcement.

See our complete analysis of Wynn Resorts’ stock here

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Wynn Continues To Benefit From Higher Macau Mass-Market Table Games Win

Table games turnover in the VIP segment was $26.4 billion, down 12% as compared to the prior year quarter. VIP table games win percentage for the quarter was 2.93%, similar to the levels seen in the prior year quarter. [1] VIP gaming is an important segment for the company as it accounts for close to 50% of Wynn’s value, according to our estimates. However, it offers much lower margins compared to mass-market gaming. Wynn has established a premium casino image in Macau and attracts more VIP players. However, it has seen significant growth in its mass-market gaming operations in the recent past.

Mass-market gaming has been growing rapidly in Macau and Wynn is also benefiting from its growth. While there was just a 9% increase in mass-market drop to $682.3 million, the segment’s win percentage of 45.6% was much higher than the 34.6% experienced in the prior year quarter. The higher win percentage led to a 43% jump in mass-market table games wins to $311 million. Overall, the company was able to balance its Macau business as growth in mass-market table games offset the decline in VIP gaming and Macau EBITDA rose 6% to $307 million during the quarter. ((Wynn Resorts’ SEC Filings))

Las Vegas Operations Rebound

Las Vegas operations contribute close to 15% to Wynn’s value, according to our estimates. Revenues increased by 13% to $452 million and the EBITDA jumped 18% to a quarterly record of $160 million. The growth was driven by 28% growth in net casino revenues, which benefited from higher table games win percentage. Wynn saw 5.9 points growth in win percentage to 27.4% during the quarter. [1] If we look at the company’s non-casino operations, moderate growth was visible across the segments. The hotel business did well and saw 7.3% growth in revenues to $108 million, primarily due to higher REVPAR (revenue per available room) and occupancy levels.

June turned out to be a better month for Las Vegas Strip and overall gaming revenues jumped by 22% to $532 million. [3] Given the positive trend in Las Vegas gaming, we expect Wynn to do well in the coming quarters. Wynn’s management at the earnings call stated that they are targeting $0.5 billion in annual EBITDA in Las Vegas for full year 2014. [1] Our full year forecast for Las Vegas operations stand at $520 million.

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Notes:
  1. Wynn Resorts’ SEC Filings [↩] [↩] [↩] [↩] [↩]
  2. Wynn Resorts’ (WYNN) CEO Steve Wynn on Q2 2014 Results – Earnings Call Transcript, Seeking Alpha, Jul 29, 2014 [↩]
  3. Nevada gambling revenue jumps 14 percent in June, CNBC, Jul 25, 2014 [↩]