Wynn’s Macau Revenues And EBITDA Decline Amid Lower VIP Gaming Turnover

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Wynn Resorts (NASDAQ:WYNN) recently reported its Q3 2014 earnings, which came out largely on expected lines with slower growth in Macau due to a 17% decline in VIP gaming turnover. [1] Casinos in Macau witnessed a 7% decline in gross revenues during the third quarter. This can be attributed to ongoing anti-corruption crackdown, which is keeping VIPs away from the world’s largest gambling hub. However, mass-market gaming continues to grow strongly in the region and Wynn has benefited from the same in previous few quarters. For Q3, Wynn’s mass-market table games win amount has increased by more than 36% to $327 million. [1] We continue to believe that mass-market gaming will be a key driver for future growth in Macau and for Wynn.

The company did well in Las Vegas with revenue growth of 9% and EBITDA growth of 25%, primarily led by an increase in table games win percentage. Wynn reported adjusted earnings of $1.95 per share as compared to $1.88 it reported in the prior year quarter. [1]

We estimate gross revenues of over $7 billion for Wynn Resorts in 2014, with EBITDA of $1.94 billion. We have revised our price estimate for Wynn Resorts from $211 to $186 reflecting the impact of the recent quarterly earnings and continued decline in VIP gaming.

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See our complete analysis of Wynn Resorts’ stock here

Wynn Sees A Decline In Macau Amid A Decline In VIP Gaming

Table games turnover in the VIP segment was $25 billion, down 17% as compared to the prior year quarter. VIP table games win percentage for the quarter also fell to 2.78% as compared to 3.04% seen in the prior year period. [1] VIP gaming is an important segment for the company as it accounts for close to 35% of Wynn’s value, according to our estimates. However, it offers much lower margins compared to mass-market gaming due to involvement of junket operators. 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. While VIP gaming is struggling, Macau’s mass-market gaming continued its uptrend and posted 16% growth for the third quarter. [2] The company in its earnings call stated that the decline in VIP gaming has led to an increase in mass-market gaming, which is a good sign, given the higher margins in the segment. [3]

While there was just a 1.7% increase in Wynn’s mass-market drop to $641 million, the segment’s win percentage of 51% was much higher than the 38% experienced in the prior year quarter. Overall, the company was able to balance its Macau business as growth in mass-market table games offset much of the decline in VIP gaming and Macau EBITDA declined by 1% to $325 million during the quarter. Going forward, we expect mass-market gaming to continue to grow strongly and forecast revenues of over $1.2 billion for 2014. However, given the continued decline in VIP gaming, we have revised our 2014 segment revenue estimate to $3.5 billion.

Continued Growth In Las Vegas

We estimate that Las Vegas operations contribute more than 15% to Wynn’s value. Revenues increased by 9% to $428 million and the EBITDA jumped 25% to $133 million. The growth was driven by 11% growth in net casino revenues, which benefited from higher table games win percentage of 25.7% as compared to 22.6% seen in the prior year period. The company’s non-casino operations continued to see steady growth. The average daily rate for its hotel business grew 7% to $267 while the occupancy increased by 140 basis points to 89.3%. Food and beverage revenues also grew by 6% to $137 million. [1] We estimate Las Vegas revenues to be around $1.85 billion for 2014 and EBITDA to be around $530 million, reflecting a growth of 7% over the prior year.

Las Vegas gaming is seeing steady growth in 2014. Overall gaming revenues at the Las Vegas Strip jumped by 8% for the six months ending August. [4] This can be attributed to the growing popularity of Baccarat. Looking at the first eight months of 2014, baccarat wagering at the Strip is up 11%. Given the positive trend in Las Vegas gaming, we expect Wynn to do well in the coming quarters.

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Notes:
  1. Wynn Resorts’ SEC Filings [] [] [] [] []
  2. Macau VIP down 19 pct y-o-y in 3Q: govt, GGR Asia, Oct 16, 2014 []
  3. Wynn Resorts’ (WYNN) CEO Steve Wynnon on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha, Oct 28, 2014 []
  4. Nevada Gaming Statistics: The Last Six Months, UNLV Center for Gaming Research []