Are Wynn’s improved earnings from Macau sustainable?

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Wynn Resorts

Wynn Resorts (NASDAQ: WYNN) recently reported its Q2’16 earnings and the results came in line with the analyst estimates. The company outperformed Macau’s casino industry and the region’s market leader Las Vegas Sands (NYSE: LVS), witnessing about 3.6% growth in its Macau revenues because of its improved table allocation strategy. Wynn’s Macau revenues have been declining for the past eight quarters following corruption crackdown by Chinese government and economic slowdown in China. However, the sales may revive in the coming months, due to the continuing impact of the new table allocation strategy and the expected opening of Wynn Palace in August 2016. Wynn Palace will be focused on premium mass market gambling.

 

Wynn Palace’s focus on premium mass market will help
The corruption crackdown by the Chinese government in 2014 resulted in a significant decline in VIP gaming volume in Macau. Realizing this, Las Vegas Sands shifted its focus from VIP gaming to mass market gaming which is evident from the fact that the latter’s contribution to LVS Macau casino revenues increased from 52% in 2010 to 75% in 2015. This helped shield the company against the unfavourable market forces to some extent.

Growth in revenues of Wynn, MGM and Las Vegas Sands from Macau operations
  2013 2014 2015
Macau GGR 18.6% -2.6% -65.4%
Wynn Macau revenues 11.5% -6.7% -36.1%
MGM  Macau revenues 18.4% -1.1% -33.0%
LVS Macau revenues 38.2% 6.9%% -30.2%
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Wynn has adapted itself with the changed environment, and its new casino, which is expected to open in August 2016 on Cotai strip, is designed specifically for premium mass market business. We believe that the addition of this new property will help Wynn double its mass market revenues from Macau in the next few years. We currently estimate that Wynn Resorts Macau Mass market gaming revenues will exceed $1 billion, representing about 22% of the company’s revenues.

 

New table allocation strategy will continue to be successful

Wynn mentioned in its Q2’16 earning results that it ran its business on a different model which was based on contribution of units to profitability and EBITDA, rather than just turnover or volume. Thus, by changing the layout of floors, placing of higher yielding games on more prominent locations, and improving table utilization, the company was able to achieve 5.2% growth in its casino revenues from Macau. This figure is very encouraging, considering the decline in Macau’s gaming industry. Wynn’s competitor Las Vegas Sands continued to struggle in the region in the second quarter.

We believe that Wynn’s new strategy will continue to boost its sales from both Macau and Las Vegas operations. We currently estimate Wynn Resorts Macau gross revenues of to exceed $2.91 billion in 2016, representing about 62% of the company’s revenues.

 

For more information, please refer to our complete analysis for Wynn Resorts

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