Why Las Vegas Sands Is Focused On International Expansion

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Although the Las Vegas Strip is the third-largest casino market globally, Las Vegas Sands (NYSE: LVS) derives just around 13% of its revenues from the region. The company has focused on expanding internationally, primarily in Macau and Singapore, as the Las Vegas market faced saturation and pressure on margins. The growth in the Asian casino industry, driven in large part by the rise in the number of VIP gamblers from China, created a ripe opportunity for Las Vegas Sands to grow revenues and expand its margins. LVS is also competing with other major casinos to get a contract in Japan to build new casinos. Below we discuss the company’s international expansion strategy.

Las Vegas Strip Facing Saturation

The Las Vegas strip is the third-largest casino market globally after Macau and Singapore. The market is fairly saturated, as competition has increased tremendously over recent years. As of 2015, there were 122 casinos in Las Vegas with total revenues of about $6.5 billion, as compared to just 35 casinos in Macau generating nearly $30 billion in revenues. This has led LVS to expand more in the international markets in order to achieve higher returns on investments.

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As can be seen in the below table, only about 10% and 15%, respectively, of LVS’s tables and slots are at its Las Vegas casinos. However, the number of hotel rooms at LVS’s Las Vegas operations stands out among its international hotel operations. In addition to hotel rooms, LVS’s Las Vegas business also consists of about 2.3 million square feet of convention space, almost double the area of its convention space in Singapore. The relatively higher margins from the hotel and convention business, as well as steady growth in business conventions in Las Vegas, can be attributed to LVS’s high resource allocation to these businesses. This is also reflected in LVS’s revenue stream in the Las Vegas area, as about 75% of its Las Vegas revenues come from the hotel, food and convention business.

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Macau Growth Offered Strong Opportunity

Macau’s gaming industry has seen significant growth over the past decade. The market sees a very high concentration of VIP gamblers, which benefits LVS as margins from VIP gambling are generally higher than Mass Market gaming. Due to its consistent investments in Macau, Las Vegas Sands is among the biggest players in Macau. LVS consistently looks to expand in underpenetrated markets to increase its ROI, with the recent example being Singapore. Additionally, after the legalization of casinos in Japan in 2016, LVS is competing with other major casinos to build new casinos in Japan.

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As can be seen in the table above, LVS’s margins from its Las Vegas operations are significantly lower than its Singapore or Macau operations. This can be primarily attributed to high margins from VIP gambling in Singapore and Macau, as well as the high ADR (average daily rate) of Singapore Hotels.

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