While Macau is minting money for casino operators such as Wynn Resorts (NASDAQ:WYNN), MGM (NYSE:MGM) and Las Vegas Sands (NYSE:LVS), the Las Vegas Strip is struggling in terms of gaming revenues. According to the recently published data, Nevada’s total gaming win decreased 5% y-o-y to $793 million for the month of June 2013. 
Baccarat hold percentage surprisingly plunged to 7.6% in June as compared to normal levels of 12%. The casino operators have been trying to attract more Asian high rollers, who prefer baccarat to other casino games, and the growth of baccarat is helping the Las Vegas Strip as the game’s market share continues to grow. Moreover, the economic recovery and higher consumer spending will only make things better for the casino operators.
Las Vegas Operations
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According to our estimates, Las Vegas operations contribute close to 13% to Wynn’s value. On the Las Vegas Strip, gaming revenues fell 10% y-o-y in June.  However, February was the best month for Nevada casinos due to the Chinese New Year, which led to winnings of over $1 billion from gamblers, the highest since 2007.
Asian high rollers prefer baccarat to other games and this has led a steady increase in the game’s market share from 21.5% in 2004 to 44% in 2012.  Since January this year, the trend has continued at over 40% into June 2013. In Q2 2013, Wynn saw a 16% jump in Las Vegas revenues due to higher table games win percentage. While there was a 5% decline in table drop, table game win amount jumped 36% (Read – Wynn Q2 2013 Numbers Disappoint As Growth In Macau Stalls). 
The major casino players in Las Vegas have large room capacity on the Strip, but limited number of rooms are available in Macau. Wynn currently has 4,748 rooms in Las Vegas with 87% occupancy rate as compared to just 1,008 rooms in Macau with occupancy rate of 96%.  It makes sense for these casino operators to attract customers from Asia to Las Vegas with more rooms to offer high rollers. The city also offers lower prices as compared to China when it comes to upscale shopping. We believe that Wynn will continue to benefit from Asian high rollers visiting the U.S. since it has positioned itself as a premium brand resort for the sophisticated visitors.
How Is Consumer Spending Panning Out?
Wynn’s businesses including casinos, hotel, retail malls, entertainment and food and beverages that are linked to the strength of the economy and travel spending. A faster recovery in the U.S. economy will be great news for casino players such as Wynn. According to the Bureau of Economic Analysis, consumer spending in the U.S. increased 0.4% to $10,690.90 billion in the second quarter of 2013, as compared to the first quarter this year. 
Higher consumer spending will translate into better sales for casino operators and their other operations. However, a recent report suggested that sluggish retail sales could restrain growth, primarily due to weak pay and higher taxes.  More than 39.7 million visitors came to Las Vegas in 2012, but per capita spend was far less at $1,021 compared with $1,318 spent by each of the 39.2 million visitors in 2007. 
However, things are improving on the Strip, evident from the recent performance of the casino operators, and a recovery in the U.S. economy along with improving consumer spending and growing numbers of Asian high rollers will boost Wynn’s overall revenue growth in the region.
Our price estimate for Wynn Resorts stands at $135, roughly in line with the current market price.Notes:
- Nevada Gaming Statistics: June Comparison, UNLV, Aug 2013 [↩] [↩]
- Mid-year report 2013, UNLV [↩]
- Wynn Resorts’ SEC Filings [↩] [↩]
- UNITED STATES CONSUMER SPENDING, Trading Economics [↩]
- Sluggish sales at US retailers suggest that weak consumer spending could restrain growth, The Washington Post, Aug 15, 2013 [↩]
- Crowds Return to Las Vegas, but Gamble Less, The New York Times, Jul 31, 2013 [↩]