Wynn Resorts (NASDAQ:WYNN) recently reported its Q4 2013 earnings. The profits rose 92%, fueled by revenue gains from Macau operations.  The mass-market gaming segment in Macau jumped 35% while VIP gaming turnover grew by 24% for Wynn. ((Wynn Resorts’ SEC Filings)) Las Vegas operations saw an increase of 2% in revenues and 8% jump in EBITDA (earnings before interest, taxes, depreciation and amortization) as compared to the same period in 2012. Overall, Wynn reported earnings of $214 million or $2.10 a share, as compared to $111 million or $1.10 a share in the prior-year period.  Wynn’s solid performance and surge in Macau gaming drove the company’s stock around 60% higher in 2013.
Wynn’s strong results were primarily driven by strong mass-market gaming revenues in Macau. We continue to believe that mass-market gaming will drive future growth for casino operators in Macau. Mass-market gaming is a more stable and high-margin business and growth in this segment is good news for Wynn, which derives majority of its value from VIP operations. The company is building a $4 billion resort on the Cotai Strip, which will open in January 2016. A second phase of the project is planned to come up two years later that could bring total spending in the region to $9 billion.  The new properties will enhance Wynn’s capacity in the region and boost revenue growth.
We currently have $155 price estimate for Wynn Resorts, which we will soon update based on the fourth quarter earnings announcement.
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Macau Continues Its Impressive Run
Wynn witnessed solid growth in Macau as overall gambling continued to grow in the region. Betting in Macau soared 19% to $45 billion in 2013.  Wynn’s Macau revenues jumped 25% to $1.12 billion and EBITDA surged 32% to $374 million in the fourth quarter as compared to the prior year period.  While VIP gaming turnover jumped 24% to $34 billion for the fourth quarter of 2013, VIP table games win as a percentage of turnover for the quarter was 2.92% as compared to 2.96% experienced in the prior year quarter. 
Mass-market gaming has been growing rapidly in Macau and Wynn is also benefiting from this growth. While there was 1% decline in mass-market drop to $692 million, the segment’s win percentage of 42.3% was way higher than the 31.1% experienced in the prior year quarter.  The higher win percentage led to 35% jump in mass-market table games wins to $293 million. Overall, the company was able to balance its Macau business between a volume gain in the VIP segment and a gain in the win percentage in the mass-market segment, which provides faster growth and higher margins. It will be interesting to see if Wynn in 2014 manages to capture higher market share in this segment.
U.S. Operations And Expansion Plans
According to our estimates, Las Vegas operations contribute more than 13% to Wynn’s value. The company witnessed moderate growth in the region as compared to the fourth quarter of 2012. The table games drop increased by 8% to $724 million and the table games win percentage was 28.8%, higher than the 26.8% reported during the same period in 2012. Net casino revenues were up 2.4% to $400 million. In non-casino operations, the company’s food and beverage segment saw 12% decline in revenues to $98.1 million, primarily due to declines in nightclub and catering revenues. 
The company eyes expansion in the U.S. and is competing to build casino-resort in Massachusetts. Wynn is seeking a reduction in the share of gambling revenues the state would take if the company is approved to build a casino. In the earnings call last week, Stephen A Wynn, founder and chairman of Wynn Resorts, stated that the company should be subject to the same tax that would be applied to a tribal casino proposed in Taunton by the Mashpee Wampanoags. The state’s gambling law requires casino operators to pay a 25% tax on gambling revenues. But a separate compact with the Mashpee calls for a 17% tax if the casino is the only one built in southeastern Massachusetts. Mr. Wynn said that his casino would be in an “intolerably disadvantaged position” by paying 50% more for the product. If the company gets all the approvals to build the resort, it would invest around $1.5 billion with close to $1 billion in debt. ((Wynn Resorts Management Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, Jan 30, 2014))
- Wynn Resorts’ SEC Filings [↩] [↩] [↩] [↩] [↩] [↩]
- Wynn Resorts Management Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, Jan 30, 2014 [↩]
- Macau rakes in $45 billion gaming revenue in 2013, up 19%, Reuters, Jan 2, 2014 [↩]