The Year 2016 In Review: Wynn Resorts Changed Its Strategy To Outperform Macau But Its New Casino Disappointed So Far

Wynn Resorts (NASDAQ: WYNN) started off 2016 on a good note but couldn’t live up to the expectations in the second half of the year. Its overall business improved in 2016, especially in Macau.  Its  operations there benefited increased visitations in Macau, its new focus on premium mass market gamblers, its new casino in Cotai strip, and the move to an improved table allocation strategy. However, the new casino hasn’t done as well in its early months as those of some of its competitors. Overall, we remain optimistic as we believe the market may be undervaluing Wynn’s potential to grow its non-gambling revenue sources, considering the changed market environment in Macau.

Wynn’s Revenue Decline From Macau Slowed In 2016

Wynn’s revenue from Macau saw nearly 35% decline in 2015 primarily due to steep fall in VIP gaming resulting from the corruption crackdown of the Chinese government. However, the situation improved slightly this year and Wynn’s revenue saw a slower decline in the first nine months of 2016. It also opened its $4.1 billion casino in Cotai strip in Q3’16 named Wynn Palace, which partially contributed to 11.5% increase in its Q3’16 Macau revenues.

Additionally, Wynn has been changing the layout of floors, placing higher yielding games in more prominent locations, which has improved table utilization. Wynn has adapted itself to the changed environment and its new casino in Cotai strip is designed specifically for premium mass market business. This changed strategy comes after the government’s crackdown on junket operators, which resulted in about 30% decline in Macau’s gross gaming revenues in 2015.

Wynn Palace Disappointed In Its Run But Has Upside Potential

Wynn’s stock price nearly doubled in the first quarter of 2016 amid the optimism from the expected opening of its new casino in Cotai strip and slowdown of Macau GGR decline. Wynn outperformed Macau gaming industry in the first half of 2016 without the opening of Wynn Palace. That said, Wynn’s stock price has not changed much in the last six months, due to some headwinds.  There were fewer visitations in Wynn Palace as compared to Las Vegas Sands new casino The Parisian. Additionally, Wynn received a license for only 100 new tables, versus its expectation of 250. Thus, despite double-digit growth in Macau’s GGR in November, Wynn’s stock price did not go up.

Wynn Palace is designed for generating diversified revenues and is not just  dependent on gambling operations. It features 1700 luxury rooms, Chinese artworks, air-conditioned gondolas circling a lake, and water fountain show synchronized to music. This is expected to increase Wynn’s non-gambling revenues, which accounted for just 11.2% of its revenues from Macau. This is in stark contrast to Wynn’s operations in Las Vegas, where non-gambling sources constitute nearly 65% of revenues. Thus we still remain optimistic about Wynn Palace.

We will follow up this analysis with the expectations for 2017, and how they are reflected in our valuation. Meanwhile, please let us know your views by commenting in the box below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of Wynn Resorts

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