Wynn Resorts Earnings: Wynn Palace Outperforms Macau Casino Industry

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Wynn (NASDAQ: WYNN) reported its Q1’17 earnings on April 25th and its revenues grew nearly 50% and beat consensus estimates. The growth from the new Wynn Palace property continued in the first quarter of 2017 and was supported by moderate growth in Wynn’s Las Vegas operations, partially offset by Wynn Macau performance. Wynn’s market share in Macau, as a result, grew from nearly 9% in Q3’16 to more than 16% in Q1’17. The return of VIP gamblers in Macau was also a primary reason for Wynn’s growth this quarter, as it benefited from high occupancy rate of its hotels and increased non-gambling revenues. We expect Wynn to see strong growth in the next few quarters as Wynn Palace is outperforming its peers. Additionally, major construction projects – including a ferry terminal – are likely to be completed in the next few months, which will increase footfall to Wynn Palace in Cotai. However, we also believe that this growth will dampen after the opening of MGM Cotai in the second half of 2017, and increased competition from Las Vegas Sands and other local casinos in the region.

Wynn Palace and Macau Rebound Trump Wall Street Estimates

Macau’s gross gaming revenues (GGR) increased nearly 13% in the first quarter of 2017 primarily due to the resurgence of VIP gaming in the region. Wynn Palace capitalized on this opportunity, and Wynn’s overall revenues grew by 48%. Wynn Palace accounted for almost all of the growth this quarter due to the return of VIP gamblers in the region, aggressive campaigning and non-gambling attractions at Wynn Palace. Wynn’s net income was also up by 34% and the occupancy at its Wynn Palace hotel was exceptionally high at 95.6%.

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The corruption crackdown impact has softened of late, and the return of VIP gambling in the region can be seen as a result of that. Wynn’s management mentioned on its earnings call that they are seeing the return of some old players as well as some new players. This mix of new and existing players indicate that the VIP gaming is likely to grow sustainably in the short term. Additionally, Wynn moved tables from Wynn Macau to Wynn Palace (it only got permission for 150 tables for its new casino) which is likely to help Wynn grow its market share in Macau. However, we believe that Wynn’s growth will be dampened after the next couple of quarters as competition in Macau will intensify after the opening of MGM Cotai in the second half of 2017.

Gain from Wynn Las Vegas Was Offset by Wynn Macau Decline

Wynn’s Las Vegas Operations grew moderately in Q1, and its revenues were up by nearly 6%. Wynn’s Las Vegas growth is consistent with casino industry growth in the region, which has been flat to slightly up for the last year. However, almost all of Wynn’s Las Vegas growth was offset by Wynn Macau. The Wynn Macau decline didn’t surprise many, as some of its tables were shifted to Wynn Palace. Also, the primary decline was in Wynn Macau’s non-gambling revenues, which declined by more than 15% as customers moved to Wynn Palace because of its non-gambling attractions. We expect this trend to continue in the short term, but if VIP gamblers continue to increase in Macau, we may also see Wynn Macau’s figures increase in the coming quarters.

For our model and valuation, please refer to our complete analysis of Wynn Resorts

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