Casino Stocks Roundup: Has Macau Fully Recovered?
Shares of MGM Resorts MGM and Melco Crown Entertainment MPEL are falling on Thursday after both of the casino companies reported mixed earnings results. These reports also provided investors with a better sense of the operating conditions in Macau right now.
Recovery Period
Given the wave of new resorts opening in the Asian gambling hotspot, increased Macau revenues are an objectively good sign for the casino industry, even in the face of tough Las Vegas results. Vegas is Vegas, and it has recovered from down periods before. Many feared the crackdown in Macau would have a more lasting effect.
Just last week, the Macau Gaming Inspection and Coordination Bureau announced that January revenues rose 3.1% year-over-year to $2.4 billion. This marked the sixth consecutive month of gains in the region, signaling that Macau has recovered from its nearly two-year slump.
January’s growth was significantly lower than the 8% increase seen in December, and it will be important to track how successful the Chinese New Year holiday winds up being, but year-over-year gains of any kind are still welcome following a period of regulation that forced Macau officials to restrict billions of dollars from being siphoned off illegally from mainland China to Macau.
Latest Reports
Thursday’s reports were far from perfect, but they did provide a better indication of the state of Macau’s recovery. Melco Crown, which receives the better part of its revenue from Macau, was able to surpass revenue estimates, but the company missed earnings expectations and noted that gains in other areas were “partially offset by lower casino revenues at City of Dreams in Macau and Altira Macau.”
“Macau continues to show signs of a broader recovery... We believe that Macau’s long term success relies on its ability to cater to the rapidly evolving demands of leisure and entertainment seekers from around the region, most notably from Mainland China,” said Melco Crown CEO Lawrence Ho.
Nevertheless, shares of MPEL were down nearly 6% thanks to its weak earnings results (also read: Melco Crown Lags Q4 Earnings, Sales Beat Estimates).
MGM Resorts also posted disappointing earnings results, which resulted in its stock dropping more than 8.5%. However, MGM China’s quarterly revenue gained about $1 million to $500 million. MGM is also slated to open the region’s newest casino, the MGM Cotai, in April (also read: MGM Resorts Lags Q4 Earnings, Tops Revenue Estimates).
Bottom Line
Total revenues in Macau are up, and that has to be an encouraging sign for casino investors. However, the recent openings of new marquee properties, such as Las Vegas Sands’ (LVS) Parisian Macau and Wynn’s (WYNN) Wynn Palace, appear to be having a cannibalistic effect on the older resorts.
Sure, Melco Crown just opened Studio City in 2015, and MGM is set to open a new Macau resort soon, but the most recent quarter was almost certainly hampered by competition.
Macau has been heating back up again recently, but it remains to be seen whether this new activity is a result of short-term interest in new properties or a sign that the region is back for good.
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