As consumer spending has improved and people have started opening their wallets, there is an uptick in the demand for leisure activities such as gambling. Consumer spending in the U.S. surged 0.9% in March and 0.3% in February, showing improvement. Similarly, even casino operators witnessed an increase in gambling revenue, leading to merriment.
Therefore, casino chain operator Wynn Resorts (WYNN, Financial) is no exception. It posted its quarterly numbers which beat the Street’s expectations, pushing its share price north.
Snapshot of the Results
Revenue rose 9.8% to $1.51 billion over last year as strong growth in the Macau region drove revenue higher. In fact, the company witnessed growth in all the categories such as rooms, casino as well as food and beverage segment. Also, earnings jumped $2.32 per share from $2.03 per share last year.
The most important driver for Wynn’s blockbuster results was the Macau operations. Revenue from the region surged 14.3% over last year, clocking in at $1.13 billion. This growth was helped by growth in table games of 23.7% in the mass-market category and 26.7% in the VIP category. Also, non-casino revenue increased 7.3% to $113 million.
This growth was expected since the Macau region is one of the hottest gaming places in China. This is mainly because it is the only place where gambling is legal, in China. Even peer MGM Resorts (MGM, Financial) witnessed growth in the region and registered an increase of 26% in revenue from China. Moreover, overall growth in gaming revenue in the Macau region stood at 20% for the first quarter of 2014. Therefore, each casino operator benefited from the increasing demand by the Chinese people as well as the tourists in the region.
Hurdles to Overcome
Although Macau has been one of the strengths for all the casino operators, the Las Vegas strip is facing certain problems. Because of lower casino revenue from the region, revenue dropped 1.5% over the prior year, registering $380.9 million.
Nonetheless, the company managed its way out since an increase in average daily room rate led to higher room revenue. Room revenue from Las Vegas climbed 12.6% to $103 million as RevPAR increased by 12.6%. Also, the casino operator has remodelled its rooms in order to attract more customers.
The Growing Cotai Region
Cotai region is one of the new focus areas for all the casino chain operators, including Wynn and MGM. Wynn Resorts is in the process of opening Wynn Palace in the Cotai region by 2016, that too before the Chinese New Year. This is definitely a smart move since the New Year will help in driving revenue north and will lead to an immediate popularity among the people. Also, it is expected to bring in a total of $4 billion in revenue annually. However, even MGM Resorts has similar plans and its new construction in Cotai will be opened in the spring season of 2016.
In fact, both MGM Resorts and Las Vegas Sands (LVS, Financial) provide stiff competition to Wynn Resorts. Las Vegas Sands is enjoying a first mover advantage in Singapore with its premium resort in the region. This has attracted a lot of tourist attention, leading to gains in the top line. Also, Japan is in plans to allow casino gaming. Therefore, these players will be eyeing this region so that the first player gets to benefit the most.
Key Takeaway
The casino gaming industry has become interesting with new moves planned by the players. Although competition is tough in this industry, Wynn Resorts is doing really well, which is evident from its quarterly numbers. Also, its new location in Cotai is something to look forward to. Moreover, remodelling of rooms should boost its revenue further. Therefore, Wynn Resorts looks increasingly attractive.
