The gambling industry is something to look forward to when there is an uptick in consumer spending. This is very much true in case of affluent customers. However, events such as the FIFA World Cup, keep people away from other leisure activities since the event takes away all the attention. This is what happened to the casino chains, which witnessed lower revenue for the recent quarter. Customers shift to the football tournament kept them away from casinos.
Thus, companies such as Wynn Resorts (WYNN, Financial) reported lower than expected second quarter results, a few days ago. Although both the top line and the bottom line grew, it failed to meet the analysts’ expectations.
By the numbers
Revenue climbed 6% to $1.41 billion as revenue from Las Vegas operations surged, during the quarter. However, this was below the estimate of $1.44 billion. This was mainly due to sluggishness in the Macau market. Revenue from the Macau region rose 3.2%, primarily because of higher table wins of 43.3% in the mass market category. However, the mass market category is a small portion of the company’s revenue. VIP segment makes most of the revenue, which dropped 11.7% to $26.4 billion, over last year.
The FIFA World Cup and cooling of the Chinese economy resulted in lower revenue from this region. However, these events are not a regular affair. FIFA World Cup happens once in four years. Therefore, this should not continue to hamper Wynn’s results.
The company’s Las Vegas operations performed well, with an increase of 12.5% in revenue. The growth was driven by higher room revenue as well as higher casino revenue. Casino revenue climbed 28%, whereas room revenue rose 7.3%, over the previous year. Higher RevPar and occupancy rate led to the increase in room revenue. However, the company’s earnings jumped 40% to $2.11 per share, beating the consensus.
The other end
Peer Las Vegas Sands (LVS, Financial) also reported its second-quarter results some time back. Although its numbers grew, it failed to meet the estimates. Its revenue surged 11.8%, and the bottom line rose 27% over last year. Even Las Vegas witnessed lower sales in the Macau region because of the factors mentioned before. But it enjoys one advantage over Wynn Resorts. It mostly caters to mass market customers. Therefore, lower revenue from VIP gaming accounts did not hamper the results much.
Wynn Resorts is on the verge of opening a new casino resort in the Cotai Strip by 2016. The resort is called Wynn Palace and will have 1,700 rooms. However, Wynn is not the only one to do so. Even Las Vegas Sands is building a new Cotai resort, called the Parasian. In fact, Parasian is a more impressive resort with 3,000 rooms and is expected to open by mid-2015. Since Las Vegas caters to larger mass market gamblers, it needs more space.
Further, Wynn is eyeing Japan for expansion since the region is moving close to legalizing gambling. Japan is on the verge of allowing casino resorts in the country. Hence, Wynn will be investing $4 billion in the region. This should throw an array of opportunities for all the industry players.
Summing up
Therefore, the overall industry seems to be on a rise. After China, Japan will be a point of focus for all the casino chains. Moreover, the new resorts in the Cotai Strip will make competition stiffer. However, with people spending more and more on gambling, Wynn resorts look good to go in the long run.
