That’s why it’s very bad news for investors that Wynn’s Macau branch is projected to report a 25% sales drop for the fourth quarter, according to analysts estimates.
Investor are losing: Although Las Vegas Sands’ reported record profits on Wednesday, its stock is down 30% over the past year. Once the casinos offer more entertainment activities outside gambling, they will be become even bigger cash cows.
China’s gambling mecca: With a population around 600,000, Macau is the fastest-growing city in the world, according to the Brookings Institution, and its casino industry is roughly seven times the size of Las Vegas’.
But China isn’t a winning bet right now.
The majority of the business for these “Las Vegas” companies now comes from Macau, the only city in China where gambling is legal.
An anti-corruption campaign by the Chinese government, travel restrictions and a smoking ban on casino floors are keeping gamblers with deep pockets away from Macau for now. The stocks are down sharply in the past year.
But as the saying goes, the house always wins.
“Wynn and Las Vegas Sands have been betting big on Macau so that’s why the stocks have down lousy,” says John Staszak, an analyst at Argus Research, who has a hold rating on Wynn.
Related: Reinventing Vegas: Clubs not Casinos
“Macau is larger than Vegas, larger than the whole U.S. Wynn’s casinos in Macau make twice as much in revenue as its Las Vegas ones. Its Macau business now takes in more cash than those three Vegas casinos combined.
Wynn (WYNN) will report its latest results Tuesday, and it’s not expected to be a good story.
Analysts say that casinos in Macau will be a long-term winner. It’s a similar story for Wynn. Its Vegas operations drive less than a third of the company’s entire business.
. Sands reported a double-digit drop in revenues in its Chinese branch. The Chinese government has only granted six gambling licenses to casino companies, which reduces the risk of future competition. China also just reported its slowest year of economic growth in decades, adding to a “perfect storm,” of bad events in Macau, analysts say.
Even MGM Resorts, owner of the Bellagio, MGM Grand and Mandalay Bay, is China focused. gaming market,” says Adam Fleck, an analyst at Morningstar Research.
“There’s a very long-term secular growth story here,” says Fleck, who has a buy rating on Wynn. The boost in overall profits came from cost-cutting measures.
CNNMoney (New York) February 2, 2015: 9:20 AM ET
Related: China post its worst growth in 24 years
Related: China’s gambling mecca desperately needs to diversify
The Macau slowdown is hurting Vegas veterans — and investors in these companies. Its famous Vegas properties such as the Venetian and the Palazzo now make up a mere 10% of its sales, according to the company’s latest earnings report. “We think that the [casino] names look attractive right now, look undervalued.”
Consider the Las Vegas Sands. The stock is down 26% in the past year
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