With a Depressed Gambling Market in Macau and L.A, what should Wynn Resorts (NASDAQ:WYNN) do?
People go to Macau for many reasons; there are the historical sites like St Paul’s Cathedral, traditional markets and Portuguese architecture, as well as the world’s highest bungee jump. But maybe the thing that brings in more people than all those other attractions combined is the Autonomous regions gambling business.
Right now Macau is in the middle of a slowdown, and no one, we repeat, no one has been spared, especially not the subject of this article: Winn Resorts Limited (NASDAQ: WYNN). The company’s Q2 2015 revenue dell to $1.04 billion, a decline of over 26%, net income did not fare any better and suffered a decline of 72% to come in at a total of $56.5 million. The results are dismal no matter which way you look at them. But as always, we need to look past the numbers to see what is really going on.
As of this quarter, gambling revenue has fallen by 35.8% to $617 million. Earnings fell to $173.4 million, a decline of 43.5%. This is the lowest earning number for the gambling industry in half a decade. Right now analysts and industry insiders are still confused about the state of the gambling market, with most people unsure whether the decline will continue or things will start to pick back up again. If things continue with the way they are right now, profits could very realistically decline even further.
We can link the decline in Asian Gambling to the goings on in Las Vegas as well. It is no secret that Asian gamblers game of choice is Baccarat, it is the most popular game in Macau, and one only has to enter a Casino to see so. And here is where the link comes in.
If Asian Gamblers are no longer gambling then that also affects the demand for Baccarat in Wynn’s (NASDAQ: WYNN) Las Vegas operations, as it is mostly played by Asian gamblers. Gambling revenue for Wynn (NASDAQ: WYNN) in Las Vegas fell by 6.2% to 423.5 million while earnings fell by 23.9% to $122 million. People continue to visit the Vegas casino for purposes other than gambling as is evidenced by the fact that revenues from food and beverages went up.
Things don’t look for those in the gambling market right now, but who knows, things could pick back up if Chinese growth starts going up again. Right now Wynn Resorts (NASDAQ: WYNN) is in the process of building a gargantuan new casino called Wynn palace in Macau. Some may question the wisdom of going ahead with the project when the gambling market is in such a poor state, but Wynn (NASDAQ: WYNN) soldiers on with the project and expects that it will bring in an additional $ 1 billion in annual earnings. For the moment the casino’s fate is tied to the prospects of the gambling market itself. If things go well, Wynn will do well, if things go poorly, Wynn will do poorly. It is as simple as that.