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MGM Resorts can’t seem to catch a break. Macau is growing, but MGM‘s resort is on the wrong side of town. New Jersey is going to allow online gaming, which will be great for operators there, but MGM was kicked out of New Jersey because of its ties to Pansy Ho in Macau. Finally, just as Las Vegas starts to slowly return to revenue and profit growth, Genting Group decides to build another massive resort and suck the air out of MGM‘s sails.

Las Vegas isn’t what it used to be
In 2007, Las Vegas Strip gaming revenue peaked at $6.83 billion and MGM looked like one of the big winners in the industry. Last year, the region gained 2.3% from a year before to reach $6.21 billion in gaming revenue, still well below the peak. The problem is exacerbated by the fact that CityCenter opened in 2009 and The Cosmopolitan opened in 2010, spreading both gaming and room revenue among even wider supply. The competition has shown on the income statement as recently as the last quarter.

Fourth-quarter revenue fell $2.3 million to $2.3 billion, and wholly owned domestic resorts saw a $10.0 million drop in revenue. The only good news is that the company was able to squeeze an extra $15.2 million in EBITDA from wholly owned domestic resorts during the year.

Las Vegas isn’t growing quickly, and MGM and Caesars Entertainment are struggling under heavy debt loads built during the financial crisis. They would be seeing a light at the end of the tunnel because of increased traffic and gaming if it weren’t for the recently announced sale of an 87-acre strip of land to Genting Group by Boyd Gaming . Genting is planning to build a $2 billion-plus resort on the north side of The Strip, with another 5,000 rooms and 140,000 more square feet of gaming. This will grab a lot of the upside in Las Vegas from MGM and Caesars, just as they’re starting to get back on their feet.

Lagging behind in Macau
MGM is definitely happy about its investment in Macau, but the Macau Peninsula isn’t growing as quickly as its neighbors to the south on Cotai. MGM‘s Macau revenue grew just 2% to $731 million from a year ago, which actually outperformed Wynn Resorts , its Macau Peninsula neighbor. Operating income was up 8% to $83 million in the quarter.

The big prize for MGM is its Cotai property, which will hopefully open in the middle of 2016. The company recently broke ground on the resort with 1,600 hotel rooms, 2,500 slot machines, and 500 table games next to Melco Crown‘s City of Dreams and Las Vegas Sands‘ Sands Cotai Central. Both companies have been big winners in Macau recently as Cotai has grown and mass-market play has trended toward Cotai, so the resort should be a big hit for MGM. …read more
Source: FULL ARTICLE at DailyFinance

By Travis Hoium, The Motley Fool

Filed under: Investing

Melco Crown has been one of the best performing stocks on the market over the past three years, easily surpassing rivals on a total return basis. Even Las Vegas Sands and Wynn Resorts , who generate most of their revenue in Asia, haven’t kept up with Melco’s pace.

MPEL Total Return Price data by YCharts.

How does this much smaller rival continue to beat out competitors with much greater resources?

Growth that just won’t stop
The first reason Melco Crown‘s stock continues to outperform is the company’s improving finances. Fourth-quarter revenue grew 9% to $1.1 billion, EBITDA was up 7% to $247.5 million, and net income was $108 million, or $0.20 per share.

But the key for Melco is why revenue and profits continue to grow. For that, we need to look at the company’s improving competitive position.

Location, location, location
The single biggest reason Melco Crown has been able to outperform rivals is the central location of its largest casino. City of Dreams sits in the middle of Cotai and it has been able to leverage three resorts from Las Vegas Sands and one by Galaxy to draw more revenue there.

Look at the image above and then compare revenue, EBITDA, and mass-market growth over the past year on the Macau Peninsula versus Cotai. You can draw a quick conclusion that gaming is trending toward Cotai, particularly in the mass market.

	Q4 Revenue Growth Y/Y	Q4 EBITDA Growth Y/Y	Mass-Market Table Drop Growth Y/Y
City of Dreams	11%	17.6%	24.5%
The Venetian	10.3%	17.6%	10.5%
Wynn Macau	-9.7%	-9.5%	-1%
Sands Macau	-2%	4.2%	3.1%

Source: Company earnings reports.

Just the location of Melco’s Cotai resort has been a huge advantage for the company and is a main driver of its stock performance. And it doesn’t look like the draw of Cotai will stop any time soon. Las Vegas Sands is working on another resort, Wynn is as well, and MGM Resorts will soon join the fray with a resort next to City of Dreams. If the mass-market continues to grow like it has recently then Melco Crown should see improving results.

Low expectations
To outperform on the stock market you have to do well financially but it doesn’t hurt if the market sets low expectations to begin with. Two and a half years ago, I lamented that Melco Crown was the worst performing gaming company in Macau by reporting mid-teen EBITDA margin when rivals exceeded a 30% margin.

During the second quarter of 2010, City of Dreams reported a 13.9% EBITDA margin. Today, that margin is up to 28.4%, more than doubling over that time. Even if revenue didn’t more than double, EBITDA would have doubled over that time. With growing revenue and expanding margins Melco Crown was able to rapidly grow …read more
Source: FULL ARTICLE at DailyFinance

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