The journey for the gaming stocks has been smooth so far this year with performance indicators going up in most parts of the world. Notwithstanding the common macroeconomic hurdles, the gaming sector would continue its recovery trail this year thanks mainly to the casino boom in Macau and an improving Las Vegas market (read: Make the Ultimate Consumer Bet with the Gaming ETF).
Macau, one of the biggest gaming destinations in the world, is the only Chinese city where gambling is legal. After experiencing some weakness in the last three quarters of 2012, the business seems to have rebounded thanks to high rollers.
In fact, VIPs, who hardly added to the business last year, began spending more in casinos this year. In September gross revenue in Macau’s casino grew 21.4% braving a typhoon that thumped southern China at the month end.
Macau’s gaming demand is highly vulnerable to the domestic spending. As per Reuters, two-third of visitors comes from the Mainland China. We presume that a severe typhoon on September 22 that left Macau and Hong Kong in disarray lowered revenues in the month. However, analysts expect the month of October to garner considerable revenues thanks to a week-long national holiday.
Over the longer term, the Cotai Strip in Macau is going to be a major attraction for visitors. While Las Vegas Sands (NYSE:LVS) has already started operating in that area, Wynn Resorts (NASDAQ:WYNN) and MGM Resorts (NYSE:MGM) are likely to come online by 2016. In fact, one Chinese company SJM Holdings Ltd also won a land grant in October 2012 to build its first hotel-casino in the Cotai Strip as well.
Las Vegas Back on Track
The improved gaming scenario in Las Vegas thanks to the gradual recovery of the U.S. economy is a bright spot in the sector. Visits to the Las Vegas market remained strong, ensuring a speedy recovery from the damage from the recession five years ago.
Online gaming is another point of resurgence in the sector. Nevada was the first state to legalize online poker earlier this year, with New Jersey sanctioning the online gaming law in February. Reuters reported that analysts estimate online gambling to generate up to $1 billion annually in New Jersey and $50–$250 million in Nevada every year.
Also, Delaware’s three casinos started the first phase of the state’s online gambling operation in August.
Overall, this winning trend can be further validated by the latest earnings report from one of the sector bellwethers Las Vegas Sands.
Results in Focus
Las Vegas Sands earned $0.82 per share breezing past the Zacks Consensus Estimate by 9.3% as well as year-ago level by a whopping 78.3%. On the revenue front as well, the casino-operator pleased us. Its net revenue jumped 31.7% to $3.57 billion while beating the Consensus Estimate by 3.2%.
The company’s solid Macau business and growing Singapore as well as Las Vegas operations led to this massive beat.
Notably, Las Vegas Sands’ integrated resort properties and other assets in Macau are owned and operated by one of its majority-owned subsidiary – Sands China Ltd. Revenues leaped as much as 43% which gave the stocks record highs on October 18, after it reported.