Summary
- Strong Q4 2022 results in Las Vegas along with positive commentary on Macau, have increased my confidence in Wynn Resorts, Limited's near-term EBITDA performance.
- Management reported positive leading indicators for Macau during the Chinese New Year holiday.
- Based on the quarterly results and guidance, I think the estimates are trending higher and will eventually align with Wynn Resorts share valuation.
Investment thesis
Strong Q4 2022 upside results in Las Vegas, as well as positive commentary about the current quarter in Macau, have left me feeling very confident about Wynn Resorts, Limited ( WYNN ) near-term EBITDA performance. In my opinion, WYNN is a fantastic way to get in on the recovery theme in China and Macau. I would like to point out that although the share price has increased significantly over the past few months, the Macau recovery is still in its infancy, with market-wide GGR still <50% of pre-covid levels and the share price still below March 2021 levels. In addition, WYNN is trading at a forward EBITDA multiple of 12.5 right now, which is in line with its long-term average. As such, I think solid earnings growth should account for a considerable portion of investment returns.
The highlight of this quarter, in my opinion, was the commentary from management regarding the Chinese New Year holiday, which indicates strong pent-up demand. Retail sales were 1.3 times higher than they were in 2019 during the CNY holiday, and mass volume recovery reached 95%. In addition, direct VIP volume increased to 1.4 times 2019 CNY levels.
Earnings results
Total property level EBITDA for 4Q22 at WYNN was $195.1 million, which was slightly below the consensus estimate of $202 million. The $59.1-million EBITDA loss generated by WYNN properties in Macau was also worse than the $44-million loss expected by consensus. For Las Vegas, EBITDA totaled $219.3 million on revenues of $585.5 million. The EBITDA and revenue for Encore Boston was $63.3 million and $218 million, respectively.
Macau
Macau posted an EBITDA loss of $59.1 million in 4Q22, which was worse than the $44 million loss that consensus expected. Although this falls short of projections, it is an improvement from the $66 million in losses recorded in the 3Q22. Importantly, management saw positive trends during Chinese New Year, reporting an EBITDA of $4 million per day as mass table drop hit close to 2019 levels and direct VIP turnover was 1.4x above pre-COVID levels. Non-gaming demand trends were also strong, particularly after Chinese New Year, maintaining above-average seasonality. Foretelling a robust recovery from pent-up demand, I see these as positive leading indicators.
In addition, management isn't content to do nothing in terms of expanding the business. For the next decade, they plan to invest $2.2 billion in CAPEX and OPEX in Macau. If the plans are approved by the government and the cost estimates are accurate, construction could begin soon at a cost of $50–$220 million.
Las Vegas
4Q22 financial results were led by Las Vegas, which, despite an unfavorable hold impact of $10.5 million, generated revenues of $585.5 million and EBITDA of $219 million. Management has also noted that this momentum has carried over into 1Q23, which has the potential to be a record quarter. The non-gaming front also showed strong trends. Specifically, higher average daily rates are helping push room bookings up toward or even past 2019 levels. The average daily rate in 4Q22 was $492 (record high), up 53% from 4Q19, with occupancy at 89.9%. On the casino floor itself, both slot handle and table drop were higher than 4Q19, 69% and 43% respectively.
Everything I see points to very strong growth in the near future, at least. Unless another pandemic strikes, I don't see any obstacles keeping WYNN from taking off.
Wynn Interactive
The World Series publication is largely to blame for the widening of the EBITDA loss from $18m in 3Q22 to $28.3m. The good news is that on January 31st, retail sports betting will begin at WYNN, which has been awarded the Massachusetts first license to offer such services.
Other notes
Other projects are also gaining momentum, albeit more slowly. For example, EBH just recently introduced retail sports betting, and the first week saw an average of more than $500k in daily handle. During those same six days, WYNN also saw a 30% increase in new members joining Wynn Rewards. Two main points can be extracted from this revision: Firstly, while WYNN's rewards program has been successful in attracting a large audience, there is still a sizable audience that has yet to be rewarded (good for CRM, targeting marketing, etc.). Second, the demand retail sports betting is real.
Conclusion
Based on the quarterly results and guidance, I think the Wynn Resorts, Limited estimates are trending higher and will eventually align with the share valuation. I think the reopening of Macau and the subsequent increase in demand, and the resilience of Las Vegas, will keep Wynn Resorts, Limited stock's upward trajectory intact.
For further details see:
Wynn Resorts: A Bet On China/Macau Recovery Theme