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Macau Gambling Revenues Let Down: MLCO, WYNN, LVS Lose Most

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Macau, which is the world’s largest gambling hub, has disappointed investors with lower-than-expected revenues for the second successive month. Although gambling revenues from the Macau region increased 12.5% in June, it fell short of analyst expectations.  Shares of companies such as MGM Resorts International (MGM - Free Report) , Melco Resorts & Entertainment Limited (MLCO - Free Report) , Wynn Resorts, Limited (WYNN - Free Report) and Las Vegas Sands Corp. (LVS - Free Report) have declined 3%, 10.6%, 7.9% and 6.7%, respectively, following the news. All these stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gambling revenues from Macau increased 12.5% to 22.49 billion patacas ($2.78 billion) in June. The metric not only lagged analyst expectations but also declined 12% from the figure registered in May. Even though gambling revenues were up for the 23nd straight months, it still remains below the highest level achieved in 2012.

A tough operating environment in Macau weighed on casino stocks from June 2014 to most part of 2016. In fact, the crackdown on corruption in China compelled Macau officials to impose restrictions on high rollers to stop billions of dollars from being siphoned off illegally from mainland China to Macau. As a result, footfall declined at the local casinos, leading to a constant decrease in gaming revenues. A slowdown in China, tighter visa policies, political unrest and a smoking ban on mass market gaming floors compounded the woes. Nevertheless, Macau's gambling revenues marked a turnaround and have been rising since the second half of 2016, with new resorts attracting high rollers and leisure gamblers.

Will Dismal Macau Show Hinder Gambling Stock Rally?

In the past two years, the gaming industry has rallied 50.2%, outpacing the S&P 500’s gain of 30.2%. Though revenues from the Macau region have lagged analysts’ expectation, the overall industry trend remains encouraging. In fact, this bullish trend is likely to continue through 2018 as the Supreme Court’s decision to overturn the Professional and Amateur Sports Protection Act (PASPA), which banned sports betting outside Nevada, has given the industry a new lease of life. Scope for casino operators will grow if betting is legalized in other states as the activity could be worth a lot of money.

Despite the fact that demand in the gambling space is relatively inelastic and a fixed range of consumers will continue to seek such services irrespective of market conditions, there are reasons to believe that the industry will see consistent growth over the long haul. Notably, lenient government regulations related to online casinos have led to a rapid rise in casino operators. In fact, online gambling has been a primary growth driver for the market as a wide range of customers has gained access to such portals. Currently, the scope for the gambling industry has widened, courtesy of legalized online gambling in more than 80 countries. Europe is considered the world’s largest online gambling market.

Further, according to Research and Markets, the global casino gaming market is anticipated to witness a CAGR of 10.16% in the 2017-2021 period. The stellar rally of casino stocks on the bourses has been supported by strength in domestic market, turnaround in Macau business and overall international interest in gaming space.

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