Las Vegas-based casino operator Wynn Resorts Ltd. total revenue rose 11 percent in the third quarter of 2016 but the data isn’t enough cause for celebration.
Net revenues were $1.11 billion for the third quarter of 2016, an increase of 11.4%, or $113.5 million, from $996.3 million for the same period of 2015, Wynn Resorts said in a regulatory filing.
The increase, according to the casino operator, was the result of $164.6 million from Wynn Palace and an increase of $15.9 million from our Las Vegas Operations. Wynn Resorts’ total adjusted earnings before interest, taxes depreciation and amortization rose by 9.1 percent to US$305.4 million for the third quarter from $279.9 million for the same period of 2015.
But the latest data missed analysts’ estimates, which projected the casino operator’s third quarter revenues to be around $1.12 billion. Even the Macau unit of Wynn Resorts, the casino company founded by billionaire Steve Wynn, posted third-quarter profit that missed analysts’ estimates.
The dismal third quarter sent Wynn Resorts shares plunging by as much as 6.2 percent in late trading to $90.50.
Dampening the revenue of Wynn Resorts was the lackluster performance of Wynn Macau, which swung to a third-quarter loss as a result of the opening of its latest casino, Wynn Palace.
Net revenues from Wynn Macau were $518.1 million for the third quarter of 2016, an 11.5% decrease from $585.1 million for the same period of 2015. Adjusted Property EBITDA from Wynn Macau was $151.0 million for the third quarter of 2016, a 7.3% decrease from $162.8 million for the same period of 2015.
On the other hand, Casino revenues from Wynn Palace were $146.7 million for the third quarter of 2016. In VIP operations, table games turnover was $4.15 billion and table games win as a percentage of turnover (calculated before commissions) was 2.90%, within the expected range of 2.7% to 3.0%.
In mass market operations, table drop was $275.9 million, table games win was $51.5 million and table games win percentage was 18.7%. Slot machine handle was $204.5 million and slot machine win was $12.6 million for the third quarter of 2016.
DS Kim, an analyst from the foreign brokerage JP Morgan Chase, pointed out in a note on Thursday that casino cannibalization is starting to take shape with Wynn Macau becoming the prey. As a result, Kim said “initial knee-jerk reaction will be negative.”
Reacting on the cannibalization aspect, Wynn Macau Ltd. president Ian Coughlan said they have already perceived the scenario to happen.
“There’s been a fairly significant impact on our direct VIP downtown because we have a lot of Wynn players that wanted to come and experience the new property.” Mr Coughlan said. “The junkets have managed to backfill downtown [Wynn Macau] very effectively. On the mass, we’re less affected. Our customers downtown seem to be very ‘peninsular-downtown’ centric. While some of them have experienced our new property they’ve been very sticky downtown.”
Meanwhile, Wynn Resorts president Matt Maddox reported that the ramp up of Wynn Palace “is taking a little longer” than anticipated. He, however, assured investors that the company is maintaining their market share in Macau.
He also confirmed that the total Wynn Palace investment rose to US$4.4 billion, reflecting a US$300 million increase to the guaranteed maximum price payable to Leighton Contractors (Asia) Ltd.
It would be recalled that Wynn agreed to shell out US$121 million in fees to pay Leighton Contractors (Asia) while associated companies of the casino operator are expected to pay US$200 million to the construction firm.
The amount was broken down into the following: nearly US$21.1 million for work completed and accounted for under the previously arranged maximum guaranteed price for the resort; US$55.2 million that prior to the date of Sunday’s announcement had been withheld under Cotai construction agreement, and up to US$45 million “as and when outstanding, defective, or non-conforming work is completed to the satisfaction of the group.”
“But when we look at what’s going in Macau, comparing September at Wynn Palace – which was our first full month [of operation] – and October, that we just completed, we’ve seen in our volume metrics that turnover, mass drop and slot handle … increased sequentially … by about 20 percent, which was in line with the market,” Maddox said. “We are looking at rationalising some of those expenses but I wouldn’t expect a very large decline from that level. In particular, as sales ramp up and in the retail outlets and everywhere else you’ll start to see the variable costs ramp up. So I think that those numbers will likely be in line.”