This first column of 2015 is being written on the last trading day of 2014 and it’s safe to say the Old Year wasn’t a humdinger for gaming stocks.
It didn’t matter where you looked. The results were disappointing.
OK, not disappointing. They verged on disastrous in many cases.
Gaming stocks peaked in late February and early March, then started a slide that accelerated through the year and just plain fell off the table in December.
Here were the lowlights as illustrated in Fantini’s Gaming Indices:
Index 2014 2014 Fall Calendar year
Peak Close from peak decline
World 204.44 144.47 29.33% -24.76%
North America 213.20 151.89 28.76% -20.51%
Interactive 179.53 171.19 4.65% -2.48%å
The reason for such steep drops can be summed up in one word: Macau.
The six Macau casino concession holders account for nine stocks—each with their primary listing, and the three American operators with their Macau subsidiaries listing in Hong Kong.
All of those stocks were driven to their March peaks by the giddy investors. Then they deflated as revenues began to fall, and collapsed in the fourth quarter along with gaming revenues and since wounded investor confidence.
And because their market caps had grown so large during the giddy period, their collapse had even greater effect on the indices.
The losses for individual stocks was tremendous. Melco Crown fell 45 percent from its peak, Wynn 40 percent, Las Vegas Sands 34 percent.
That translated into lots of dollars lost: LVS from a market cap of over $70 billion to closing around $47 billion. WYNN from $25 billion to $15 billion, as examples.
It also led to a lot of lurid headlines, like the stories circulating the Internet pointing out that LVS CEO Sheldon Adelson’s net worth fell by $10 billion in the year.
But the year wasn’t bad for everyone. Investors in gaming technology companies made money as the likes of Bally and Multimedia Games got bought out.
And several companies, unaffected by Macau, did quite well. Aristocrat jumped 44 percent as it grew North American market share. Betfair leaped 48 percent as it successfully grew beyond exchange wagering. Boyd rose 14 percent as Borgata avoided the Atlantic City decline and the Las Vegas locals and regional markets began to revive.
So, what does this portend for 2015?
For Macau, it’s a big question mark. Confidence in the market’s future erodes each month.
Many had hoped the visit by Chinese President Xi Jinping would be the bottom, but the follow up has not been encouraging—talk of a more stringent smoking ban to come, possibly by March, and the Macau government reviewing the gaming industry under pressure from the national government.
Then there’s all of that new capacity as mega resorts begin to open. One of the trends of the past year is that visitation to Macau grew even as revenues declined. So, while all the new hotel rooms coming online might be occupied, there’s no assurance they’ll be filled by gamblers.
Further, earnings forecasts are bound to come down in coming months, meaning what look like reasonable prices today based on current estimates might look high a few months from now with lower estimates.
So, for investors who want to own gaming stocks, the opportunities might be elsewhere: rebounding regional casinos in the U.S., other international markets, gaming suppliers on the assumption that merger activity hasn’t played out.
However, Macau operators might still be worth a look. The companies are led by some of the smartest people in the industry. And, at some point, there is a bottom, and a lot of potential in Asia.
