There’s been considerable discussion throughout the investment world that the recent optimism and beat-and-raise performances in many industries will be replaced in coming weeks by a resetting of expectations to lower levels as the realities of inflation set in.
It would seem natural that such a resetting would befall the gaming industry. There’s a reason the sector is categorized as consumer discretionary. People don’t need to spend on entertainment so cutting back on—or out of—travel and good times is generally among the first economies consumers implement when trying to adjust for soaring expenses.
Already, there have been hints of slowing spending by consumers even as the overall numbers are impressively positive.
Positive expectations have been the case for Las Vegas. The Strip is abuzz with free-spending customers who have shown no signs of slowing down. International travel is coming back, and a lifting of COVID travel restrictions by various countries could lead to an explosion of foreign customers who are prized for their high spending levels. Group bookings for the second half of the year and beyond are said to be at record levels, though attendance at shows so far has been well below past experience. And, as fear of Covid recedes, older customers, who provide the bread and butter business for casinos, are expected to return.
Combine all of that good news with the now expected spending discipline of casino operators and it looks like blue skies ahead.
If that’s the message gaming executives provide, if they raise guidance again or stick firmly to previously set bullish guidance, casino stocks might have another run up.
But it might be the last hurrah before inflation saps consumers and drives up the costs of operations for casino companies. There’s an old bromide that stock investors should sell in May and go away. That might apply to gaming stocks this year.
Las Vegas ‘Sans’
One of the most interesting conference calls will be that of Las Vegas Sands (LVS), which is now sans Las Vegas, having sold its Sin City properties to Apollo.
A few years ago, LVS was a gaming blue chip. The company had a solidly growing Las Vegas business and was co-developing the Sphere, the world’s largest concert-only venue, with Madison Square Garden. It was the biggest player in seemingly limitless Macau. It paid a handsome dividend. Visionary founder Sheldon Adelson set the tone and direction. At $80 a share, the stock looked like a bargain.
Now Adelson, the Las Vegas properties and recurring dividends are gone. And Macau, slammed by Covid and a national Chinese Communist government, which is no friend to gaming, has at least a more limited, if not problematic, future.
Attempts to find new growth opportunities, especially with the financial wherewithal provided by the Las Vegas sales, have not been impressive so far. Certainly, the now failed idea of a casino in Jacksonville, Florida, wasn’t an exciting prospect. Who in the casino industry, after all, would trade Las Vegas for Jacksonville?
Thus, it will be important for management to give investors’ confidence that they have a path towards renewed growth beyond the quarterly paeans paid to the Macau government and, by extension, the Chinese national government.
Otherwise, a stock price in the $30s might seem more expensive than that in the $80s several years ago.
