Third-quarter earnings report season is about to start in an environment of Covid fatigue, release of pent-up demand by customers, supply chain disruptions and casino operators having converted to the religion of sky-high margins.
Here are a few things to look for in earnings releases and subsequent investor calls:
- Domestic casino operators might have the best stories to tell. Gaming revenue reports from various states show that players continue to return to casinos, or at least the most profitable players have returned. And there’s every reason to believe that casinos have continued to cut and contain costs, perhaps even more than in previous quarters.
Expect them to beat earnings guidance and consensus forecasts.
The real question might be whether CEOs and CFOs can give enough fresh evidence of another leg up in earnings to motivate investors to buy or hold on for higher prices. In short, is the good news already in the stock prices?
For Las Vegas Strip operators, there will also be the question of the return of business travelers and convention business. Executives have been given something of a pass on this subject as they report strong forward bookings. But the reality might be less ebullient, as evidenced by the recent G2E, where attendance and number of exhibitors were less than half of historical levels.
- Gaming equipment companies will have three issues in common:
- Gaming operations. Are they enjoying the same business rebound as their casino customers, and how are their number of units on participation leases trending?
- How are supply chain issues affecting them? Are they having or threatening to have financial impact?
- Are casino companies loosening budgets and ordering new games now that the Covid shutdowns are long past?
- S.-listed Macau casino operators. If domestic casino operators have the best stories to tell, Macau operators might tell the most artful stories; investors might have to read between the lines and respond to any bullish assessments with a healthy degree of skepticism.
There are two overriding questions for them:
- When will business finally get back to normal?
- What is Macau’s regulatory future, including the concession bidding process?
One can expect CEOs and their Macau executives to say the future is sanguine. They will note that Macau officials stress the need to maintain a strong economy, and gaming is the Macau economy.
Readers of this space know my skepticism about that in the face of the national government’s anti-gambling convictions and its willingness to play the long game in achieving its goals.
However, even if the sanguine view proves true, the question must be asked: does Macau gaming face a more limited future? Not long ago, analysts would calculate the impact of penetrating the immense Mainland China population base, then paint pictures of unending blue skies ahead.
If the answer is that Macau will recover but might not be the unlimited cornucopia, the next question should be, what are these companies doing to grow beyond Macau?
MGM has a big Las Vegas presence and perhaps Japan development ahead. Wynn has Las Vegas land to develop. Both companies are aggressively pursuing sports betting and iGaming.
Las Vegas Sands might have a more difficult story in abandoning Las Vegas and geographic diversity to become a pure Southeast Asia play. At present, what we know is that the company is pushing for casinos in Texas, which very possibly will never happen, and perhaps in Jacksonville, Florida, which would be a pale substitute for Las Vegas.
One thing is certain. Las Vegas Sands has an outstanding balance sheet that will grow only more powerful once it closes on the sale of its Las Vegas properties. Then it will be up to management to make good use of that financial strength.
