The first two casino companies have reported second quarter earnings and it’s safe to say we don’t know much more about the trends of the casino industry than we did before.
Las Vegas Sands and Monarch Casino stocks rose in response to earnings, though neither company said much about current trends or the outlook for the gaming business as the year progresses.
Interestingly, the two companies are very dissimilar and yet, in an odd way, very similar.
Their dissimilarities: LVS is a giant company with a $24 billion market cap and operations exclusively in the Southeast Asian cities of Macau and Singapore. Monarch is a small regional operator in the American West with a single casino in each Reno and Black Hawk, Colorado.
Their similarities: both are family-controlled public companies with strong balance sheets, a lack of geographic diversification and are counting on growth to come from investments they are making to existing properties while holding out vague intentions of expanding into new geographical locations.
Las Vegas Sands beat expectations on strong results in Singapore, a market where results have tended to be up and down each quarter. CEO Rob Goldstein said on his investor call that he not only expects Singapore to continue to grow as Asian nations loosen COVID-related travel restrictions, but that massive renovations and expansions at Marina Bay Sands will create a high-quality destination to drive visitation.
Macau is less clear. On one hand, its problems appear to be temporary thanks to Covid restrictions. On the other hand, one wonders if the national Chinese government is just as happy to see the pandemic give it a reason to rein in Macau’s casino industry.
That uncertainty caused analyst Dan Politzer of Wells Fargo to ask whether LVS needs China to come back, and, if not, whether it can return to former business levels.
We’ll let Goldstein’s words speak for themselves:
“It’s a good question. And we’re watching like you all. I think let’s not ever dismiss the importance of China in any of our businesses. China is still a powerhouse as a consumer market, and we should never dismiss it as powerful.
“Can we get to $400 million a quarter without China, most of you would think not. But then again, I would have thought we wouldn’t have done this well with Changi (Singapore’s airport) still underperforming in terms of visitation. So it depends – like the US, I think you have to question what – where will the over-indexing come from? Well, Indonesia, Malaysia and other source markets are over-indexed. And that’s the question. We don’t know the answer to that.
“Will there be pent-up demand coming out of Thailand and Vietnam and Indonesia and could they – could Korea outperform? I just don’t know. We have to wait and see how those markets open up again. We’re in uncharted waters here, it’s new. But I would never dismiss the importance of China as a market for anybody in our retail business, our hotel business, our casino business.
“China is very, very critical to everybody in Asia. And you can see that in any market that you participate in. But how high is up without China returning, I think we’ll have to wait and see it together. There’s a lot of good drivers here that make us feel good, the visitation makes us so there’s opportunity there.
“Our renovation feels like it’s going to be very impactful as it comes online, the over-indexing of non-China markets feels like it’s coming on strong. But I think we’ll revisit that and we’ll have a better answer for you next quarter when we print our numbers.”
Meanwhile, another dissimilarity with Monarch. The smaller company generates cash far beyond its needs and will soon be debt-free and piling up money.
Even without the next growth project, Monarch will be positioned to return bounteous capital to shareholders.
