The headline numbers for the second quarter look pretty outstanding for Las Vegas Sands (NYSE: LVS ) . Net revenue increased 25.6%, to $3.24 billion, hold-adjusted property EBITDA was up 29%, to $1.17 billion, and net income was up 42.1%, to $597.6 million. But a deeper dive into the numbers show at least a little disappointment in the quarter.
The good and bad in Macau
Macau was a different story depending on where you looked. Sands Cotai Central is finally starting to generate the gaming volume Sheldon Adelson envisioned, but ran into bad luck; The Venetian Macau saw mass market play jump, and had good luck with high rollers, and Sands Macau continues to slowly fall victim to Cotai.
The best way to analyze the numbers is to look at rolling chip volume (high roller play), non-rolling chip volume (mass market table games), and slot handle at the company's casinos. For some perspective on the growth each component displayed, remember that Sands Cotai Central wasn't fully open, so a better gauge than growth there is comparing figures to The Venetian Macau, and Macau's overall revenue was up 15.8% in the quarter.
| Venetian Macau | $11.84 billion +6.1% | $1.59 billion +56.1% | $1.15 billion +0.1% |
| Sands Cotai Central | $14.34 billion +110.2% | $1.23 billion 215.4% | $1.25 billion +87.8% |
| Four Seasons Macau | $9.94 billion 8% | $186.1 million +104.5% | $182.0 million -8.6% |
| Sands Macau | $5.82 billion -5.6% | $822.9 million +14.8% | $637.2 million +4.2% |
| Total | $41.94 billion +25.7% | $3.83 billion +72.7% | $3.22 billion +22.6% |
Source: Las Vegas Sands Q2 2013 earnings release.
We can see that the center column is the strongest, which means that mass-market play is growing, especially on Cotai. What's a little less clear is how much growth we can expect in the high roller business on Cotai. The Venetian Macau and Four Seasons both experienced relatively slow growth rates in high-end play and negative growth in slots.
With that said, overall volume growth was strong for Las Vegas Sands, and the company clearly took share from Wynn Resorts, Melco Crown, and MGM Resorts over the past year.
When looking at other operators that will report earnings over the next few weeks, we can see trends toward Cotai continue. That will hurt Wynn and MGM until their Cotai resorts are complete, and likely help Melco Crown's results again this quarter.
Singapore disappoints
The real disappointment right now is Singapore, where Marina Bay Sands isn't generating the profit Sheldon Adelson expected when he built the resort. There was hope the resort would generate $2 billion in EBITDA and, after generating $1.72 billion in EBITDA from Q2 2011 to Q1 2012, that looked possible. But revenue growth has slowed, and the resort has only generated $1.32 billion in EBITDA over the past year.
That's still a big figure, but when your company is valued at 12 times EBITDA, a $700-million shortfall from expectations priced into the stock can be a drag.
A new cash king
What's new for gaming companies lately is returning money to shareholders through dividends and share repurchases. Extra cash was used for growth until recent years, but with the sheer cash Macau casinos are spitting off, Las Vegas Sands and Wynn are able to pay back shareholders.
In Las Vegas Sands' case, that means a $0.35 per-share quarterly dividend and a new $2.0 billion share buyback program. The company is also steadily lowering its debt, which now stands at $9.49 billion. This greatly reduces the company's risk and provides some stability for shareholders in the future.
To buy or not to buy?
Despite the drop in shares today, I think this was a pretty good quarter for Las Vegas Sands. The company is growing steadily in Macau, and disappointing results in Singapore and Las Vegas were both affected by lower-than-expected winning percentages. That will adjust over time, and even though Singapore may not be as big as Adelson once expected, it's still an amazingly profitable casino.
My only reservation with the stock is its price. Las Vegas Sands's enterprise value is 12.3 times EBITDA, which is well higher than a 9.5 ratio for Wynn, and 9.8 for MGM Resorts. Melco Crown is higher at 13.8 times EBITDA, but it's a smaller company, and will double the number of casinos it owns in the next three years, so it's harder to compare against.
Las Vegas Sands does have The Parisian under construction and should be completed near the end of 2015. It's also working on Eurovegas in Spain, which could initially be a $7.9 billion investment. These will drive growth but, in my opinion, they won't create enough growth to command a 20% premium over competitors, which also have new resorts in the works. If the stock falls 10% or so, I think it would be a great buy; but at the moment, it's fairly priced with growth baked in.
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