Wynn Falls Short of On Earnings Report, But Future Looks Solid for Vegas Gaming

Jacob Harper |

It’s an interesting time for Las Vegas casinos, and specifically Wynn Resorts, Limited (WYNN) . The company released its second quarter 2013 earnings report before the bell on July 29. Earnings were under what analysts had expected, and the company's Macua holdings are slowing in growth. But investors still feel the future looks solid for Wynn as a major online competitor just bowed out of gaming.

Wynn had taken a bath on investments abroad, and estimates on revenues from the city of Macau fell well short of expectations. While sales in Macau ticked up 2.6 percent, sales in Vegas shot up 16 percent.

In May 2011 Macau approved Wynn’s plan to build a $4 billion resort on the Cotai Strip,  Macau’s main gaming drag. That approval didn’t come without a price, and it’s one that angered shareholders. Prior to the approval from the Macau government, Wynn donated $135 million to the University of Macau. Since the move wasn’t an explicit reinvestment (that is, a “donations for approval” tit-for-tat), shareholders sued the company, alleging that the donation was an unnecessary frittering away of shareholder profits. The donation is currently being investigated by the Securities and Exchange Commission.

Macau as a gambling destination hasn’t panned out as well, either. The former Portuguese colony was opened up to Western investors in 2006 as a potential global gambling destination. In 2012 gambling revenues rose 14 percent over the year prior, but this is in stark contrast to the 42 percent climb the year prior. Vacancies in the company's hotels in Macau were up five percent.

Despite issues with Macua investments and lawsuits with stockholders, investors like that potential online competitor Zynga Inc (ZNGA) just announced they were getting out of online gambling and abandoning plans to get a U.S. gambling license. Wynn had been in talks of buying out Zynga to neutrlize the emerging market. But that plan has been scuttled, and the internet company most famous for marketing games like FarmVille and Candy Crush Saga appears to be out of gambling for good. With Zynga’s announcement – and Wynn’s increasing profits from in-house gambling – it looks like online gambling will no longer be a thorn in Vegas gaming’s side.

Wynn reported earnings of $129.8 million, or $1.51 a share, versus the $138.1 million net income, or $1.37 per share, from the same period a year ago. Revenue for the quarter was $1.33 billion, as compared to $1.25 billion from the previous year. Analysts were expecting a profit of $1.57 per share on revenues of $1.34 billion.

The largest Vegas casino, Las Vegas Sands (LVS) announced earnings on July 25, and also missed estimates, althought their Macau holdings were exceptionally strong, and not marred by SEC investigations like Wynn's. Las Vegas Sands CEO Sheldon Adelson has publicly pressured the government to not apporve online gaming ventures, citing the fact that Vegas casions provide benefits beyond gaming like entertainment and hospitality services.

Competitor Caesars' Enterntainment Corp (CZR) announces second quarter earnings after the bell July 29th.

Despite the earnings shortfall, investors were buoyed by Wynn’s outlook. The stock is up .50 percent and 10.93 percent on the year to hit $131.64 a share.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
WYNN Wynn Resorts Limited 98.64 -0.63 -0.63 1,956,209
ZNGA Zynga Inc. 2.86 -0.01 -0.35 5,178,557
CBVHY China Everbright Bank Co Ltd ADR n/a n/a n/a 0

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