By Josh Resnek
Wynn Corporation’s second quarter earnings were called “extraordinary” by its CEO Matt Maddox, and with some justification.
But despite this, its stock has fallen dramatically by about 20% from $136 to $114.
The company’s two Las Vegas resorts — Wynn and Encore — recorded an increase in revenue per available room (RevPAR) of 9.5% to $300, while average daily rate was up 6.4% to $333. Occupancy jumped 2.5 percentage points to 90.1%.
Total Las Vegas revenue grew 5.1% in the quarter, to $464.1 million, boosted primarily by a 17.7% surge in casino revenue.
The Encore casino and hotel in Everett added to earnings as well.
Wynn Resorts reported a total revenue increase of 3.3% to roughly $1.66 billion for the quarter.
However, the violence now occurring almost on a daily basis in Hong Kong, where protesters have managed to shut the airport and to bring business to a near halt in this sprawling Asian center of commerce, has caused many analysts to signal an alarm about Wynn stock, as well as its earnings in the near future.
Wynn stock has dropped about 20% during the past two weeks.
What happens in Macau oddly enough can have an impact on the Encore operation in Everett.
With protests continuing in Hong Kong, which is only 40 miles from Macau where Wynn has its key pieces of gaming real estate and hotels, future earnings are being called into question by major investment houses.
In February 2019, the Hong Kong government introduced an extradition bill that included an extradition policy for Mainland China. The bill triggered protests in Hong Kong with protesters demanding its total withdrawal.
The demonstrations in Hong Kong have gradually grown large enough for the United States to issue a travel advisory earlier this week.
Moreover, China has hinted at a possible military intervention to bring stability in the region.
The protests in Hong Kong have had a direct impact on activities in the region as a whole. Located just 40 miles from Hong Kong, Macau has seen a notable reduction in activity due to the protest.
Also, Hong Kong accounts for nearly 15% of the total tourist population visiting Macau, and sharp reduction in tourists from Hong Kong to Macau led to an 8% sequential reduction in number of tourists in Macau in the month of June (according to visitor statistics released by DSEC).
Although the numbers for July are yet to be released, investors expect a sharp drop due to ongoing demonstrations – a trend that is likely to remain over coming months.
How Does It Impact Wynn Resorts?
In its recent earnings release, Wynn Resorts reported a sequential drop in casino revenues.
This was primarily due to a sharp drop of 33% (y-o-y) in VIP turnover at Wynn Macau and a modest decrease at Wynn Palace.
Besides VIP gaming, slot handle also declined at both Wynn properties, and growth in mass-market games also trended lower Mass and slot gaming revenues came within the expectations as Macau is observing a slowdown this year.
The possibility of ongoing clashes hurting the stability of the region has investors worried about a significant drop in tourist inflow from Mainland China as well as Hong Kong over the rest of the year. Notably, Mainland China and Hong Kong account for nearly 80% of Macau’s tourists.
To put things in perspective, a 20% decline in mass- market table games drop for Wynn would reduce our estimate for hurt Wynn’s earnings enough to justify a 16% reduction in share price estimate from $136 to $114.
Most investment houses remain bullish in the long term for Wynn stock but in the short term, they are nearly all predicting a downward trend because of the instability in Macau.
That instability could have dramatic impact on Wynn because such a great part of its earnings comes from its Macau operation.