It’s been a crazy week for the entertainment stock Wynn Resorts (NASDAQ: WYNN), the premium casino company with operations in Las Vegas, Boston and Macau. Wynn reported decent but not impressive third quarter earnings, the CEO announced he was leaving, and on Friday morning the bomb went off that Wynn is no longer transferring his online gambling business to a PSPC.
These movements are not necessarily surprising. Outgoing CEO Matt Maddox has gone through arguably the most difficult tenure a gaming CEO has ever seen. And on the online gaming side, Wynn is a small player who needs a different strategy than his bigger rivals. Here is an overview of what is going on and how to view it as investors.
An update on gambling affairs
It’s worth taking a look at the third quarter operating results. Revenue was $ 994.6 million, up from $ 370.5 million a year ago in the midst of the pandemic. Adjusted property EBITDA, which is an approximation of resort cash flow, was $ 154.6 million, which was almost entirely attributable to Las Vegas.
Unsurprisingly, Las Vegas performed well, with $ 476 million in revenue and $ 183.4 million in EBITDA. If these results continue, 2022 could be the most profitable year on record for Wynn Las Vegas. And Boston’s results were correct, with revenue of $ 192.2 million and EBITDA of $ 64.6 million.
It was Macau that was down, with Wynn Palace revenue of $ 181.3 million and Adjusted EBITDA of just $ 12.1 million. Wynn Macau generated $ 130.7 million in revenue and negative real estate EBITDA of $ 1.9 million.
Las Vegas is thriving, the Port of Boston is improving, and Macau continues to be a drag. None of this is surprising given the trends in the industry. The big wild card is that if Macau does recover, it could be a cash flow machine – but we’re not there yet, and we don’t know how long a Macau recovery will take.
What happened in iGaming
The spin-off of Wynn Interactive with a SPAC called Acquisition company of Austerlitz I (NYSE: Australia) was canceled this week, which took investors a bit by surprise. Management said in its earnings call that the spending on acquiring customers is just too high, with companies like DraftKings (NASDAQ: DKNG) and MGM Resorts (NYSE: MGM) spending tens of millions of dollars on growth spending. Businesses believe that spending on acquiring customers now will pay off in the long run because each customer has high lifetime value.
Wynn cannot compete with these companies, which have a larger footprint, and his brand was never intended to be a market share company. Management therefore plans to cut expenses and focus on high ROI customers, which may simply not fit the PSPC model.
Instead of going public through SPAC, Wynn Interactive will remain under the control of Wynn Resorts, and the company hopes to make it a profitable segment. Time will tell if the new strategy works or if a ladder is needed to win at online gambling.
Where does Wynn Resorts go from here?
As busy as the week has been, the news from Wynn Resorts largely proceeded as usual. The business is doing well in Las Vegas, with consumers and businesses coming back in droves. Boston sees some of the same trends.
Macau is down for everyone, so breaking even on an EBITDA basis may be all investors can expect from Wynn Resorts. I think this could still be a very profitable segment for the company, but it isn’t today and we don’t know when that will change.
In the long run, keeping the online gaming segment in-house and focusing on profitable customers might be the best decision. It wasn’t clear whether the PSPC route had a profitable future, and with so much competition it might be best to focus on what makes money in online gambling. It may not lead to the short-term increase in value that an SAVS can bring, but Wynn Resorts has never been the type of company to think short-term, so this decision fits their business model.
Wynn Resorts doesn’t have a lot of big growth options as you can see in companies like MGM and DraftKings, but it should be a cash flow machine, and it can be good for investors. Right now, the company is generating annualized adjusted EBITDA of $ 600 million, and once Macau returns to normal, that number could more than double. It’s money that can be used to pay dividends or buy back stocks – and if you’re a Wynn Resorts investor, this is where you should be focusing as the company’s operations improve. .
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