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Have the Tables Turned on Macao Gaming Revenues in 2016?

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Macao gaming revenues flat

Macao casinos’ gaming revenues remained flat at -0.1% in February 2016. February marked the 21st consecutive month of falling revenues, but the 0.1% fall was the smallest since the slowdown began, and it came on the back of a 21.4% fall in January 2016.

Have the Tables Turned on Macao Gaming Revenues in 2016?

Macao’s decade-long boom, which made it the largest gaming hub in the world (with revenues seven times more than those of Las Vegas), came to an end in July 2014, after the Chinese premier’s anti-graft campaign. Since then, VIP rollers have been absent from the scene, leaving major casinos vying for a piece of the mass market. In fact, the mass market seems to have saved the day in February as VIP woes continued to plague the industry.

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China’s Lunar New Year holiday, which began on February 8, 2016, was a major reason for the month’s triumph. Revenues tend to fall before the holidays and rise during the holidays. This slowdown was probably one of the reasons for January’s steep decline. Another reason was likely the low base effect: Last year’s revenue fall in February was 49%, despite China’s annual holidays.

Expectations

Sands China’s (LVS) president expects February to mark the end of the industry’s slump. This optimism is shared by other players, including Galaxy Entertainment, Melco Crown Entertainment (MPEL), MGM Resorts (MGM), and Wynn Resorts (WYNN). However, Union Gaming Research expects revenue to fall for two more months before recovering in June 2016.

Giving credit to these assumptions is also the fact that February marks the third straight month of sequential growth in revenues. Also, 4Q15 gaming revenues showed the first quarter-over-quarter rise since 1Q14, though it was only by 0.8%. The increase is thought to have come from the mass market segment, lending hope to a possible recovery in Macao’s gaming industry.

Investors who want to avoid the risk of investing in single casino companies may be interested in ETFs that invest in casino stocks. These include the VanEck Vectors Gaming ETF (BJK) and the Consumer Discretionary Select Sector SPDR ETF (XLY).

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