It turns out that even for companies, there are a handful of things more important than profits. For Wynn Resorts Ltd., attracting gamblers to spend money at its Macau casinos and grabbing market share from competitors are among them.
That's why the 3.5 percent Wednesday drop in shares of Hong Kong-listed Wynn Macau Ltd., on the back of a one-penny earnings miss, seems a bit overdone.
Especially when considering the casino and hotel operator's $1.5 billion in second-quarter revenue handily beat analyst estimates and was up 44 percent from a year ago. Not only did customers spend more at Wynn's Macau casinos, room occupancy jumped by 6.6 percent from the prior year, the largest increase in that metric since September 2011, when Beijing's consumption crackdown let the air out of the world's largest gambling hub.
The profit and revenue mismatch raises an important question before a slew of earnings in the coming weeks from gaming operators including Melco Resorts & Entertainment Ltd. and Sands China Ltd.: Should short-term profit shortfalls matter at a time when casino operators need to spend big on advertising and promotions to gain from the resurgence of VIP players and to lure mainland Chinese gamblers to their newly built casinos?
In other words, if Macau's tables are finally turning, fighting for market share should be the game of choice.
Wynn must be doing something right if it's managed to book such a steep increase in Macau customers, especially considering the 35 percent jump in total wagers among VIP clients in the second quarter from a year ago. It's important to remember that high rollers are less profitable than mass-market guests, because casinos must pay commissions to the junket operators that ferry wealthy patrons to the casinos and help fund their betting.
But cementing market share from both VIP and mass-customer segments now is crucial for Wynn to make its recent investments in Macau worthwhile -- especially the newly opened Wynn Palace. Wynn said Tuesday that mass-market traffic was hurt by construction work butting up against the new casino, including a light-rail station and other casinos scheduled to open later this year.
Wynn will also have to give away some profits in the short term to win back VIP customers, reaping longer-term benefits if the high-roller rebound sticks.
Investors might want to brace for lower margins ahead from this group. Overall revenue and guest count will determine which operators secure the winning hand.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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