Sorry to quote Homer Simpson but you know Wynn’s stock is in trouble when Steve starts the call raving about their new website.
WYNN is clearly not a hedge fund favorite right now and normally, we’d love to take the other side of that. But really, what is the positive catalyst? High short interest and low expectations may limit the downside to pretty much where the stock traded up from yesterday or maybe a little worse. Q4 was not great but where we go from here is the real question.
Last night, WYNN held an uncharacteristically boring conference call. Where was the political rant? Where was the unbridled optimism? Where were the dumb analyst questions? Oh wait, there were plenty of those. Anyway, the uninteresting nature of call was probably a preview into the next few years at Wynn. Without any new projects underway, WYNN will be an operations and cash flow harvesting story. The stock is probably priced that way too which makes it uninteresting to us, long or short.
Wynn is a terrific operator and a value creator, no question. Right now, he is a little bit of a victim of his own success in Macau until Wynn Cotai opens. Wynn Macau/Encore is running close to full capacity now and is likely to continue to lose share and generate subpar and subdued growth in the coming years. Vegas should have some nice growth, but it’s just not that material to the overall results of the company. In the meantime, the catalysts are external: Government approval of Wynn Cotai, potential legalization of gaming in Japan or Korea, and the RFP process in MA.
Q4 Details:
Wynn reported net revenue of $1.34BN and Adjusted EBITDA of $381MM (post corporate but before stock comp), missing consensus by 1% and 4%, respectively. Macau missed by 2% despite holding well across both VIP and Mass, while Vegas EBITDA missed by 9%. After the snoozer of a conference call, we’ll spare you the boring line by line and skip to the more interesting tidbits/non-obvious observations.
Macau
- Hold boosted net revenue by $71-89MM and Adjusted EBITDA by $22-32MM
- If you assume theoretical hold of 2.85%, the hold benefit to VIP was $69MM on net revenue and $20MM on EBITDA. Using Wynn’s average hold since opening (ex 4Q11) of 2.94%, this gets you to a hold benefit of $50MM on net revenue and $10MM on EBITDA.
- Mass also held well at 30.4% vs. the 27.4% TTM average. We estimate that the incremental 3% of luck helped net revenue and EBITDA to the tune of $21MM and $12MM, respectively.
- Direct play was 11% and rebates were 95bps or 30% of win
- Single-digit midget growth as the property hits up against capacity constraints
- VIP RC: 7%
- Mass drop: 4%
- Slot handle: 8%
- Estimated 14% increase in fixed operating expense
Vegas
- This is only time, aside from 2008, since opening where 4Q table drop decreased QoQ
- Slot handle was disappointing which is surprising given the strong reported Strip results
- Wynn could be losing share to MGM
- Lower occupancy likely hurt the slot performance
- Rebates/Casino discounts were 19.7% of gross casino win, compared to 17.3% in 4Q10 and 17.4% in 3Q11
- Occupancy actually decreased YoY and RevPAR only increased 2.7% and was the lowest since the property opened. On the positive side, it looks like promotional allowances/ comps decreased $44MM or 30% of net casino win from 32% last year.
