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I wouldn’t say we’re bullish, LVS actually missed our estimate, but we were way above the Street. Here’s what we found interesting.

QUITE FRANKLY WE'RE A LITTLE DISAPPOINTED WITH MACAU

Venetian:

  • Mass table drop (8%) and VIP RC (16%) both declined while the market exploded.
  • Gross gaming revenues were 2% below our estimate--spread among slot win, VIP and Mass.  Net win was $26MM below our estimate due to higher rebates.
  • Rebates were $100MM or 34% of VIP table hold compared to 30.8% of VIP table hold in 2009.  Going forward we will use a 32% of VIP win rate to calculate rebates for Venetian.
  • Better hold helped the quarter:
    • $14MM on Mass revenues using the company’s 4 quarter average of win of 23.6% and flow through to the bottom line at a 60% rate
    • $7MM on VIP assuming a normal hold of 2.85% and should flow through to the bottom line at roughly 50% since Venetian’s junket VIP volumes are 80% turnover based (1.25%)
  • Non gaming revenues, especially the room revenues, were a little better than we estimated.

Sands:

  • Slot handle was up 31%; RC drop increased 25%; BUT non-rolling drop decreased 4%.   As a point of reference for the whole Macau market, VIP RC volumes (Junket only) grew 75% y-o-y in 1Q2010.
  • Non-rolling chip drop has declined 14.4%, 25.5% and 8.1% in 2007, 2008, and 2009, respectively.  Despite the huge growth in gaming revenues, this is a competitive market.  To put things in perspective, Mass table revenues grew 37% y-o-y in 1Q2010 while Sands Mass win only grew 4% despite a 1.5% increase in Mass hold.  Sheldon’s characterization of the property as a mature “cash cow” is fair.
  • Better hold also helped the quarter:
    • $5MM on Mass revenues which has roughly a 35% gross margin
    • $21MM on VIP, assuming a normal hold of 2.85% with a gross margin of roughly 18%
  • Gross gaming revenues were 3% below our estimate--spread among slot win, VIP and Mass; however, net win was $19MM below our estimate due to higher rebates
  • Rebates were $68MM or 33.2% of VIP table hold compared to 31.7% of VIP table hold in 2009. Going forward we will use a 33% of VIP win rate to calculate rebates for Sands
  • Commission at Sands are 50/50 turnover based (i.e. 1.25%) and Rev Share, so high hold at this property doesn’t flow through quite as well as at Venetian and FS
  • Fixed costs look like there were up around $5MM y-o-y and promotional expenses also look a little higher y-o-y
  • Direct play at Sands was 10% of VIP volume compared to a 11% 4 quarter average.

LAS VEGAS PLAYS LUCKY ON SLOTS AND TABLES

  • Table drop was better than we thought, by $85MM but casino revenues were $3MM below our estimate.  The player rebate on tables games went up to 4% this quarter, which isn’t surprising given the strength of the baccarat play.  Obviously the correct way to calculate the rebate would be on the VIP volumes which we just don’t know.  If the strong Baccarat trend continues, we will need to model both net and gross revenues for Vegas going forward, just like Macau.
  • Non-gaming revenues were $10MM better than we expected – which was pretty much entirely driven by better RevPAR results.
  • Cost cutting looks like it’s essentially done.  Total operating costs were down 3.3% y-o-y after 3 quarters of double digit declines.   1Q09 was actually an easy comp as costs were essentially flat from the prior year.  We expect costs will be up year over year going forward.
  • The Palazzo had a monster quarter while the Venetian suffered.   Win per table was $9,282 vs. $2,729, respectively.  This is partly due to the massive divergence in luck between the 2 properties.  Our guess is that Venetian held at 13% and suffered roughly an 8% decline in drop while Palazzo got most of the Baccarat volume and held at 30% with drop increasing over 55%.
  • Palazzo is commanding a 6% rate premium over Venetian; not a surprise since the property is newer and rooms are nicer
  • Promotional expenses decreased to 33% of casino revenues from 36% last year.
  • Slot hold % was up materially but some of that should be sustainable given:
    • Shift to penny games from quarters.  Penny games have much higher hold % - mid teens.
    • Pruned video poker mix which has very low hold.  Particularly, they removed IGT “Jacks are Better” full pay games which have hold percentages as low as 50bps.
    • Table win of 23.4% compares to 2009’s table hold of 17% and 2008’s table hold of 20% - so it’s definitely not “normal”.  If we use the company’s 4 quarter trailing average of 17.3%, then casinos revenues would have been $33MM lower.