Casino company Las Vegas Sands (NYSE: LVS), which sold its Nevada properties and moved all in to Macau and Singapore, announced its third quarter results on Wednesday. But while many other gambling companies are seeing a sharp rebound in 2021, Sands’ sales and earnings results were more reminiscent of the metrics it had seen during the COVID-19 lockdowns in 2020.
That’s in part because of the Chinese government’s restrictions on Macau. The question for investors from here is whether Sands paralyzed himself with his exit from Las Vegas or whether his triumphant resurgence was just delayed. The answer, perhaps, is that the situation is a bit of both.
The latest results from Las Vegas Sands
While the company traces its origins back to the Sands Hotel, the mid-20s on Macau in the early 2000s under the leadership of Sheldon Adelson. After Adelson’s death, the company sold its last major U.S. homes (excluding its headquarters) for $ 6.25 billion in March. The sale included both the Sands Expo and Convention Center and its legendary casino and resort, the Venetian. This effectively ended his American operations; it now primarily relies on its casinos and resorts in Macau and Singapore for revenue.
Image source: Getty Images.
With the dice for this strategic shift, Las Vegas Sands appears to have taken a heavy blow from the Chinese government’s recent Macau shenanigans. A recently proposed new law would tighten Chinese control over gambling in Macau – at the expense of foreign companies and shareholders – and potentially restrict dividends. As predictable to an authoritarian government, the exact details of the regulations remain hidden but appear to seek to diminish the importance of gambling to the Macau economy.
This includes compelling all casino operators to bid for the renewal of their licenses in June 2022 – with no guarantee that they will be granted a renewal of those licenses – the possibility of government officials in casinos with the power to interfere and control operations are stationed, efforts to reduce the flow of money from mainland China to casinos in Macau, and government control over profit distribution to shareholders. Other aspects of the potential new regulatory system could lower casinos’ margins.
The local government in Macau has also responded vigorously to signs of rising COVID-19 cases by repeatedly closing entertainment venues – although casinos have been exempt from some of these week-long mini-shutdowns. The temporary closings affected several Las Vegas Sands non-casino properties there, including a resort and retail hub – The London Macao, its huge luxury mall, The Plaza Macao, and possibly some of its hotels.
In the third quarter, Las Vegas Sands revenue rose 87.9% year over year to $ 533 million, while revenue increased approximately 65.8% for the first nine months of the year. The bottom line, however, was a net loss of $ 495 million. That was significantly less than the net loss of $ 731 million in the third quarter of 2020, but it’s still deeply in negative territory. The company also has $ 14.5 billion in debt versus $ 1.64 billion in cash.
Sands’ latest results are more like what a casino business might have put up during last year’s troubles. It missed the Las Vegas boom that drives colleagues like Caesar’s conversation (NASDAQ: CZR) higher. Caesars’ share price rose 804% over the past five years through mid-October 2021, outperforming the 110% of the S&P 500 by more than seven times. MGM resorts (NYSE: MGM) is also benefiting from the rapid recovery of the Las Vegas Strip. Its stock price, relatively unaffected by Macau-related concerns, is up 231% over the past 18 months.
Will Las Vegas Sands be “very, very fat and happy,” as its CEO claims?
While recent results and the share price are currently overshadowed by the performance of competitors operating in Sin City, the latest conference call on the Las Vegas Sands results contained no trace of alarm or pessimism. Noting that the company is awaiting full reopening in Singapore, CEO Rob Goldstein said “Macau spending has proven … resilient”. Sands’ leadership, he said, is “very optimistic about our ability to operate at pre-pandemic levels once the visits return”. He found that the sale of Sands’ US property provided him with additional liquidity that it could use to bridge future periods of weakness.
Goldstein also said the successful Las Vegas 2021 reopening, well ahead of the 2024-2025 rebound he predicted last year, anticipates a similarly rapid, strong rebound in the Asian gaming market in the near future. Predicting a reopening for Singapore and other Asian markets in 2022, he stressed that given the size of his business in Singapore, Sands can still make $ 1 billion excluding Macau. Even if China is causing regulatory problems, Goldstein says, the markets in Singapore, Japan, Korea and Malaysia are “very, very fat and happy for us”.
Also noteworthy is the fact that while Wall Street was bidding Sands’ stock price down the day after the Q3 report, its stocks fell just over 2% in morning trading. The lack of a more dramatic slump suggests that investors may have already priced in most of the potential downside of the Singapore and Macau situations.
Las Vegas Sands appears to have fallen about as much as expected. Assuming tightened Chinese regulation in Macau doesn’t result in a total gambling ban or something nearly as disastrous, Sands could be set for a scorching bull run once the gambling turns in Asia. Given the high and still rising COVID-19 vaccination rates in Asia, this is likely to be the case next year. The casino company’s stocks are so low right now that they have tremendous upside potential once the rebound has begun, and Sands eventually triumphant recovery.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all reflect critically about investing and make decisions that will help us get smarter, happier, and richer.
