Macau continues to weigh on gambling stocks
When the pandemic started, few thought it would last until 2020 and 2021, especially in parts of the world where outbreaks have been contained. But we have seen in Asia that the travel limits that have been key to the containment have also meant fewer visitors to Macau, although the restrictions have slowly been lifted.
For casino companies with stations there, like others consumer discretionary stocks, the impact was devastating. Sands of Las Vegas (NYSE: LVS), Wynn Resorts (NASDAQ: WYNN), MGM Resorts (NYSE: MGM), and Resorts in Melco (NASDAQ: MLCO) all are bathed in red ink and hope that operations will recover. The revenue recently released in November doesn’t show much light at the end of the tunnel, and it’s unclear when the game will rebound in the region.
Macau’s recovery is running out of steam
In October 2020, Macau’s gambling revenue jumped more than 200% from a month earlier at $ 910.8 million. This is the best result since January, when restrictions on travel and gatherings began in China and Macau. The hope was that a recovery had started.
But the recently released figures for November 2020 weren’t particularly promising. Gaming revenue was just $ 845.4 million as of the month and is now down 80.5% for 2020.
Investors are looking for signs that Macau’s gaming revenue will start on an upward trajectory. But whenever there are signs of life, it seems the recovery is being delayed.
Will a vaccine save the day?
It is clear that current travel restrictions like the need for a recent COVID-19 test, visa limits in China, or bans by certain countries from entering Macau are going to limit the benefits for casinos. It will only be when the pandemic is over, that is to say that a vaccine is widely administered, that a real recovery can be expected.
China, Hong Kong and Macau have all been willing to allow visitors with negative COVID-19 tests, so it’s plausible that they will allow travelers who can prove they’ve also received a vaccine. If the vaccine is widely available by mid-2021, as hoped, we could see gaming revenue return to more normal levels.
What we don’t know is whether there will be a slow surge in demand or a pent-up rush in Macau. Given the cautious nature of Asian governments around COVID-19, it’s likely we’ll see the restrictions last longer than in the United States, but with low infection rates the floodgates could open when the travel restrictions will be lifted.
An uncertain future
The backdrop for the slow recovery in Macau and the potential for months of extremely weak demand is that gambling stocks have not lost as much value in 2020. Income may be down 80% or more, but MGM shares are down less than 10%. this year and none of the US-listed companies with casinos in Macau has fallen more than 22%. The market is clearly anticipating a long-term recovery – we just don’t know when it will come.
Betting on gambling stocks today is betting on the future of Macau. But until we see a pick-up in gambling revenues, investors will be disappointed with the cash generated by the world’s largest casino stocks.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.