Aug 20, 2021
[11 min Read]
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Wynn Resorts is a Nevada Corporation that designs, develops, and operates a number of integrated resorts featuring luxury hotel rooms, high-end retail space, dining and entertainment options, meeting and convention centers, and gaming. In China (Macau), the company operates the Wynn Palace and Wynn Macau resorts which they own 72% of. In Las Vegas Nevada, the company owns 100% of Wynn Las Vegas. Additionally, the company is a 50.1% owner and managing member of a joint venture that owns and leases certain retail space at Wynn Las Vegas. In 2019, the company opened Encore Boston Harbor which is an integrated resort in Everett, Massachusetts and 100% owned by the company. In October 2020, Wynn Interactive was formed through the merger of a number of the company's businesses and Wynn Resorts strategic partner, BetBull Limited. Wynn Interactive provides an online collection of casino and sports betting mobile options to consumers in the U.S. and U.K. through its WynnBET, BetBull, and WynnSLOTS brands. On May 10th, Wynn Resorts and Austerlitz Acquisition Corporation announced that they would combine with Wynn Interactive Ltd. to create an independent public company that will trade under the ticker symbol “WBET.”
According to Statista, the market size of the casinos and online gambling sector worldwide is $227 billion. According to the charts provided below, Macau's gaming revenue has historically been in the range of $29 - 47 billion. On the flip side, Las Vegas's gaming revenue has been in the range of $5 - $6 billion. If we compare the gaming revenue that Macau and Las Vegas has had to Wynn's TTM revenue of $6.61 billion as of the end of 2019, we can see that Wynn has a ton of room to grow. Not to mention that Wynn also owns restaurants, retail spaces, clubs, etc. that provide a ton of revenue as shown in the figure below.
In terms of the market size for Wynn Interactive, market analysis company Market Research Future forecasts that the global online sports betting market will grow to become a $59.5 billion industry by 2026. In 2019 the market size was $25 billion, thus this market is expected to grow at a CAGR of 13.6%. In a recent press release regarding the combination of Wynn Interactive and Austerlitz Acquisition, Wynn Resorts stated that “Wynn Interactive currently has market access to 15 states covering approximately 51% of the U.S. population and expects to gain access to additional states in the near-term, resulting in its footprint covering approximately 77% of the U.S. population.” Additionally, they stated that “the Company is well-positioned to capitalize on opportunities to scale in the highly complementary and rapidly expanding online sports betting and iCasino markets, which brokers expect to grow at a 10-year CAGR of approximately 32% to $45 billion by 2030.”
Second Quarter 2021 Financial Results
Note- While writing this post, Q2 earnings came out while I already had written about Q1 2021. Under the “Important Points to Address” section you will find my comments on both quarters.
“We were pleased to see the strong return of our guests at both Wynn Las Vegas and Encore Boston Harbor during the second quarter with Adjusted Property EBITDA at our U.S. operations well above pre-pandemic levels, highlighting the significant pent-up demand for travel and leisure experiences,” said Matt Maddox, CEO of Wynn Resorts, Limited. “While there have been some fits and starts along the road to recovery in Macau, we were encouraged by the strong demand we experienced during the May holiday period, particularly in our premium mass casino and luxury retail segments. On the development front, our WynnBET online casino and sports betting app is currently available in six states with additional launches planned over the coming months. We continue to enhance our product with frequent new feature releases and are advancing our marketing and branding strategy as we approach the upcoming NFL 2021 season.”
Important points to address
Q1 2021 -
As shown from the results above, Covid is still having a large negative impact on Wynn. Revenue was down significantly and this company's financials look bad from a surface level view. However, when comparing Q1 2021 revenue to Q4 2020 the picture looks less gloomy. In Q4 2020 operating revenue came in at $685 million and in Q1 2021 revenue came in at $725 million, representing growth of roughly 6%. While 6% growth isn't a lot, we have yet to see the real improvement which I suspect will be shown in Wynn's Q2 earnings. From what I've seen and heard about Las Vegas, it seems that gaming revenue is picking up. In Macau, gross gaming revenues for the first six months of 2021 came in at $49 billion patacas, representing growth of 45.4% year over year. Additionally, Nevada casinos collected a single-month record of $1.23 billion in gaming revenue in May. The Nevada revenue figure was achieved before the Covid capacity restrictions were lifted June 1st. Considering that news coming out of Macau and Vegas wasn't factored in Wynn's Q1 revenue, I think it's safe to say that we can expect a jump in revenue for Q2. Although, recent news (July 27) came out with regards to the new Nevada mask policy which is likely to hinder growth for the remainder of the year. A local Nevada news article came out saying that,”fully vaccinated Americans in areas with ‘substantial and high' transmission should wear masks indoors when in public as COVID-19 cases rise… most of Nevada falls into those two risk categories.”
The combination of increased revenue due to the mask mandate having been lifted the week of May 10th and the recent news of masks being reinstated in Nevada leaves Wynn's 2021 outlook murky. I can imagine that the recent news with regards to the new Nevada mask mandate and increased concerns of the Covid Delta variant will leave Wynn's stock price suppressed. Revenue will continue to be unpredictable and that's likely what is making investors flee this stock. With that being said, 2024 call options come out in September and any investor who likes Wynn's business fundamentals might want to consider those.
Q2 2021 -
In the recently reported Q2 earnings from Wynn we can see a ramp up in their business. Many of the numbers look quite impressive because they were being compared to the financials during the peak of Covid. From a high level look at the earnings it seems that demand has really been picking up and I suspect that the summer of 2022 is when we will see peak levels of demand. Nonetheless, they still reported an adjusted net loss of $128.7 million, or $1.12 per diluted share. Looking ahead, many of my comments from the Q1 earnings still apply. Although, news with regards to the new Delta strain appears to be getting more views but with the being said, I don't think we will go back into lockdowns. We could see capacity requirements, mask mandates, and more start to be enforced in places with dense populations.
When looking at reviews for the Wynn properties on TripAdvisor, I noticed that they all received 4.5/5 stars or higher and the majority had thousands of reviews. Furthermore, a number of sources such as U.S. News and www.bookings.com rated the Wynn Las Vegas properties extremely well. Multiple Wynn properties have won awards including TripAdvisors Travelers' Choice 2021 (Wynn Las Vegas & Encore Boston Harbor), 22 Forbes Travel Guide 5-Star awards for 2021, and more. In order to get a deeper dive of the properties I've attached the following videos to highlight the attention to detail and sophistication that the designers incorporated.
A number of websites have rated BynnBET with fairly high marks including The Action Network, Covers, and Vegas Insider which scored the platform 8.2/10 , 4.2/5 stars, and 4.5/5 stars respectively. In a review by Action Network they write, “An intuitive user experience makes WynnBET an inviting mobile option, and a simple but intriguing sign-up offer only adds to that invitation. It lacks a bit in its catalog of betting options, but with standard market odds and a highly-recognized name at its back, WynnBET is an all-around solid mobile sports betting option.”
Wynn Interactive to Become Independent Public Company Through Combination With Austerlitz Acquisition Corporation-
Wynn Resorts recently announced that Wynn Interactive, a subsidiary of Wynn Resorts, will be combining with Austerlitz Acquisition Corporation to become an independent public company. Wynn Interactive is a mobile gaming service offering a collection of casino and sports betting mobile options to consumers across the U.S and U.K through its WynnBET, BetBull, and WynnSLOTS brands. The combined company is expected to have a post-transaction enterprise value of approximately $3.2 billion. The business combination will include roughly $640 million of cash proceeds from Austerlitz Acquisition Corporation. Current shareholders of Wynn interactive will retain approximately 79% of the combined business which includes 58% ownership to be held by Wynn Resorts.
“We are confident that this transaction will unlock the tremendous potential of Wynn Interactive to further accelerate growth and enable the business to capture the massive opportunity in North America. Bill Foley is the ideal partner to ensure continued success - his track record with business combinations, extensive experience growing marquee consumer brands and partnering to maximize value in businesses like ours will be invaluable as we continue scaling,”
- CEO of Wynn Resorts and Chairman of Wynn Interactive.
Online gambling is expanding and some iCasino operators even accept cryptocurrency-
The pandemic forced many of the traditional casino operators to embrace online gambling as a source of revenue. In 2021, we can anticipate that online gambling will only continue to get bigger as the effects of Covid still linger. Additionally, the landscape is changing as a number of online gambling sites and crypto casinos have sprung up such as Red Dog, Bitstarz, and Ignition. The appeal of these crypto casino's has to do with the increased security and anonymity that cryptos provide. However, there are also shady crypto casino's that attempt to rip players off with unfair games and high wagering requirements to payout. Another reason that explains why certain casino's are accepting crypto is to cater to the young and more techy gamblers who don't prefer to gamble in the traditional sense. Nonetheless, the combination of technological improvements, the covid lockdowns, and the acceptance of crypto all act as catalysts for the online gambling market.
More states are legalizing sports betting-
As states have seen their tax revenue decrease as a result of the covid lockdowns, they've been looking for other avenues the make up for the losses. Since New Jersey's Supreme Court victory in 2018, any state that wants to legalize sports betting can do so. Currently 22 states have legalized sports betting and 8 states have recently introduced bills. For casinos, the legalization of sports betting means more profits both online and in-person. To show how big the market is, focus on the fact that New Jersey in 2020 alone saw nearly $6 billion wagered on sports with December sports betting reaching just slightly less than $1 billion. According to a report done by the VIXIO GamblingCompliance, they estimate that the U.S sports betting market could generate up to $3.2 billion in revenue in 2021. With only 22 states having legalized so far and many more to come, this market will be seeing some major growth going forward.
The Delta Covid strain effects Vegas & Macau tourism dramatically - The biggest worry that I have with regards to this stock is the effect that the Delta Covid strain will have on foot traffic in Macau and Vegas. The chart below shows us that Nevada has experienced a significant uptick in cases recently and as a result a new mask mandate is being enforced in the majority of the counties. With this news in mind, I think it's safe to say that Wynn's business will need longer than expected to reach prior levels of profitability. With regards to Macau, macaotourism.gov.mo lists a number of restrictions such as not being able to visit if have been to a foreign country 21 days prior, needing to hold a certificate of negative results for a COVID-19 nucleic acid test if you visited Hong Kong 14 days prior to entering, and more. Thus, Macau is in the same situation as Las Vegas and it's even more difficult to track covid cases in that area. Although, the bright side of this is that it is a short-term problem and Wynn will eventually reach peak profitability likely next summer.
Overall, Wynn is a solid business but due to Covid, the business outlook for 2021 is unpredictable. The way I see it is that this business will eventually bounce back and reach profitability by Q1 or Q2 2022. Looking at Wynn's stock chart we're able to see that this business has been quite cyclical and it has traded multiple times in the $90's range which dates as far back as 2006. Wynn interests me as an investment and I actually bought shares during the March crash last year. Those shares I bought in March appreciated roughly 110% before I sold. If Wynn were to hit below $90, I would be interested in buying 2024 leaps which come out September 13th.