January 16

Steve Wynn Burns The Shorts

Wynn Resorts pre announced Q4 2015 earnings yesterday, 3 weeks earlier than expected. Results were relatively in line with expectations, which surprised investors and sent WYNN up 13% by the close. The stock built up a short interest of nearly 20% in the last few months, sending bearish speculators rushing to cover their positions. Las Vegas Sands also rallied off recent lows, rising 4% by the end of the day.

Recent turmoil in Chinese stocks and the Yuan hit Macau casino operators hard, pushing the sector down nearly 10% on January 12th alone. These movements were based on the assumption that a weaker macro environment and financial market sentiment will mean less gamblers at the tables in Macau. The Wall Street Journal put out an article a week ago stressing the massive amount of table capacity coming online over the next year, which includes Wynn Palace that is currently schedule for a June 2016 open.




Looking through the details of Wynn’s actual results, it is easy to see why shorts got nervous. Macau VIP betting increased quarter over quarter by 7% to $13.03bn, after falling 21% in Q3 as junkets faced tight liquidity and police scrutiny. This minor recovery in VIP betting sends a strong, albeit temporary signal that junkets have stabilized and high roller betting is not totally dead. Mass market betting has been stable at $1.19bn for three straight quarters now. Revenue at both Las Vegas and Macau operations fell 5% QoQ, but EBITDA rose 8.5% in Vegas and fell only 1.7% in Macau. Adept management deserves credit for increasing gaming margins as Steve Wynn clearly made good on his promise to “raise the price of gaming” by implementing rule changes. This bumped up Q4 Las Vegas  table win percent to 28.7% from 24% a year ago. Wynn Resorts is now able to win more of the same amount of bets, competitors are likely to copy these adjustments.

Wynn has shown they have the ability to execute in a tough market, especially as the Yuan fell 4.8% between the August 10th devaluation and the end of the year. The fact that betting has held up shows that Macau may be more resilient to Chinese macro developments than previously expected. This sector will continue to be stalked by bearish speculators looking to bet on what seems like an inevitable devaluation of the Yuan, but Friday’s move shows they need to be quicker than usual to take profits because its a crowded trade at this point.


Offshort Yuan (USD/CNH)