United States gaming operators start releasing their second-quarter earnings on Wednesday and a Bank of America analyst indicated that revenue growth is exceeding expectations. The growth is led by Las Vegas, which continues to be well positioned for a strong second half of 2021.
The report from Shaun Kelley, a research analyst with Bank of America Global Research, said that gaming trends during the second quarter are being driven by healthy levels of consumer spending and pent-up demand for entertainment, reduced COVID-19 restrictions, the rebound of air travel to destination markets like Las Vegas, and the return of older customers.
“We have seen a surge in the Las Vegas Strip spending trends up 18% in June and 3% in the second quarter versus a 39% decline in the first quarter (compared to 2019),” Kelley said.
Kelley cited April as the first month gross gaming revenues in Las Vegas returned to 2019 levels and May as up 27%. He noted that the rebound, in part, can be credited to room rates. Rates were down 47% in the first quarter compared to 2019 and were flat in the second quarter compared to 2019. But so far in the third quarter, they’re up 25%, he said.
Kelley is also bullish on spending in Las Vegas casinos that serve neighborhoods and locals.
“Local spending has accelerated despite a strong second quarter, up 21% on average versus up 13% in the first quarter,” Kelley said. “We’re raising estimates across Vegas and locals materially for 2021 and 2022. For Vegas, we assume higher growth for 2022 over 2019 as group and convention (business) grows and the possibility of more meaningful international visitation. But it assumes some year-over-year weakness in the second and third quarter as we lap stimulus spending.”
In a note Monday from J.P. Morgan that looked at Las Vegas room rates from August 8 through 14, midweek rates are up 54% compared to 2019, while weekend rates are 86% higher. Overall, rates are 66% higher for the week, the report said.
The breakdown by casino company is 62% higher for MGM Resorts International, 60% for Caesars Entertainment, 75% for Wynn Resorts, and 118% for Las Vegas Sands, according to J.P. Morgan.
For the full third quarter, in a reflection of the gradual return of conventions, the J.P. Morgan survey shows rates are still down 4% for weekdays compared to 2019, while weekend rates are up 20%.
“The convention calendar for the period ending August 14 has five scheduled conventions, versus one convention the prior-year period,” the note said. “Looking ahead to the period ending Aug. 21, there are four scheduled conventions, versus one convention the prior-year period.”
In its report, Jefferies Global Gaming cited continued improvement on the Las Vegas Strip, despite a weaker convention calendar and group business. Compared to 2019 levels, June foot traffic was down 23%, after a 30% decline in May. July foot traffic so far looks to be down 20% compared to July 2019, the note said.
“This supports our bullish view on the Strip recovery,” said Jefferies research analyst David Katz. “We expect volume to continue accelerating through the summer.”
Katz added that they expect an even more meaningful recovery for downtown Las Vegas in June and July.
Across the country during the second quarter, domestic gaming trends are exceeding expectations as well. April grew 13% versus 2019. May was up 8% and early reports for June show it’s up 9%, Kelley said.
“The real question is how much of this growth is powered by stimulus and temporary changes and how much is permanent,” Kelley said.
Kelley said investors looked through Boyd Gaming’s “blowout last quarter and Penn Gaming’s (pre-announce), so we expect more of the same, even though we’re taking estimates higher and see some, though not all, of the gains as sustainable.”
Bank of America even rolled out its estimated for 2023. For regional properties, they assumed that revenue will return to a low-single-digit growth rate versus 2022, with operators keeping a large majority of margin gains.
In a note about Macau, Kelley said it remains “a laggard,” as the recovery took a step back in June due to the COVID-19 outbreak in Guangdong in May and local restrictions imposed in late May and early June.
“Sequential trends could bounce back and some local restrictions have been removed, but we expect a slow recovery with limited visibility until full vaccination is reached, likely in late 2021,” Kelley said. “We are lowering second quarter through fourth quarter and lowering 2022 to be down 10%-20% from 2019 levels, with extremely low conviction on a full market and travel reopening. For Macau, we model a step function improvement in the first quarter of 2022 and sequential improvement from there in the mass market, but assume VIP remains significantly below 2019 levels.”
In a note today, Jefferies said the recovering Macau revenue is driven by the easing of Guangdong travel restrictions. This points to pent-up demand, with ease of travel the key factor in driving the next stage, it reported.
“Our primary challenge is that while further easing is likely, its timing is unknown. We note that despite some recovery, volume levels remain less than half of 2019/normal. The next catalyst is Las Vegas Sands earnings (on Wednesday), with focus on holiday forward bookings and the long-term go-forward strategy.”
