Wynn Resorts (NASDAQ: WYNN) has been on a growth tear since opening Wynn Palace in Macau two years ago, but that's not the end of the company's ambitions. There's room to expand in existing markets like Las Vegas and Macau, and new markets to conquer like Boston and Japan.
The company's second-quarter 2018 earnings conference call on Aug. 1 provided a lot of insight into how management is viewing growth opportunities and where it's allocating capital for the future.
Macau still has room for growth
Wynn Palace is now Wynn Resorts' best-performing property with $179.3 million of property EBITDA in the second quarter of 2018, but it isn't as big as it can be, given 7 acres of undeveloped land adjacent to the existing site. CEO Matt Maddox stated that he has big plans for the land, with potential for another entertainment feature Wynn Resorts is known for:
Management expects to complete plans in the fourth quarter and present them to the government of Macau. What's interesting is that the development may not include many natural revenue generators if the comments above are any indication. But there may be features that make the resort more attractive overall, which would help attract and keep high-rollers and premium mass-market gamblers at the resort. It's not always the number of hotel rooms or table games that generate value; it's getting more out of a resort by enticing the most profitable customers with beautiful attractions.
Wynn Resorts isn't compromising itself for short-term gains
Competition is fierce in the VIP gaming market, with casinos and junket operators offering discounts and rebates to gamblers. From time to time, competitors dangle significant discounts to draw in gamblers, something Wynn Resorts isn't going to do. Maddox stated:
The theme is that Wynn Resorts isn't going to grow for growth's sake; it wants to generate value by building resorts that offer the best rooms, gambling, and entertainment environment. That's something investors should always keep in mind as companies fight for customers, particularly in Macau's hotly contested gaming market.
How Wynn Resorts plans to grow in Las Vegas
Las Vegas is one of the most static markets in gambling, but that doesn't mean there aren't opportunities for growth. Maddox has taken massive expansion plans that Steve Wynn had designed and reduced them to a blueprint that focuses more on the conventions market while augmenting the existing rooms and gambling at the resort:
The real takeaway here is that Wynn Resorts will be moving billions in potential investment from Las Vegas to other growth markets with better opportunities.
Encore Boston Harbor is in sight
The one new market Wynn Resorts is growing in is Boston, the company's first foray into the East Coast. Encore Boston Harbor is a $2.5 billion project located near downtown Boston that could become one of the top revenue-generating casinos on the East Coast. It may seem like a wild bet to build a casino so far from major markets like Macau and Las Vegas, but if MGM Resorts' success at MGM National Harbor near Washington, D.C. is any indication, this could be a wildly successful project. Maddox said the project is less than a year from opening:
Given that this will be the only casino near downtown Boston, the Encore could expand Wynn's reach into an important market. And diversifying into new, highly profitable markets is never a bad thing for a gaming company.
Making a low-key play for Japan
Some competitors have been embarking on high-profile campaigns for Japan's upcoming gaming licenses, but Wynn Resorts has taken a different approach. The company has held quiet discussions with officials and potential partners rather than being public about its plans. Maddox said the following:
What we don't know is how Wynn Resorts' governance troubles will play into any decision. From an aesthetic and quality standpoint, the company would be perfect for Japan, but if the country is worried about the allegations surrounding former CEO Steve Wynn (even though he's no longer involved with the company), it could hinder the organization's opportunity to win a license.
If Wynn Resorts were to win a gaming license in Japan, it would be a game-changer for the company and stock. Japan is expected to generate $10 billion or more in annual gaming revenue, and with only a few gaming concessions coming available, Japan is a region worth watching for Wynn Resorts.
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