Is It Time for This Casino to Change Management?

Shares have traded down nearly 30% in the past year, most of its operations are in a region that is experiencing a severe downturn, and its largest domestic market is tepid at best.

There are a lot of negatives dogging Las Vegas Sands at the moment. As ever, when a company struggles, it is natural to question the abilities of its top executives.

So, let's open this can of worms: Does this casino operator need to cash in its chips for fresh management?

Source: Thomas van de Weerd

Macau meddlingOne important thing to keep in mind when considering that question: Many of the current challenges Las Vegas Sands faces are no fault of its own.

In spite of its name, the majority (around 65%) of Sands revenue comes from the Chinese enclave of Macau. All told, the Macau properties collectively brought in over six times the take from its Las Vegas facilities.

It is a major bet on a single region, and it is no winner at the moment. Last year, as part of a broader anti-corruption initiative, the Chinese government began to crack down on the VIP segment of the Macau gambling scene.

Unfortunately, those high rollers were fueling the market and its previously rapid growth. In the wake of the crackdown, their retreat has hit the region hard. During the fourth quarter of 2014, for example, total gambling revenue dropped 24% year-over-year to $9.4 billion.

Such results were enough to produce the first-ever annual revenue decline since the government monopoly ended in 2002. For the entirety of 2014, Macau gaming revenue slumped about 3% to $44 billion.

Know when to hold 'emDespite the downturn, Las Vegas Sands managed to increase its revenue in Macau, delivering annual growth of 6.8% in 2014. Only one of its four properties there saw a decline for the year.

Total revenue rose 5.9% in 2014 to $14.6 billion -- that was in the face of not only the Macau weakness but a 2.6% drop in revenue from its namesake market of Las Vegas.

The saving grace was an unexpectedly strong showing from Marina Bay Sands during the fourth quarter. This is the flagship property in Singapore, and one of only two casino resorts on the island nation.

Marina Bay Sands revenue soared 27% year-over-year during the quarter, helping to deliver 7% annual growth. This made Singapore the fastest-growing single market for the company last year.

Las Vegas Sands has also done a good job growing its non-casino offerings, particularly the shopping and convention segments. These auxiliary businesses are not nearly as large as gaming, but they do help push the company into positive growth territory.

Shopping mall sales rose 15% to $553 million in 2014, while "convention, retail, and other" revenue increased 7% to $515 million.

Thinking outside the casinoThese developments show that Las Vegas Sands management has been clever and opportunistic with company strategy.

Though a bit too dependent on Macau as the main revenue generator, the company has quickly moved to diversify both its segments (retail and convention) and geography (Singapore).

Neither was a particularly intuitive move, given the white-hot growth in Macau prior to the government crackdown. Las Vegas Sands could have closed its eyes and coasted on what seemed to be one winning year after another. Instead, management sought out other opportunities and used them to counter weakness in their most important region.

It will continue to seek out these opportunities. For example, its Parisian Macao resort, slated to open next year, will feature plenty of retail space where shoppers can spend their winnings.

Meanwhile, the company is eyeballing Japan as the next big Asian market, even though it is far from guaranteed that the ambitions of some lawmakers to legalize gambling will be realized soon, if ever.

Stay in the gameAll of this is to say that Las Vegas Sands has done fairly well given the recent market conditions.

Management appears to have clear objectives, thinks well ahead (and creatively) in terms of strategy, and has the ability to grow its business in adverse conditions. Those conditions are unlikely to improve in Macau anytime soon, but considering the recent financial results, I believe it will continue to weather this storm.

All things considered, Las Vegas Sands should enjoy favorable odds with its current leadership.

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