Posted on: January 26, 2021, 10:29h.
Last updated on: January 26, 2021, 10:29h.
Gaming companies and investors looking to assess the rebound trajectory of Las Vegas can glean insight from internet search trends.
In a note to clients, Macquarie analyst Chad Beynon points out that near-term “looks and books” aren’t encouraging due to COVID-19 protocols, but there are some green shoots in the medium-term data.
In December, ‘looks/books’ slid year-over-year vs. November, but month-over-month searches (+9.5 percent) had the strongest growth in 21 months,” said the analyst. “We still believe there be no meaningful pick-up in demand until the second half of 2021 when vaccine access is widely available.”
As the two largest Strip operators, MGM Resorts International (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR) are often viewed by analysts and investors as beneficiaries of widespread vaccine rollout. Beynon estimates total Strip revenue for the fourth quarter will decline 50 percent to 60 percent with improvement arriving in the second quarter.
“Consensus expectations are looking for revenue from the four public operators to fall 48/25/37 percent in the first of 2021, the second quarter and for the year over the respective 2019 levels,” notes the Macquarie analyst. “Our house call in a bull case scenario to break even (sic) in 2023, over 2019.”
Inklings of Recovery
Search data analyzed by Macquarie indicate travelers are still reluctant to visit Las Vegas anytime soon. In December, looks and books for 30 and 60 days out tumbled 32 percent and 18 percent, respectively, according to the research firm.
It’s not all glum news. Searches for trips 60 to 90 days increased for the second consecutive month in December, rising 7.6 percent year-over-year. Beynon says that’s a sign consumer demand could perk up in the April through June period. That jibes with a recent survey indicating business travelers are longing for in-person conventions — another positive for Las Vegas.
Sin City is the largest domestic gaming hub. As such, it’s considered a “destination market” — one that’s heavily dependent on visitors arriving by commercial jets and one reliant on convention business. Due to those factors, analysts long favored Macau and regional operators as rebound plays over Las Vegas-centric counterparts.
How to Bet on Vegas Comeback
Beynon says Macquaries preferred way to play the Strip recovery is MGM. He forecasts earnings before interest, taxes, depreciation and amortization (EBITDA) declines for the Bellagio operator over the next three years, but his estimates are more positive than consensus.
He believes Caesars will follow a similar trajectory and that the Harrah’s operator will notch earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) growth in 2022 and 2023.
Due to convention business that remains almost non-existent, Beynon is less enthusiastic on Las Vegas Sands (NYSE:LVS) as a Strip rebound idea. The analyst notes weekend occupancy at the Venetian and Palazzo is running 20 percent below that of Caesars venues.
The bulk of that operator’s EBITDA and revenue is generated from its five Macau integrated resorts and the Marina Bay Sands in Singapore.