Melco Pilfers Macau Market Share From Rivals in Tumultuous First Quarter

Posted on: May 18, 2020, 11:38h. 

Last updated on: May 18, 2020, 01:11h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Melco Resorts & Entertainment (NASDAQ:MLCO) won Macau market share from rivals in the first three months of this year. That’s despite what was a volatile period for operators in the world’s largest gaming hub.

Melco Takes Macau Market Share
City of Dreams operator Melco stole market share from rivals in Q1. (Image: Wall Street Journal)

Like other Macau concessionaires, Melco reported dismal first-quarter results due in large part to a 15-day February closure of gaming venues there forced by the coronavirus. The company’s other integrated resorts, including those in Asia and Europe, were also shuttered because of the pandemic. Still, the City of Dreams operator made inroads against competitors.

Melco’s Macau operations took 21.4 percent market share in the first quarter, versus 15 percent in the first quarter 2019 and 17 percent in the fourth quarter 2019,” according to Bernstein research.

In addition to City Dreams, the company runs Altira Macau and Studio City in the Special Administrative Region (SAR).

Broad-Based Gains

Because of still-imposed travel controls stemming from the COVID-19 pandemic, Macau’s gross gaming revenue (GGR) is in dire straits to this point in 2020. This month is shaping up to be as dreadful as the previous three.

After declines of roughly 88 percent, 80 percent, and 97 percent in the February through April period, GGR on the peninsula was off 95 percent year-over-year through the first 10 days of this month. That confirms that lifting of travel bans with mainland China, Hong Kong, and Taiwan is essential to rejuvenating Macau’s gaming-dependent economy.

Even with those headwinds still lingering, Melco made gains among both VIP and mass market players in the first quarter. That’s a potentially positive sign for the operator going forward, because analysts are speculating the high roller segment will bounce back faster than ordinary gamblers.

“We estimate Melco [Resorts] gained share in both VIP and mass,” said the Bernstein analysts.

By the research firm’s account, high-end players accounted for 30 percent of Melco’s first-quarter GGR in Macau, up from 16 percent a year earlier and 20 percent in the prior quarter.

What’s Next

Recently, Melco is on the receiving end of some bullish analyst chatter, with some covering the company calling it one of the more attractive Macau names, citing the aforementioned VIP exposure and compelling valuations.

Last week, Nomura Instinet boosted its 2020 earnings before interest, taxes, depreciation and amortization (EBITDA) estimates on Melco due to reduced cash burn and a low bar to return to break even levels.

The Instinet analysts say Melco is burning $2.2 million a day to keep its Macau operations running, and that the company likely needs just 35 percent of its pre-pandemic revenue to avoid losing money. The research firm believes Melco could be looking like its 2019 self again early next year.

Consensus among analysts covering Macau concessionaires is that GGR will rebound soon after travel bans are lifted, and that the fourth quarter of 2020 will be the earliest that any year-over-year gains will be seen.