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The Past, Present and Future of Las Vegas Sands Corp. (LVS)

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Gambling giant Las Vegas Sands Corp. (NYSE:LVS) is a perfect story stock. Once battered to the brink of bankruptcy, Las Vegas Sands fell from $140 to less than $2 per share in a mere two years. But just as the market left the company for dead, CEO Sheldon Adelson’s big bets in Macau — the “Las Vegas of the East” — paid off handsomely.

The story of Las Vegas Sands can be split into three chapters: the past, the present and the future. Each chapter takes place in a different location, and gives investors an insight into the evolution of the company, from a domestic casino operator into an international entertainment powerhouse.

Las Vegas Sands Corp. (NYSE:LVS)

The Past: America

Las Vegas Sands’ past is buried in Las Vegas, the birthplace of modern commercialized gambling. Although Las Vegas was once the company’s primary market, its significance has waned, now accounting for less than 18% of its total revenue. Las Vegas casinos recently posted a sur Chinese Government Intervention prising 2.5% recovery in gambling revenue, which slightly moved the needle for Sands’ Vegas properties. But those grand casinos — the Venetian and the Palazzo — are fairly insignificant sources of revenue. In the fourth quarter, those two properties posted a 31% slide to $308.3 million.

Sands also operates a casino resort in Bethlehem, Pa. — an oddball property that nonetheless grew revenue by 15% in 2012.

The Present: Asia

Today, only one major market moves Las Vegas Sands — Asia. Its two primary Asian markets — Macau and Singapore — generate more than 80% of its annual revenue. Sands also has a major edge over its rivals — it is the only Western casino operator allowed in Singapore.

Let’s compare how much Macau’s business has helped Las Vegas Sands, Wynn Resorts, Limited (NASDAQ:WYNN) and MGM Resorts International (NYSE:MGM) over the past five years.

% of Revenue from Asia Number of Asian Properties 5-year Revenue Growth 5-year EBITDA Growth 5-year Return on Investment
Las Vegas Sands 87%
(64% from Macau)(23% from Singapore)
8 227.3% 422.2% 4,350%
Wynn Resorts 69% (Macau) 2 82.07% 115.8% 150%
MGM Resorts 33% (Macau) 1 (51% joint venture) 19.85% -56.45% -133.1%

Sources: Wikipedia, quarterly reports, Yahoo Finance, author’s calculations

It’s clear that increased exposure to Macau over the past five years is synonymous with explosive growth, with Las Vegas Sands being the primary beneficiary.

Macau — a special administrative district of China where gambling is legal — once experienced double-digit revenue growth. Macau generates roughly six times the annual gambling revenue of Las Vegas, and has been the target market for major Western casino companies. Last year, the former Portuguese colony generated $38 billion in annual gambling revenues.

However, Macau’s market is maturing and Chinese growth is slowing. In January, gambling revenue in Macau rose only 7.3% over the previous year. Analysts had forecast 10% to 12% growth. Last December, visits to Macau declined 2% year-on-year.

Another major concern in Macau is the decline of high-rolling VIP gamblers. These affluent customers, which contribute the majority of Macau’s gambling revenue, have steadily reduced their bets over the past 12 months. Casino operators have attempted to offset declining VIP bets by raising the minimum bets on the VIP tables.

For the fourth quarter of 2012, Las Vegas Sands’ seven Macau properties generated $1.97 billion in revenue — a 48% increase from the previous year. Its Sands Cotai Central hotel, which opened last year, is its most recent addition. The company is expanding aggressively into the Cotai district, the new area where its flagship Venetian is located. The company’s newest project, the Parisian, will be completed in 2015 and will resemble a more extravagant version of Caesars Entertainment Corp (NASDAQ:CZR)’s Paris Las Vegas hotel.

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