Wynn Resorts (NASDAQ:WYNN) is a high-end hotel and casino operator. The company has built itself into an iconic brand through its unique style and hospitality Wynn. Wynn is strategically place in both the highest revenue gaming destinations in the world, with a combined 5 hotels in Macau and Las Vegas.
The company’s stock nearly tripled from through the last decade on the back on robust growth from the Chinese market. Sadly the stock gave up most of that momentum due to internal scandals. As the new decade began, the company was looking to recover lost ground and seize new growth opportunities, however, the spread of the coronavirus has pushed the sector into a slump that might take years to recover from.
As the business model of gaming resorts thrives on mass gatherings of people, the fear of contamination has largely kept crowds away from the tables. Also, gaming resorts are heavily dependent on air travel due to their presence is concentrated in destinations such as Macau and Vegas, and not in mainstream cities. As social distancing becomes a new norm globally, it is unlikely that consumer demand will return to the sector until a vaccine is developed and administered globally. Investors are also worried about a looming recession as jobless claims in the US go through the roof.
This week, the US declared a 16% drop in retail sales figures, which is a widely considered gauge of consumer demand and sentiment (CNN). With gaming resorts being strictly non-essential expenses for the general public, the sector faces a long journey to recovery. The company has already experience two weeks of shutdown in February in China and a nearly 10-week shutdown in Vegas. In a large scale hospitality business like gaming resorts, shutdowns are not met with proportionate reductions in operating costs.
Secondly, Vegas resorts are heavily dependent on large business gatherings and conventions, such as the annual CES, for revenues. As work-from-home becomes a norm, investors are worried that the landscape of business travel and events might have permanently changed (PCMA). In a research survey conducted by EY, business event industry players reported cancellation of 87% of planned guests for the year and 66% of hosts have postponed events till further notice. (EY)
The company reported a 42% drop in revenue in Q1 and a cash-burn of nearly $1 billion per quarter. The company currently has $2.9 billion of liquidity. Wynn expects another $600 million from a bond offering, after which total liquidity should be about $3.5 billion. Hence with three quarters remaining, the company could burn through 75% of liquidity if demand doesn’t improve significantly. On top of that the company has about $630 million of principal repayment/interest expenses due this year and about $380 million of other obligations. (SEC)
Hence, taking into account long term debt and the current balance sheet position, the company is hugely dependent on return of demand.