New to me
It seems to me that at this time we need education in the obvious more than investigation of the obscure...
—Oliver Wendell Holmes, Jr.
To: Messers Adelson, Wynn, and Ho
Subject: Investor relations 101
From: True believers in your management, your business, and your future performance
- At writing: $100.15
- Day's range: $99.74-$102.67
- 52 week range: $79.77-$109.50
Las Vegas Sands (NYSE:LVS)
- At writing $53.66
- Day's range: $53.35-$54.90
- 52 week range: $41.40-$63.38
Melco Crown (MPEL)
- At writing $17.00
- Day's range: $16.90-$17.14
- 52 week range: $12.86-$20
Let's stipulate first:
1. Neither I nor anyone else presumes to speak for all of your shareholders. The views expressed here reflect my own and many of the followers of my articles on Seeking Alpha.
2. This is not a call for you to don a carnival barker's straw hat, a cane and striped jacket and get out and hustle your stock.
3. We totally understand that the stock market is comprised of many investors who all share a single purpose: To take money off the table however, and whenever it makes financial sense to them. The spectrum of your investors runs from long term institutional and retail holders who are solid believers in you, your management teams and business models to day traders, electronic trading gadgeteers, and options strategists. There clearly are players in your shares who have recognized and act upon the knee-jerk trading patterns. Fair is fair, we all love free enterprise and if they have the risk profiles and bankrolls to play that game regularly, more power to them.
Nobody knows better than you guys how the trading patterns in your shares are reflected by the news out of Macau, especially over the last two years. The short term trading ranges of your shares gyrate instantly on news, good or bad, on the reports out of the analyst communities, which have a proclivity to always insert a negative in and otherwise positive view for self-protection. Again, fair is fair
Anyone who doesn't absorb even good analysis of Macau-centric stocks with a very healthy grain of salt is going to get heartburn. A quick review of analyst reports over the past two years reveals a so-so track record in forecasting overall. Not their fault, the herd mentality is an occupational hazard. Their need to stay on the right side of companies they cover. Listening to earnings calls where mostly softball questions are lobbed at your management. proves that. No problem with that. Like the rest of us, analysts have their good days and bad days.
Yet I perfectly understand that those professionals who follow your stocks can neither be seen as management kiss-ups, nor harsh skeptics on mere principal. I read those financial journalists who follow the industry as well. They have their own hobby horses to ride and that too is fine. All have their metrics and their algorithms. I have mine from a somewhat different perspective. I'm a guy from your own business.
I've followed the flow of reports and articles on the Macau gaming sector stocks since 2014. Ever since the Chinese/Macau governments ignited the junket crackdown in February of 2015 and subsequent policy diktats on money laundering, ATM withdrawals (which turned out to be wrongly reported) smoking, limitation of table assignment numbers on new properties. In those reports I've noticed a consistent preponderance of forward projections that together still seem skeptical about the great Macau experiment.
Bearish sentiment triggered with good reason between February of 2015 and at least until August of 2016 lingers on. And it remains a staple part of reporting on the sector both by professionals and financial journalists. Even when a clear pattern of recovery in the market's GGR ever so tentatively began with a 1.1% upside last August and blew forecasts out of the water last month by posting a 17.5% GGR increase, nearly double analyst consensus negativity lingered.
Seven straight months of recovery and yet there are still non-believers out there fueling the bearish in and out traders. So the shares ticked up a day, then fell back exhibiting a pattern that indeed, reflected some profit taking, short covering, etc. But mostly one drew from the powerful results the consensus view that yes, it was a great month but don't forget you had Chinese New Year (Only a stub of 2 days) and a celebration event by a major high end junket operator which may have distorted results on the VIP upside.
We're not here urging you to cheerlead. We are urging you to speak up loud and clear when you get seven straight upside months of recovery and more to come.
The essential truth is this: No matter what caveats we read on the commentary of events good or bad, here's the truth:
1. The Macau market's recovery is real. The VIP vs Mass mix has changed yet VIP is likewise making a comeback.
2. The market has absorbed two major property openings since last August and September and both are doing well. There has been some inter-property crossover but as we have pointed out in previous articles what difference does it make? If a Wynn Macau VIP added an extra trip from that property to see Wynn Cotai and lost $50,000, it's just a matter of the money moving from one pocket in the same pair of pants to the other. isn't it?
3. The two new properties brought a much needed increase of over 4,000 rooms to the market converting a segment of day-tripping customers to overnight patrons who contributed significantly more to GGR and REVPAR. As is always the case when total rooms are added into a gaming town, there is more competition for bodies and by extension, average off peak hotel rates go down. But Macau occupancy remains high, from the high eighties to the low nineties percentage-wise. This proved beyond question that the cannibalization threat touted by many observers has not yet materialized and for all intensive purposes has become something of a non-issue going forward.
No question that the vitality or lack of same in the macro Chinese economy will have it's say here. Nobody, even the most astute analysts of the market, can forecast what impact the dozens of factors that comprise that economy's GDP, will have on visitation to Macau going forward. Some economists fear the Trumponomics effect, others worry about the ghost cities of empty new residential towers all over China, still others fret about yet more about anti-currency flight and manipulation regulations. Just today the Wall Street Journal weighed in on the tired bugaboo about concession renewal uncertainties. Where have we heard that old tune played before? You might as well throw the long term weather forecast for typhoons this year to such a palette of consideration. But the one inescapable reality is that the depth and future of the Macau gaming market will continue to auger well for smart operators offering great product to consumers.
Other than that a great deal of what you read to support buy, sell or hold decisions on gaming stocks are at best, educated guesses not gospel. Yet at times it appears that gaming shares do trade on the gospel of what this analyst wrote or that government official vaguely suggested about the smoking ban.
In the words of the great screenwriter William Goldman, who, once asked what guarantees a hit movie, he replied in his book Adventures in the Screen Trade, "Nobody knows anything. Not one person in the entire motion picture field knows for a certainty what's going to work. Every time out it's a guess and if you're lucky, an educated guess." And this after a quarter of a century with Goldman having written movies like Butch Cassidy and the Sundance Kid, All the President's Men and Marathon Man, among others.
And the precisely same answer applies to gaming: Will the GGR continue its happy recovery? Probably. Will the Market continue to demonstrate it can grow back to anywhere near its 2013 high? Very possibly, even higher in the minds of some developers. All we have is educated guesses to guide us sensibly. The knee-jerk push and pull over news out of Macau distorts the enduring educated guessing.
And that's what warrants the attention of gaming CEO'S with billions of dollars of skin in the game.
Time for gaming CEOs to be heard between earnings calls
Observing the trading patterns of Macau-centric gaming stocks since late 2014, it's become apparent to me that the game is afoot between short in and out players who have recognized that a reliable short term spread on news appears to haunt this sector to a much greater extent than the average industrial or service industry stock. That's fine. If there's an Alpha in hiding there, great. However, it appears to me to be a game with only one side on the playing field while the other, namely the long term holders, have no squad on the field to spread the good news in a regular, responsible way to give them a continuing rationale to see the shares as solid, long term investments.
Right now we usually have to wait to hear from CEO's in the sector during earnings calls four times a year. In between we'll get an occasional cheer-leading comment when a new show is mounted, a tower planned, or for a lobbying effort in a new jurisdiction. For the most part whatever else emanates from the company comes in the form of press releases on the website. We opened this new restaurant, we are proud to have been named worthy employers by this organization or that, or contributed to this charity or that to foster better this or that.
It's not enough. If you analyze who it is that gives ballast to your share prices in the market over time, it is the true believers in your management and your product. It's those investors who see more money accumulating on the table by keeping your shares than by selling them out of fear or uncertainties emanating in the media.
As a CEO you owe more to your long term shareholders than a quarterly earnings release appearance, a few cheer-leading statements and a periodic expression of support for some pet project. This doesn't imply that your long term holders expect you to call a press conference every time you open a new $12.95 buffet extension, or add 150 experimental skill-based slot machines to your casino floor.
What is owed is a far more strategic approach to investor relations that not only backs up your performance gains but that deals with the constant barrage of negativity that often accompanies even so called bullish outlooks on your shares.
Your shareholders do not expect you to make Cassandra-like pronouncements about company prospects. They fully understand that at best, you too are making very educated guesses about the impact of news and events on a regular basis. You are not being asked to subject yourself to bloviating or caught out on blue sky forecasting. Leave that to the media.
This most recent blowout result from Macau is a perfect example. The Macau-centric sector shot up overnight then settled back. That's fine, it's the market. However when you scan the analysis of the continuing recovery in the light of this outstanding performance, you cull out the bits and pieces of negative what ifs as well. And that's where you need to get out there and go public.
After seven straight months of steady recovery you know what you'll see going forward. Too many observers will opine, yes, February was great BUT- tra la, tra la, tra la, the sky could be falling too. Having that expectation, what was needed was a press conference, big or small, or a high visibility interview in which you commented on the positive trends and rebut some of the lingering negativity on your company and the sector. A 17.5% spike yoy is indeed something worthy of a good, loud crow. Hearing this from you would magnify the confidence of your long term holders that yes, finally the company has put a team on the field and the home run hitter in the middle of the lineup came up to bat.
Not at bat every day, nor every week, nor every single month. But when events call for a strategic investor relations move to lay out the facts as you see them and not wait until the next earnings call to weigh in. Earnings call transcripts rarely have the impact they once did in this world of instant up and down sentiment that haunts the daily trading patterns of shares in the gaming sector.
You guys were smart enough, nimble enough, gutsy enough to have put your money where your mouth was since 2002 to build the Macau industry. Now it's time to put your mouth where your money is and not cede the valuation game to short term traders.
Author's note: My own gaming stocks are held in a blind trust for my children and grandchildren so as to avoid potential conflicts of interest with publicly traded casino consulting clients.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.