Las Vegas Sands Corp

Moat: 1/5

Understandability: 2/5

Balance Sheet Health: 2/5

Las Vegas Sands Corp (LVS) is a global developer and operator of destination properties primarily in Asia and the U.S. Its resorts feature accommodations, gaming, entertainment, and retail offerings.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

Las Vegas Sands Corp (LVS) operates as a leading global developer of luxury integrated resorts in the following areas:

  • Macao: This area generates the most revenue for the company. The Venetian Macao, the Londoner Macao, and the Parisian Macao are all a part of the portfolio.
  • Singapore: The Marina Bay Sands has a large market share in Singapore.
  • United States: LVS owns and operates The Venetian Resort and The Palazzo on the Las Vegas Strip, in the U.S.

LVS’s operations are mainly focused on gaming and revenue generation through their resorts.

Revenue Distribution:

  • Casinos: The majority of the company’s revenue comes from casinos.
  • Rooms and F&B: A significant portion of revenue also comes from rooms, food and beverages, retail and other entertainment revenues.
  • Mall: Malls also contribute to overall revenue.

The revenue mix varies considerably by geography, with the Macau operations deriving the biggest share of revenue from casino operations, whereas Singapore has a more even spread between gaming and non-gaming operations.

Industry Trends:

  • The casino and hospitality industry is highly competitive, characterized by intense rivalry.
  • Emerging markets like Asia, particularly Macau and Singapore, have become key growth areas for the casino and hospitality sector.
  • Increased consolidation in the industry through mergers and acquisitions.
  • The trend toward integrated resorts that offer a mix of gaming, leisure, and business facilities continues.
  • The online gaming industry has been a disruptive influence, but LVS has a limited presence in this sector.
  • There are geopolitical risks and regulatory hurdles (like the recent Macau Covid restrictions) that influence the sector.
  • The industry tends to be sensitive to economic conditions as customers are more price sensitive during economic downturns.
  • The luxury brand and reputation are significant factors in creating an economic moat. However, in hospitality, this does not guarantee success.

Competitive Landscape:

LVS competes with a diverse set of firms, including:

  • Other large multinational integrated resorts and gaming companies, such as MGM Resorts International and Wynn Resorts.
  • Regional and local gaming operators.
  • Independent hotels and resorts.
  • Online gaming providers.

What Makes LVS Different:

  • Integrated resorts: LVS is mainly focused on its integrated resorts which provides luxury and non-gaming facilities like malls, convention centers, theaters, fine dining.
  • Strong presence in Asia: LVS has an excellent and leading market position in Macao and Singapore, which are key growth areas.
  • Strong brand and experience: LVS is one of the leading integrated resorts in the world and boasts a very high brand equity.

Moat Assessment:

LVS has no significant competitive moat that can be counted on to achieve above-average profits over a sustained period. Below is my reasoning and assessment of each of the different categories of moats.

  • Intangible Assets: The company does have a strong brand name. However, other hotel groups like Hilton, Hyatt, and Mariott also have great brand recognition and are equally able to attract customers. Its brand does not allow it to charge prices significantly higher or sustain profits much longer than its competitors, which are primarily other big names in casinos/integrated resorts. Also, a lot of value derives from the specific properties where LVS has a high degree of dependency.
  • Switching Costs: The cost to switch from one hotel or casino to another is minimal and mostly dependent on the pricing as well as convenience, the loyalty program for the various chains only gives a small push to remain loyal and is easy to move from one to another.
  • Network Effects: No network effect, the value of their properties or services does not increase based on the number of customers, they are used by one person or group only.
  • Cost Advantage: Does not have a significant cost advantage over other integrated resorts. They may be able to leverage existing relationships and business processes to streamline operations, however, these cost savings are not unique and other competitors also have their own methods to lower their costs.

Moat Rating: 1 / 5

I’m giving LVS a moat rating of 1, because although they are a well known brand, there’s little to stop the competition from achieving the same results. Also, other competitors also offer the same level of luxury and integrated resorts, which creates very little moat and competitive advantage for the company.

Risks to the Moat and Business Resilience:

  • Regulatory Risks: Changes in gaming regulations or tax policies in Macau, Singapore, or the U.S. can severely impact LVS’s revenue or increase their operating costs.
  • Geopolitical risks: LVS has a high risk of geopolitical risks since they mainly operate in Asia, which has many geopolitical tensions.
  • Economic Downturns: A decline in economic growth, particularly in Asian markets, could reduce consumer spending on gaming, lodging, and leisure activities, which in turn could reduce LVS’s earnings.
  • Increased Competition: New entrants into the market and the expansion of established companies could increase the competitive pressure, resulting in lower profit margins and market share loss.
  • Operational Risks: LVS faces operational risks because of its sheer size and also due to the wide range of activities it has to manage, such as gaming, non-gaming operations, events, customer service, etc. A failure in any of these can impact the business significantly.
  • Inability to maintain and increase its profitability: High ROIC, or profitability, depends on how well LVS manages its cost structure, and how well its properties perform. This is where competitors can out-compete them, by creating new offerings, or delivering better value propositions to its customers, which would result in LVS’s profitability to drop.

Overall, LVS’s business is exposed to a variety of risks, some of which are difficult to predict or mitigate. However, the company’s leading position in luxury integrated resorts provides some protection against the competition.

Financials (In-depth analysis, with justifications):

LVS financial statements are complex due to operations being both in USA and Asia, especially when a large portion of their revenue comes from non-US operations, like Macau and Singapore. The financials are also quite volatile because of fluctuating macroeconomic conditions, currency changes, and fluctuating customer discretionary income. We will analyze their performance and find insights into the financials below.

  • Revenues: In the three months ending September 30th 2023, net revenues increased by a substantial 20.8%, reaching $2.58 billion, up from $2.14 billion in 2022. The revenue growth can mainly be attributed to the improved market conditions in Macau, which has benefited from the easing of COVID-19 restrictions. In Macau, net revenues increased by 27.4%, reaching to $1.60 billion, and operations are almost fully recovered from the previous downturn. In Singapore, their Marina Bay Sands property saw a 15.5% decline in revenue YoY, partially due to a reduction in non-premium play. There’s not much discussion of US-operations, but due to the company’s main focus being in Asia, it is not prioritized. Despite having only a small percentage of business operations in USA, there are risks of local economic conditions that affect their operations, like increased competition, changes in spending patterns, and reduced traffic from local customers.
  • Expenses: While LVS saw growth in their revenues, they also saw an increase in operating costs, primarily due to increasing casino, retail, and food and beverages expenses due to higher demand. The operating expenses also increased by 18.7% YoY to $2.2 billion. These figures clearly show that their operating expenses, while high, are still less than their revenue, allowing them to make profits. These expenses should be monitored as if they keep growing faster than the revenues, it will pose a problem for the company.
  • Income: Earnings from operations totaled $385 million in the three months ended September 30th 2023, an increase from 2022 when it was a loss of $389 million. This improvement is again tied to the improved operating results of LVS. The huge fluctuation of the company’s profitability also reveals the volatility in the gaming and integrated resorts industry.
  • Balance Sheet: They have a lot of goodwill and acquired intangibles on their balance sheet, totaling $10.25 billion and which makes up nearly a third of their assets. LVS has total assets of $30.5 billion with total liabilities of $19.9 billion. One of the concerning parts of their balance sheet is the massive debt, which is $11.7 billion.

The large amount of debt is concerning as their interest payments will eat into the profits and also reduce flexibility with respect to future investments. The debt-to-equity ratio of the company is nearly 400% which is quite high, considering that their assets are not completely risk-free as they are tied to real estate and infrastructure. LVS must improve its cash flow to repay some of the debt, or refinance it, to maintain a healthy balance sheet. The increase in the company’s revenue combined with their high debts also makes the company volatile, so in the case of economic slowdown or black swan events, the company’s share price can take a hit.

Understandability Rating: 2/ 5

I am giving this business a 2 out of 5, mainly because of how interconnected and spread the business is, which can make it difficult to analyze. Also, the company operates in multiple jurisdictions with each having its own regulations and tax laws, making financials more difficult. The number of moving parts in the business is just too high to give it an easier rating.

Balance Sheet Health: 2 / 5

Based on analysis of their debt, and overall liquidity of the company, they get 2 out of 5. Their high debt means there is too much financial risk which has the potential to significantly damage the share price of the company, as well as reduce overall profitability. They must focus on lowering debt to improve the overall health of the company.

Recent News and Concerns

  • China’s Economic Slowdown: The Chinese economy is facing some headwinds such as weaker domestic demand, which could adversely impact the market in Macao.
  • Geopolitical uncertainties: Relations between countries, especially the tensions between USA and China could be an impediment to tourism and also business profitability.
  • Changes in COVID restrictions: The changes in Covid regulations are still possible which will have impact on the company’s operations.
  • Lower-than-expected Singaporean Revenue: The company experienced a downturn in revenue in Singapore, which is quite surprising considering that the overall Asian market has recovered from the COVID-19 downturn.

Despite these concerns, management appears optimistic about future operations and growth in Asia, especially from the Macau region, and has plans in place to tackle these challenges, which includes expanding current properties and adding new offerings. However, many macroeconomic and geopolitical issues are out of their control.

The share price of LVS can be highly volatile, and one must account for these risks before investing in this company.