Wall Street on Steroids in Macau

It is often argued that Wall Street is the cause of many of the worst of modern business practices. It is the world of Wall Street that puts a constant pressure on all publicly traded companies to increase earnings and profits every quarter; that pressure creates a culture of short-term, impatient for profit management.  The term Wall Street itself is a convenient label for an intellectual construct of mythical proportions.  Wall Street is a vague term; it implies a living, breathing, thinking and very demanding being that speaks in a very clear, unified and precise voice.  In practice, the voice is not unified, clear or precise. Rather, it is a tower of babel built of financial analysts trying to make sense of the often chaotic environment of buying and selling of shares.

The analysts provide the media with day by day – sometimes even hour by hour – interpretation of the causes for the ups and downs of the market’s major indexes.  But their primary job is to study industries and individual companies;  what they learn is meant to benefit their investment clients and of course to give the press a sentence or two to accompany the ups and downs of the major indexes.  For the analysts the big prize is correctly predicting the gross earnings and the profits of the companies they follow; not that they are punished for being wrong – in a bizarre twist of fate, the companies are penalized if they do not meet the analyst’s expectations.

Even though the analysts are not penalized for being wrong, they work very hard at being right.  They pay very close attention to the companies they follow and to the industry of each of those companies.  For analysts following gaming, one of the most important pieces of information they use is the gross gaming revenue by jurisdiction as it is published by each state.  Every state with casinos publishes monthly gross gaming revenue numbers, some jurisdictions also publish the gross revenue of individual companies while some do not.  Nevada is one of the states that does not publish gross gaming numbers by individual casinos or individual casino companies.  However, because Nevada is the largest domestic gaming market and because almost all of the major publicly traded gaming companies have a presence on the Las Vegas Strip, the analysts pay very close attention to the Strip.

In fact, many times the results for the Las Vegas Strip will be used to predict the gross earnings and profits for all major gaming companies and it will be used to predict trends in the stock prices of all gaming companies.  However, Nevada’s position as a benchmark, a predictor for the entire gaming industry, is slipping; Nevada is being replaced by Macau.

Macau is replacing Nevada for the same reasons that Nevada became so important to Wall Street – if publicly traded gaming companies with casinos in Macau do well in Macau, the quarter for those companies will be good. Macau constitutes a majority of revenue and profit for Wynn, Sands, MGM and Melco.  Wall Street has as many analysts, if not more, watching Macau as it has watching the Strip.  For Wall Street, Macau is now the true center of the gaming industry.

However, Macau is adding a new twist to the game of analyzing the gaming industry.  In the United States the analysts get jurisdictional results monthly.  In Macau they can get numbers weekly.  That means that week by week, we are treated to analyst predictions on the gross gaming revenues for the month; each week they reexamine and update their predictions for the month based on the activity of most recent week.  In addition to the revenue updates, the analysts take every announcement, and there are many, by the governments of Macau and China and turn those announcements into revenue predictions. It is an overwhelming, and in the opinion of many, meaningless, amount of updates and predictions.

Annoying as the forecasts and updates can be, it is no different than all of the forecasting and updating that characterizes Wall Street.  We would get the same thing on any major industry or company if there was the same amount of information available.  That intensity of focus on the present is why Wall Street is said to have a negative influence on the way companies do business.  Everything and everyone is focused on the current quarter’s results and obtaining maximum revenue gains and profits.  Analysts do not focus on long-term growth and sustainability which means investors do not focus on it either.  Individual companies focus on the same things as Wall Street’s analysts.  Watching Wall Street watch Macau is just watching Wall Street; except it is watching Wall Street on steroids.

Wells Fargo Securities senior analyst Cameron McKnight says in a note that he has lowered his estimate of year-on-year growth this month to between 14 percent and 17 percent from between 17 percent and 21 percent. He says average daily gaming revenue in the week ended July 21 was $105.4 million, 9 percent less than the week before.  Macau Business, 7-23-13

Macau gaming revenue has slowed for the second consecutive week this month say analysts, causing them to downgrade the year-on-year growth potential for July. Kenneth Fong of J.P. Morgan in Hong Kong estimated the daily revenue take market-wide in the city’s casinos had slipped to 842 million patacas (US$105.4 million) for the week to July 21 inclusive. That was 16 percent down on the one billion patacas daily run rate achieved in the first seven days of the month. “If we assume daily revenue for the rest of the month of 930 million patacas, then July should end at around 28.7 billion patacas, for 17 percent year-on-year growth, lower than our previously estimated 21 percent year-on-year growth,” said Mr Fong. Macau Business Daily, 7-24-13


1 Response to “Wall Street on Steroids in Macau”

  1. 1 Lynne Rosner July 24, 2013 at 3:49 pm

    This was approved in 2007, where have I been? A Disseminating company .. has a nice ring to it. There’s a time lag in the gamble in Las Vegas now due to the sun setting in the east in Macau. Ha ha.

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