The share price of Crown Resorts Ltd (ASX: CWN) is today 21% below its 12-month high and yet few analysts consider it a buy.
What's Happened?
The fall has been primarily a result of the recent poor performance of the company's Asian growth vehicle Melco Crown, which is listed in the US and Hong Kong and which Crown holds a 33.4% stake in.
The plunge in Crown's share price appears reasonable as gambling revenue in Melco Crown's primary area of operation, Macau, declined 37.4% in the second quarter (year-on-year), however I read an interesting article from our US team of Fools at Fool.com, which detailed what's happening in Las Vegas and it is making me re-think what could happen in Macau.
Change of the Guard
Las Vegas used to be about which casino could draw in the most gamblers with enticing cheap accommodation and all-you-can-eat buffets, however as our colleagues rightly point out "gaming revenue is down 7.3% from it annual peak in 2007 and there's no indication that gambling is going to grow significantly in the future".
What's happening is that Las Vegas is successfully turning itself into an entertainment mecca, as opposed to a gambling mecca. I imagine this transformation has happened slowly over time and Australians would remember the advertisements over the years for Elton John, Cher or Jennifer Lopez who would play 'seasons' in Las Vegas casinos.
Not Just Gambling
My colleagues go on "it may seem like the loss of gaming revenue would be a death knell for casinos, but innovative companies have found ways to adapt to a changing market." The Macau market also appears to be changing, the days of VIPs using the destination (potentially) as a way to launder money could be giving way to the region becoming an entertainment hub for Asia's middle class.
And guess what? Just like in Vegas, where DJs are becoming the major drawcards, Melco Crown is leading the charge by opening its entertainment-focussed and Hollywood-inspired Studio City project in October with a number of points of difference.
Here are some of Studio City's attractions:
– Asia's highest Ferris wheel
– a flight simulation ride with Batman flying through Gotham City
– a 3,700 square meter indoor play centre with rides featuring DC Comics characters including Daffy Duck and Bugs Bunny.
– a 5,000-seat entertainment complex.
– Pacha Macau, an Ibiza-inspired nightclub hosting "astounding resident DJs every week and special events with the world's biggest names at the decks"
– The House of Magic – "a land of mind-bending magic – curated and hosted by the world famous illusionist, Franz Harary"
Overall, the lineup sounds pretty enticing and, although not entirely unique, is well positioned to capture the holiday spend of Asia's mass-market. The problem for investors is that there will probably be another two or three quarters of bad results before Crown sees any solid and meaningful results from Studio City, making an investment now as risky as ever.
