Las Vegas Sands Stock Is A Steal

The proposed change in Macau’s gaming law and increased regulatory oversight, along with the prolonged slump due to the coronavirus crisis, has led to a 50% decline in Las Vegas Sands’ stock (NYSE: LVS). Notably, Sands’ current market capitalization of $27 billion is a little more than Draft Kings’ (NASDAQ: DKNG) $20 billion. While the sports betting and iGaming industry in the U.S. is likely to top $40 billion at maturity, Flutter Entertainment’s FanDuel’s 40% market share makes Draft Kings a second choice for punters. Moreover, multiple sports betting applications including bet365, HardRock Café, BetMGM, Barstool, and William Hill, indicate high competitive rivalry in the nascent industry. Considering Las Vegas Sands’ higher profitability, sizable dip in market capitalization, and effective cost control measures during the pandemic, Trefis believes that it is a better pick over Draft Kings. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis, Las Vegas Sands vs. Draft Kings: Industry Peers; Which Stock Is A Better Bet? (related: Amid Sports Betting Frenzy, Consider Las Vegas Sands Over Draft Kings?)

1. Revenue Growth

Draft Kings’ growth has been much stronger than Las Vegas Sands in the last two years, with DKNG’s revenue expanding at a rate of more than 50% per year from $226 million in 2018 to $614 million in 2020, versus Las Vegas Sands’ revenues at an average rate of 4% per year from $12.7 billion in 2017 to $13.7 billion in 2019, which subsequently declined by 73% to $3.6 billion in 2020. In March, Sands announced the sale of its Vegas property, which accounts for almost 15% of the total revenues.

• Before the pandemic, Sands’ Macau, Vegas, and Singapore properties accounted for 63%, 15%, and 22% of total revenues, respectively. The company’s Macau business was observing strong growth assisted by new property openings, mass-market gaming wagers, and rising tourist inflow. With property closures impacting finances, Sands completely shifted its focus on its Asian properties by announcing the sale of its Vegas property during the first quarter.
• However, the proposed changes in Macau’s gaming law about increased regulatory oversight even for dividend payouts is a headwind for Sands, considering its long-term growth plans associated with Asia and particularly Macau.
• Draft Kings’ Online Gaming, Gaming Software, and Other segments contribute 84%, 12%, and 4% of total revenues, respectively. In the past two years, the average monthly unique players (MUP) and average revenue per monthly unique player (ARPMUP) have grown by 47% and 65%, respectively, resulting in strong revenue growth.
• While the conventional casino industry observed a contraction from restriction measures and intermittent lockdowns during the pandemic, Draft Kings online casino reported strong growth numbers.
• Per an analyst presentation, Draft Kings expects to achieve a 20-30% share of the $21 billion sports betting market and 10-20% of the $18 billion iGaming market at maturity. Thus, the company’s revenues could reach nearly $5 billion in the long run.

2. Returns (Profits)

Being a three-decade-old company and a leading integrated resort operator, Sands is a well-established brand with a consistent capital return policy. The company’s 20% net income margin has been key to regular dividend payouts. On the contrary, Draft Kings is currently on a growth trajectory with top-line expansion and market share capture as key focus areas.

• In 2019, Sands reported $13.7 billion of net revenues and $3 billion of operating cash flow – indicating an operating cash flow margin of 22%. Moreover, the company returned $3 billion as dividends to shareholders.
• Draft Kings reported $614 million of revenues and an $844 million net loss in 2020. The company burned $338 million of operating cash and raised capital from equity issuances.

3. Risk

Per recent filings, Sands reported $14 billion of long-term debt, $3 billion of total equity, and $20 billion in total assets. Whereas, Draft Kings does not have long-term debt obligations on its balance sheet. Instead, DKNG reported $2.2 billion of total equity and $4.4 billion of total assets which include $2.6 billion of cash and $1.1 billion of intangibles & goodwill.

• Despite a prolonged slump due to the coronavirus crisis, Sands has not incurred sizable impairment charges. Moreover, the company’s cost control measures limited operating cash burn to just $1.3 billion in 2020 and $105 million in H1 2021.
• Thus, Sands’ $12 billion of property & equipment on the balance sheet is likely to provide strong returns as the business in Macau and Singapore returns to normal. As highlighted in our previous article, Should You Bet On Las Vegas Sands Stock After The Historic Announcement?, Sands’s Singapore and Macau properties generate an EBITDA margin of 54% and 36%, respectively.
• Draft Kings’ balance sheet comprises more of cash and intangible assets. Thus, the stock’s current market capitalization is linked to expectations of long-term revenue growth and profitability.
• Considering Sands’ strong cost control measures, low cash burn rate, and high historical asset returns, it looks like a safer bet over Draft Kings.