Macau's Recovery Accelerates: Will Melco's Top Line Keep Up?
Melco delivered a strong performance in the first quarter, beating revenue and earnings estimates. The company benefited from a sharp rise in visitation during peak travel periods, such as Golden Week, reflecting a renewed momentum in tourism in Macau. Strong demand in the mass gaming segment lifted table drop volumes at its flagship properties, City of Dreams and Studio City. But as investor optimism returns, the key question is whether this top-line strength is sustainable. CEO Lawrence Ho emphasized that recent gains are not just recovery-driven but also the result of operational improvements, like property renovations and the relaunch of 'House of Dancing Water.' These moves are helping to differentiate Melco's offerings and tap into China's shifting consumer preference for experiences over luxury retail. Still, high-end shopping remains a drag, especially at City of Dreams, while Studio City's more mass-focused retail has performed better.Another tailwind is China's current pro-consumption policy environment, which supports domestic tourism and discretionary spending. Yet challenges loom. Non-Macau assets, such as Manila, face a tougher competitive landscape, prompting cost revisions and strategic reviews. Furthermore, while Macau gaming spend shows resilience, the broader recovery could be vulnerable to macro headwinds and shifts in policy.Melco's top line looks stable with further gains in first-quarter 2025. However, sustaining this momentum long-term will hinge on disciplined reinvestment, further diversification of non-gaming revenues and navigating regional volatility. The company's strong liquidity and ongoing buybacks provide a cushion, but investors should keep an eye on execution risk and competitive pressures as the post-recovery phase matures.
As Melco rebuilds momentum in Macau, it faces growing competition from other U.S.-listed operators with deep pockets and established brand power, namely, Wynn Resorts WYNN and MGM Resorts MGM. Wynn, with a stronghold in the premium segment, continues to attract high-end clientele through its luxury positioning and high-quality service at Wynn Palace and Wynn Macau. Its emphasis on mass premium and operational discipline could challenge Melco's efforts to retain its share among affluent travelers.Meanwhile, MGM China has been aggressively expanding its market share, recently surpassing 17% thanks to the strong mass-market appeal and rising contributions from non-gaming segments. MGM's alignment with local policy, especially its focus on family-friendly, non-gaming attractions, mirrors Melco's diversification strategy, intensifying the rivalry.As all three push forward in a more rational, cost-conscious environment, maintaining top-line growth will depend on differentiated offerings, operational excellence and effective targeting of the evolving consumer of China.
Shares of MLCO have gained 84.8% in the past three months compared with the industry's growth of 40.3%.
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MLCO's current valuation looks promising for investors. The stock is currently trading at a discount compared with the industry peers, with a forward 12-month price-to-sales ratio of 0.73X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for MLCO's 2025 and 2026 earnings implies a year-over-year uptick of 52.6% and 56.3%, respectively.
Image Source: Zacks Investment Research
Melco currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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