Red Rock Resorts (NASDAQ:RRR), Inc. RRR is likely to benefit from digital initiatives, development projects and Las Vegas operations. Also, the company’s focus on cost-saving initiatives bodes well. However, a rise in COVID-related mitigation and carry costs are a concern.
Let us delve deeper.
Factors Driving Growth
Red Rock Resorts continues to make substantial progress toward cashless gaming. During third-quarter 2021, the company initiated field trials with IGT (at Red Rock and Green Valley branch properties) to introduce cashless payments on the slot floor. RRR intends to offer a single mobile digital wallet access for playing and paying purposes at each of its Las Vegas properties. Apart from this, the company entered into a partnership with GAN Limited (in October 2021) to build and deploy the next-generation infrastructure stations STN Sports online sports platform, mobile applications and retail over-the-counter and kiosk-based sports betting throughout Nevada. RRR stated that the product launch is subject to regulatory approvals.
Following a favorable decision from the California Supreme Court (in August 2020), Red Rock Resorts focused more on the North Fork development project. The cost of completion of this project, excluding any financing costs, is expected in the range of $350-$400 million. The company stated that the project is currently in the planning and budgeting stage. It has been focusing on the Durango development project. Located off the 215 Expressway and Durango Drive in Southwest Las Vegas Valley, the project would likely offer 73,000 square feet of casino space, 2,000 slots and 40 table games, a state-of-the-art sportsbook, 200 hotel rooms and four full-service food and beverage outlets. Currently in the planning and budgeting stage, the company expects to start the project by first-quarter 2022. It is optimistic about this development pipeline owing to the location and the absence of unrestricted gaming competitors (within a five-mile radius of the project site).
The company’s Las Vegas operations have been a key growth driver in the past few quarters, which is likely to continue in the coming quarters. The company is bullish on its long-term view owing to favorable supply-demand dynamic, positive long-term trends in population growth and a stable regulatory environment. Moreover, attributes such as best-in-class assets and locations, unparallel distribution and scale along with solid organic development pipeline are likely to add to the positives.
Red Rock Resorts continues to focus on initiatives, such as streamlining of operations, optimization of marketing initiatives and renegotiating vendor and third-party agreements to drive growth. The initiatives will not only support efficient production but also likely drive margins and free cash flow. Backed by the initiatives, the company expects to save more than $200 million in annual costs (compared with its pre-pandemic cost structure) in the upcoming periods.
Concerns
The coronavirus pandemic has affected the Gaming industry on a global scale. The easing of certain COVID-19 protective measures by authorities worldwide, travel restrictions, quarantine measures, testing requirements and capacity limitations remain in effect at certain regions. Apart from RRR, other industry players like Las Vegas Sands (NYSE:LVS) Corp. LVS, Wynn Resorts (NASDAQ:WYNN), Limited WYNN and Melco Resorts & Entertainment Limited MLCO have also been affected by the aftereffects.
Although Red Rock Resorts is witnessing increasing visitation by younger demographics, it is being largely negated by higher COVID-related mitigation costs (nearly $2.4 million) and carry costs associated with its closed properties (approximately $2.6 million) as of third-quarter 2021. The unprecedented nature of the crisis is likely to affect the company’s results going forward.
A Brief Review of the Other Stocks
Las Vegas Sands is quite confident about growth prospects in Macau and continues to invest in the same. Despite the pandemic, the company announced that it would progress with its $2.2-billion investments in Macau. Backed by these investments, the company aims to capitalize on the likely structural growth in Macau in the coming years to stay ahead of the curve in terms of quality and scale of products and amenities. It anticipates Macau to lead the recovery this year. The company also anticipates rapid vaccinations in Asia to drive growth in the days ahead. Four Seasons and Londoner will provide the company with growth opportunities.
Wynn Resorts is benefitting from improved non-gaming revenues and expansion in domestic markets. Also, focus on WynnBET bodes well. The company anticipates solid revenue generation on the back of new product features and a unique marketing campaign.
Melco Resorts has been benefitting from pent-up demand and cost-saving initiatives. MLCO has been working on Studio City Phase 2 in Macau. Going forward, the company anticipates the business to reach pre-pandemic levels as soon as travel restrictions are eased. Moreover, continued progress toward higher vaccination levels is likely to reopen the border and ramp up recovery.
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