Macquarie's outlook on the U.S. gaming industry remains cautiously optimistic, bolstered by strong performance among slot suppliers and core casino customers. However, challenges such as declining visitation, hotel performance, and regulatory risks loom ahead.
Following over 20 discussions at the Global Gaming Expo (G2E), analyst Chad Beynon and his team maintained a positive stance on the approximately $175 billion regulated U.S. gaming market, especially in the land-based slot segment. The bank highlighted robust consumer demand, stable regional trends, and ongoing support from primary customers despite overarching economic uncertainties.
Slot suppliers have emerged as the most promising growth sector. Macquarie anticipates that the gross gaming revenue from slots will reach $104 billion by 2026, reflecting a 4% annual increase. This growth is expected to be driven by gaming operations outpacing machine sales and a 4% rise in leased revenue. Discussions at G2E frequently mentioned new gaming cabinets, premium offerings, and expanded distribution across both physical and digital platforms.
For instance, Light & Wonder showcased how AI has significantly reduced the time required to adapt games for different platforms, from several weeks to just 17 hours. This aligns with the company's earlier strategy to enhance development speed and game adaptability across various channels.
Recent financial results further substantiate the positive outlook for suppliers. Gaming Operations revenue surged by 18% in the second quarter, accompanied by the addition of 652 premium units. Although machine sales were less robust, management attributed this to timing issues, indicating that shipments are expected to pick up in the latter half of the year.
Similarly, Aristocrat reported growth driven by new cabinets, premium products, and digital distribution. The company is optimistic that its expanding content pipeline and increasing premium installed base will lead to greater market share, with Aristocrat Interactive offering another growth opportunity.
While the supplier narrative is less reliant on a general consumer recovery compared to other industry segments, it remains contingent on consumer spending and casino investments in their gaming floors. Suppliers, however, have a broader range of growth strategies even if visitor numbers remain low.
Conversely, Las Vegas presents a more complex scenario. Macquarie noted a 0.9% year-over-year decline in visitation, alongside a 6.9% drop in revenue per available room (RevPAR) on the Strip. Despite this, operators described gaming fundamentals as stable, attributing the weaker property performance to seasonal factors such as summer heat and increased international travel.
The modest decline in visitation masks significant fluctuations between the two months analyzed: data from the Las Vegas Convention and Visitors Authority (LVCVA) revealed a 2.7% increase in July, followed by a 4.3% decrease in August. In August, hotel occupancy fell by 3.4 percentage points, and RevPAR decreased by 11.5%.
Despite the visitation drop, Strip gaming revenue saw a rise in both months, with increases of 3.6% in July and 0.7% in August. Over the first eight months of the year, visitation remained nearly unchanged while Strip gaming revenue grew by 2.9%.
Second-quarter results painted a similarly mixed picture. Caesars reported lower revenue and EBITDA in Las Vegas, while Boyd also experienced a downturn in its Las Vegas operations. In contrast, MGM reported growth in Strip resort revenue and adjusted EBITDAR, even as room revenue and RevPAR fell. Wynn's Las Vegas EBITDAR decreased, although casino revenue saw a slight uptick.
This indicates that while gaming has performed better than the hotel and tourism sectors in Las Vegas, results have varied significantly among operators.