Melco Resorts Q1 Results: Macau Momentum Amid Global Challenges

Melco Resorts & Entertainment (NASDAQ: MLCO) delivered mixed results for its first quarter of 2025, reporting an adjusted EPS of $0.08 per ADS, matching the FactSet estimate of $0.08. While revenue grew 10.8% year-over-year to $1.23 billion, the company’s performance was uneven across its global portfolio, highlighting both strengths in Macau and vulnerabilities in key international markets.

Macau Dominates, but Manila Struggles

The star of Melco’s Q1 performance was its Macau operations, where Property EBITDA surged 32% quarter-over-quarter to $341 million, driven by record mass market activity. CEO Lawrence Ho emphasized that Macau’s daily mass drop hit a new high, with monthly growth throughout the quarter. Mass table games drop rose 7.4% year-over-year to $1.59 billion, while rolling chip volume at City of Dreams Macau jumped to $6.05 billion, fueled by a 3.74% win rate—well above the 2.23% in Q1 2024.

The strategic repositioning of Studio City to focus on premium mass and mass segments also paid off, with EBITDA climbing 10.7% to $97.3 million, despite flat mass table drop. Improved hold percentages (32.8% vs. .5% in 2024) and the transfer of VIP rolling chip operations to City of Dreams Macau reduced operational complexity and boosted profitability.

However, Melco’s international markets faced headwinds:
- City of Dreams Manila reported a 17.8% year-over-year decline in EBITDA to $30.1 million, as increased competition in the Philippine market drove mass drop down 20.4% to $145.5 million.
- City of Dreams Mediterranean (Cyprus), despite geopolitical risks, saw revenue grow 11.6% to $58.5 million, with rolling chip volume rising to $11.9 million.

Financial Health and Strategic Moves

Melco’s liquidity remains strong, with $3.27 billion in available cash and credit facilities, despite total debt of $7.16 billion. The company repurchased $165 million of its shares under its $500 million buyback program, signaling confidence in its valuation. Capital expenditures of $97.4 million were directed toward Macau property enhancements and preparations for its upcoming City of Dreams Sri Lanka casino, expected to launch in Q3 2025.

Key Risks and Challenges

While Macau’s mass market resurgence is encouraging, several risks loom:
1. Macau Regulatory Uncertainty: Amendments to the gaming law, effective April 2024, introduce licensing and operational challenges that could disrupt the sector’s recovery.
2. International Market Volatility: Manila’s declining performance and Cyprus’ geopolitical instability underscore the need for ongoing cost management and innovation.
3. Industry Sentiment: The gaming sector ranks in the bottom 41% of Zacks’ 250+ industries, and Melco carries a Zacks Rank #4 (Sell) due to unfavorable earnings estimate revisions. Analysts project only $0.11 EPS for FY2025, reflecting skepticism about sustained growth.

Investor Considerations

• Near-Term Risks: The Zacks Sell rating and weak industry positioning suggest caution. Investors should monitor EPS revisions and Manila’s ability to stabilize.
• Long-Term Opportunities: Macau’s structural shift toward mass tourism and non-gaming revenue (e.g., hospitality, entertainment) could support growth. The Sri Lanka project, once operational, may unlock new revenue streams, though execution risks remain.
• Valuation: Despite a 10.8% stock gain over the past month, Melco’s YTD decline of 2.6% lags the S&P 500’s -4.3%. The stock’s P/E ratio, while not explicitly provided, appears compressed given its cash flow and repurchase activity.

Conclusion

Melco Resorts’ Q1 results underscore its ability to capitalize on Macau’s post-pandemic recovery, but its global footprint exposes it to regional headwinds. While the stock’s technical and analyst sentiment remain cautious, the company’s $32.5 million net income, robust liquidity, and strategic investments in Macau and Sri Lanka position it to weather near-term turbulence.

Investors should focus on two critical factors:
1. Macau’s Sustainability: Can mass market momentum and non-gaming revenue diversification offset any future slowdowns?
2. Execution in New Markets: Will Sri Lanka’s casino launch (Q3 2025) deliver anticipated returns, and can Manila stabilize its performance?

For now, Melco remains a high-risk, high-reward bet for investors willing to bet on Macau’s enduring appeal and the payoff of strategic bets in emerging markets.

Disclosure: This analysis is for informational purposes only and does not constitute investment advice.