Shares of Macao casino operator Melco Resorts and Entertainment (NASDAQ: MLCO) fell as much as 12.2% in trading on Tuesday after the company reported third-quarter 2023 financial results. At 1:45 p.m. ET today, shares were still down 11% and didn't show signs of recovery.
Melco Resorts underperforms in Macao
Revenue for the quarter increased from $241.8 million a year ago to $1.02 billion on the back of a recovery in Macao's gaming market overall. That didn't lead to net income, though, as Melco reported a loss of $16.3 million, or $0.01 per share. Analysts were expecting $1.03 billion in revenue and break-even earnings.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which is a proxy for cash flow coming from resorts and casinos, was $280.6 million in the quarter, up from a loss of $34.9 million a year ago. But the adjusted EBITDA margin was just 27.6%, lagging behind 29.3% in the third quarter of 2019 and well below competitors that are seeing margins of over 30% in many cases, coming out of the pandemic.
Debt becomes a big burden
Comparisons are tough given how far Macao had fallen late in 2022, but Melco Resorts has $7.77 billion of debt, and that's becoming a challenge given the company's current profitability. At the current adjusted EBITDA run rate, the multiple of debt to adjusted EBITDA is 6.9, which is very high for a casino company amid rising interest rates.
Investors clearly want to see better margins from Melco Resorts, and until that happens, the stock could be stuck in the mud.
10 stocks we like better than Melco Resorts & Entertainment
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Melco Resorts & Entertainment wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of November 6, 2023
Travis Hoium has positions in Melco Resorts & Entertainment. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
