Shares of Macao casino operator Melco Resorts and Entertainment (MLCO -0.68%) 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.
