Wynn Resorts Strategic Analysis: SWOT and Growth Strategy

Introduction and Financial Overview

The combined effects of an aggressive new resort development strategy, continued partnering with the Chinese government to stabilize and grow the investment in Macau, and the continual refining of existing properties have led to FY2010 being a year of significant turnaround for Wynn Resorts Ltd. (WYNN). With $1.5 billion in current assets and $160 million in net income, the company is in an excellent position to grow profitably over time. Despite this impressive turnaround in financial performance — also reflected in the financial ratio analysis shown in Appendix A — Wynn still faces challenges globally, in the form of both potential opportunities and threats. The intent of this analysis is to define the company's strategic leadership issues, complete a SWOT analysis, and assess the suitability of the company's business strategy to its current situation. The analysis concludes with suggestions for improving Wynn's strategy given the constraints of environmental forces impacting the firm.

Analysis of Strategic Leadership Issues

The last five years have been very challenging for the company. Despite the difficult economic conditions of 2008 and 2009 that led to drastically reduced revenues and earnings, the company was able to significantly improve profitability. Appendix A shows the trends for all key financial ratios in the areas of liquidity, activity/operations efficiency, performance, profitability, financial leverage, and dividend performance. Most significant is the increase in operating margin before depreciation, which rose from a low of 17.3% in 2006 to an all-time high of 24.4% in 2010 (Yellig, 2011). This is due in part to the greater level of inventory turns achieved at the Macau and Las Vegas properties, according to the latest filings the company has made with the Securities and Exchange Commission (SEC), specifically the 10-Ks and 10-Qs (Yellig, 2011).

Operating cycles have also seen major improvement since the recessionary period of 2006, when they stood at 51 days, dropping to 27 days for the latest fiscal period. This indicates that the strategies of greater operational efficiency described in the case study are highly effective in converting accounts receivable into cash. It also signals that the occupancy problems the company faced in the past are being alleviated through more effective marketing and targeting of the high-end consumer (Cendrowski, 2009).

Another strategic leadership issue is the recognition by pricing and revenue management teams that the higher-end consumer is not price-elastic when choosing a hotel room at any of the properties. The rise in hotel room rates actually produced an increase in bookings and a higher per-guest spending rate compared to the previous recessionary periods, indicating that consumers are not driven by price at Wynn Resorts — they are driven by experience. This is a significant strategic finding because it further supports positioning the resort as offering a highly unique, luxurious experience rather than competing on price across luxury markets. The reliance on customer experience is critical for the successful positioning of any service business, as customers' expectations must be continually met and exceeded for the business to grow (Gopalani & Shick, 2011).

Wynn Resorts SWOT Analysis

The greatest strength the company has today is the turnaround in profitability, as shown in the operating margin, net profit margin, and significant increases in Return on Equity (ROE) and Return on Investment (ROI) in Appendix A. In conjunction with this financial strength, the company has been able to accumulate $1.5 billion in current assets (Yellig, 2011). Another strength is the customer loyalty from higher-end recreational gamblers and tourists who have higher per capita incomes and have proven to be driven less by price and more by loyalty to a given luxury brand (Cendrowski, 2009). Wynn Resorts has an innate strength in delivering a highly differentiated, unique customer experience that attracts the higher-end tourist and recreational gambler, the majority of whom are middle-aged and male (Cendrowski, 2009). This has been a powerful catalyst for the rapid growth in revenue and profitability in FY2010. An additional strength is the leadership of Steve Wynn, who has led the expansion into new markets including Macau. The company's relationship with the Chinese government represents a major strategic strength in the world of global gaming and resorts.

Despite the remarkable turnaround the company is experiencing — reflected in both its SEC filings and Appendix A — the company runs the risk of expanding too quickly. Key ratios based on analysis of the case study data and current SEC filings indicate that working capital per share is declining or at best flat-lining. This suggests the company is potentially in danger of expanding beyond its limits from an equity standpoint, which could dilute its stock over the long term. Another weakness is the lack of sufficient insight into its loyal customer base; specifically, there is not enough focus on analytics to better understand the dynamics behind why these customers are so price insensitive (Cendrowski, 2009).

Opportunities include continuing to invest heavily in the customer experience management strategies that are driving up occupancy rates and differentiating the brand relative to other luxury hotel and casino resort providers. The opportunity to further distance themselves from competitors through more effective customer experience management audits has proven to be highly effective in comparable industries (Gopalani & Shick, 2011). The most significant opportunity continues to be the conversion of the Macau property in 2017 to a continuing operation, capitalizing on the land investments already made. Macau is the Chinese Communist Party's experiment with a pure form of capitalism centered on casinos and gambling operations (Friess, 2004). Estimates from venture capitalists and industry experts report an increase of between 42% and 50% in casino and gambling revenues in Macau in the last year alone (Wall Street Journal, 2010). The Chinese government is clearly interested in this sector as a means of fueling economic growth (Wall Street Journal, 2010).

The threats are most significant in the area of global expansion. If the Chinese government chooses not to allow Wynn Resorts to continue operating after 2017, the financial cost and loss would be severe, potentially draining up to 18% of total revenues according to the latest SEC documents filed by the company. This would also expose the company to greater competition as it moves into Shanghai and other high-growth economic areas. Additionally, the company's equity positions relative to capital accumulation rates suggest that it could "overheat" its equity levels if the Chinese government chose to assume ownership. There is also the broader threat of another economic recession, which would depress revenues and compress margins as it did in 2008.

Conclusion

Gopalani, A., & Shick, K. (2011). The service-enabled customer experience: A jump-start to competitive advantage. The Journal of Business Strategy, 32(3), 4–12.

Macau gambling revenue tops forecasts. (2010, December 1). Wall Street Journal (Online).

Yellig, J. (2011, April). Wynn Resorts Q1 net income soars YOY. SNL Real Estate Weekly.