Mid-cap Lodging company Melco Resorts & Entertainment is down -2.8% during this afternoon's trading session, while the S&P 500 moved 0.0%. With last year's reported gross margins at 16.9%, you might be wondering if today's drop is an opportunity to pick up shares of a profitable company at a discount.
Gross margins give insight into the basic economics of the company' product line and its pricing power in the target market, yet it's essential to balance this with a review of Melco Resorts & Entertainment's operating margins. Operating margins take into account the company's fixed overhead costs, in addition to the cost of revenue used to calculate gross margins.
Is Melco Resorts & Entertainment plagued with bloated overhead expenses that are eating away at an otherwise profitable business? Or is the company currently unprofitable because it is in a growth phase? A combined analysis of both gross and operating margins can help answer these questions, so that you understand what kind of business you are investing in.
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 971,670 | 807,485 | 16.9 | -34.67 |
| 2021-12-31 | 2,012,356 | 1,491,773 | 25.87 | 135.82 |
| 2020-12-31 | 1,727,923 | 1,538,402 | 10.97 | -70.02 |
| 2019-12-31 | 5,736,801 | 3,637,915 | 36.59 | n/a |
Melco Resorts & Entertainment's gross margins are currently in the green, but this might not be the case for long. Since its cost of revenue is growing at a rate of -31.4% compared to -35.8% for its revenues, its gross margins have been shrinking -17.6% on average each year.
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 971,670 | 623,360 | -47.26 | -64.67 |
| 2021-12-31 | 2,012,356 | 1,098,034 | -28.7 | 47.27 |
| 2020-12-31 | 1,727,923 | 1,130,078 | -54.43 | -517.73 |
| 2019-12-31 | 5,736,801 | 1,351,208 | 13.03 | n/a |
The table above tells us that, on average, Melco Resorts & Entertainment has not been profitable over the last four years, which should be a warning sign to prospective investors. Indeed, the company's operating margins are sinking at rate of -18.6%
