Melco Resorts (MLCO) Q4 2025 earnings review
Full-Year Growth Masks Q4 Profitability Squeeze
Melco reported strong full-year growth, with Group Property EBITDA up 17% to $1.43 billion. However, Q4 results revealed a sharp sequential slowdown. While revenue was up 9% YoY to $1.29 billion, it was down 1% from Q3. More concerning, Adjusted Property EBITDA fell 13% sequentially to $331 million, as margins compressed significantly from 29.2% in Q3 to 25.7% in Q4 due to higher operating costs. Persistent weakness in the Philippines, where EBITDA plummeted 42% YoY, also weighed heavily on results.
🐂 Bull Case
Despite a softer Q4, Melco's Macau operations were the clear growth engine for the full year. FY25 Macau Property EBITDA grew 25% to $1.23 billion, driven by successful property enhancements like the 'House of Dancing Water' relaunch.
The company demonstrated financial discipline by repaying $413 million in debt and repurchasing $165 million in shares during FY2025, actively strengthening its balance sheet while returning capital to shareholders.
🐻 Bear Case
Adjusted Property EBITDA margin collapsed by 350 bps sequentially to 25.7%. This reversal from a trend of steady expansion indicates significant cost pressures from promotions and events are taking a toll on profitability.
City of Dreams Manila remains a major weak spot, with Adjusted EBITDA plummeting 42% YoY and 20% sequentially. Management's note of a 'heightened competitive environment' signals persistent challenges for this asset.
⚖️ Verdict: 🔴
Bearish. The sharp sequential deceleration and severe margin compression in Q4 are major red flags that outweigh the positive full-year, backward-looking results. With guidance suggesting costs will remain elevated in Q1 2026, the path to restoring profitability is a key concern.
Key Themes
Profitability Squeezed by Rising Costs
The quarter's main story was the reversal in margins. Adjusted Property EBITDA margin fell sharply from a multi-quarter high of 29.2% in Q3 to 25.7% in Q4. This was foreshadowed in the Q3 earnings call, where management guided for higher Q4 operating expenses due to one-off events like the Studio City 10th anniversary and other promotions. The result indicates a potential end to the period of easy margin expansion seen during the recovery.
City of Dreams Manila Continues to Falter
Performance at the Philippines property went from bad to worse. Q4 Adjusted EBITDA was just $33.1 million, down 42% YoY and 20% sequentially. The company has cited a 'heightened competitive environment' for several quarters, but the financial deterioration is accelerating, making the asset a significant drag on the group's overall performance.
Altira's Persistent Losses Contradict Turnaround Narrative
Despite a strategy of closing smaller satellite casinos to consolidate business into core properties like Altira, the property's performance has worsened. Q4 Adjusted EBITDA was a loss of $3.5 million, a significant decline from a loss of just $0.3 million in Q4 2024 and a reversal from a small profit in Q2 2025. The strategy to revive this property has not yet shown results.
Macau Remains the Clear Growth Engine
While showing a sequential slowdown, Melco's Macau properties were the primary drivers of the strong full-year result. For FY2025, Macau Property EBITDA grew 25% YoY to $1.23 billion. The company invested heavily in strategic upgrades, including the successful relaunch of 'House of Dancing Water' (97% average occupancy since opening), the new Signature Club Clubhouse, and other gaming floor renovations that are driving visitation.
Deleveraging and Shareholder Returns
Management continues to actively manage its balance sheet. Gross debt was reduced by $413 million in FY2025. Simultaneously, the company has been active in its share repurchase program, buying back $165 million worth of shares during the year. This dual focus demonstrates a disciplined approach to capital allocation.
Other KPIs
Decelerating. Revenue growth has flattened, with Q4 sales down 1% sequentially from Q3 ($1.31B) and 3% from the Q2 peak ($1.33B). While still up 8.6% YoY, the sequential trend indicates that the initial post-COVID recovery momentum has stalled.
Full-year capital expenditures of $343.2 million came in significantly below the $415 million guidance provided at the beginning of the year. This underspend could be due to project timing or disciplined cost control on renovation projects at City of Dreams Macau and Studio City.
Available liquidity, including cash and undrawn credit facilities, ended the year at $2.38 billion. This is down from $2.6 billion in Q3 and $3.3 billion at the start of the year, reflecting cash used for significant debt repayments ($413M) and share buybacks ($165M) throughout 2025.
Guidance
Decelerating (profit impact). This implies an increase from the ~$31.5 million in corporate expenses incurred in Q4 2025. This suggests that cost pressures seen in the fourth quarter are expected to continue into the new year.
Stable. This range is in line with the $140.9 million recorded in Q4 2025, indicating no major changes in the company's asset base or depreciation schedules are expected in the near term.
Stable. The guided range is consistent with the $114.3 million in net interest expense from Q4 2025. Despite deleveraging efforts, the large outstanding debt balance keeps interest costs high.
Key Questions
Permanence of Higher Operating Costs
Q4 operating expenses were guided to be temporarily high due to one-off events. Will the daily OpEx run-rate revert to the ~$3.0M level seen in mid-2025, or is the higher Q4 level the new baseline for 2026?
Margin Compression Drivers
The 350 basis point sequential drop in property EBITDA margin was significant. Can management quantify how much of this was from temporary promotions versus a structural increase in reinvestment needed to defend market share?
City of Dreams Manila Turnaround Plan
With EBITDA down 42% YoY, what specific operational changes, beyond cost-cutting, are being implemented to stabilize the Manila property? What is the status of the previously announced strategic review for this asset?