Melco Resorts (MLCO) Q2 2026 earnings review
Macau Weakness Masks Underlying Profit Decline
Melco's Q2 headline Net Income grew 32% YoY to $22.7M, but this is an accounting illusion driven by the absence of a massive $45M property impairment charge taken a year ago. Operationally, the business is reversing. Total revenue fell 6% to $1.25B, and Adjusted Property EBITDA plunged 20% YoY to $303.8M. The flagship City of Dreams in Macau bore the brunt, with EBITDA collapsing 34.5% due to softer rolling chip and mass table performance. While operations in Cyprus accelerated and the company aggressively repurchased stock ($120M), the core Macau engine is facing severe competitive headwinds and undeniable margin compression.
🐂 Bull Case
Cyprus operations (City of Dreams Mediterranean) accelerated, with Property EBITDA surging 60% YoY to $19.9M as regional travel disruptions eased. Manila also proved stable despite localized macro challenges.
Management continues to utilize cash for shareholder returns, buying back $120.6M of equity in recent months, supported by a healthy $2.8B in available liquidity.
🐻 Bear Case
City of Dreams (Macau) saw a 34.5% EBITDA decline on just an 11% revenue drop, exposing severe negative operating leverage and indicating intense competitive promotional environments.
Studio City's mass market table drop fell to $884.1M from $958.2M YoY, reversing prior growth trends and signaling a potential loss of market share.
⚖️ Verdict: 🔴
Bearish. The abrupt reversal from double-digit EBITDA growth in Q1 to a 20% decline in Q2 is alarming. The core Macau properties are bleeding margins, and while international assets are performing well, they are too small to offset the flagship's deterioration.
Key Themes
City of Dreams Margin Collapse
Reversing. The flagship City of Dreams Macau is the biggest drag this quarter. Adjusted EBITDA collapsed from $225.6M in 25Q2 to $147.8M in 26Q2 (-34.5%). Revenue dropped 11%, meaning profitability is falling at triple the rate of top-line sales. Mass market table hold compressed (29.8% vs 30.5% YoY), and rolling chip win rate dropped from 3.93% to 2.71%, severely impacting flow-through.
Headline Net Income Contradicts Operational Reality
A casual glance at Net Income shows a 32% YoY increase (from $17.2M to $22.7M). However, this directly contradicts the 20% drop in Adjusted Property EBITDA. The only reason Net Income rose is because 25Q2 results were burdened by a massive $44.9M 'property charge and other' line item (tied to prior impairment of Mocha clubs). Operationally, the business generated significantly less cash this quarter.
Cyprus Rebounding from Geopolitical Headwinds
Accelerating. City of Dreams Mediterranean and other Cyprus satellite casinos flipped the script. As regional travel disruptions from broader Middle Eastern macroeconomic and geopolitical events eased, Property EBITDA grew 60% YoY ($12.4M to $19.9M). Mass market drop and gaming machine handle both increased steadily, proving the asset's underlying demand.
Extreme VIP Win Rate Volatility in Cyprus
While mass gaming saved Cyprus, the VIP rolling chip segment exhibited wild volatility. The win rate was a staggering negative 29.66% in Q2 2026, compared to a positive 7.28% a year ago. Management cited very low gaming volumes ($0.1M) as the reason, but it highlights the extreme unreliability of this segment.
New Product Catalyst: 'REM' Hotel Launch
To combat the stagnation in Macau, management is executing a phased opening of its new hotel, 'REM', starting in the third quarter of 2026. This physical product innovation is critical for recapturing high-value visitation and refreshing the property's appeal against aggressive competitors launching newer capacity.
Manila Shows Resilience Despite Macro Pressure
Stable. City of Dreams Manila delivered a slight YoY EBITDA increase ($30.9M vs $28.4M) despite broader macro challenges in the Philippines. This was heavily supported by an exceptionally high rolling chip win rate of 3.67% (vs 2.05% YoY) and an elevated machine win rate of 5.0%, which successfully offset a 50% plunge in rolling chip volume.
Other KPIs
Decelerating. Dropped from $958.2M YoY. This is highly problematic because Studio City is primarily a mass-focused property. A decline in drop indicates fewer players or lower spend per player, raising questions about market share bleed.
Stable and strong. The company successfully extended its MN1 2020 Revolving Facilities maturity from April 2027 to June 2031, removing near-term refinancing risk. Total debt stands at $7.05 billion.
Accelerating from a low base ($0.8M YoY). Benefited from improved mass market drop ($134.0M vs $119.0M YoY) and a slightly better hold percentage, though it remains a minor contributor to the overall portfolio.
Guidance
Stable structural target across all major properties. This quarter, City of Dreams Macau missed the bottom end of this range (2.71%), significantly hurting profitability, while Manila overshot it (3.67%).
Aggressive. Management utilized approximately $120.6M between April and August 2026, buying back 22.4M ADSs. The large remaining authorization implies management views the equity as deeply discounted and will continue to provide a floor for the stock.
Key Questions
Macau Reinvestment and Margins
City of Dreams EBITDA dropped 34% on an 11% revenue decline. Is this severe margin compression primarily driven by increased promotional allowances and reinvestment rates to defend market share against competitors?
'REM' Hotel Ramp Expectations
With the new 'REM' hotel commencing its phased opening in Q3 2026, what are the expected operating costs during the ramp-up phase, and how quickly do you anticipate it will become accretive to property EBITDA?
Studio City Mass Market Weakness
Mass market table drop at Studio City fell nearly 8% YoY. Are you seeing structural shifts in customer preferences, or is this entirely a function of targeted competitive supply?